Nidhi Ltd is a company that designs and installs base stations for the telecoms

industry. The company currently set prices by adding a 50% mark-up to direct materials and direct

labour. As the management accountant at Nidhi Ltd, you have reservations about the pricing

method currently used and plan to use activity-based costing principles to quote for two contracts

from a telecommunications giant.

Attachment (a) gives information about the two potential contracts.

You have also done some initial work on ABC systems and have ascertained the information in attachment (b)

in relation to overhead costs and suitable cost drivers based on actual figures.

Contract A Contract B Direct Material 131,250 60,000 E Direct Labour 4,000 5,000 hours Direct Labour cost per 15 15 f hour Design time 800 1,600 hours Site Visits 5 15 Distance from office 10 80 Kilometers Purchase Orders 40 200 unitsActivity Site management Design offices Site supervisors travel Purchasing Cost 562,500 500,000 240,000 200,000 Cost Driver Direct labour hours Design hours Kilometres travelled No of purchases Cost driver units per annum 450,000 20,000 480,000 10,000