On average, the annual sales information per market segment for the past full 12-month year were:

Total number of jets in fleet Total number of service contracts annually.

Large Commercial 300 12

Medium Commercial 150 18

Small Corporate 15 48

Small private 3 165

The Division had established a competitive service contract price of $10,000,000 per large commercial contract and $4,000,000 per medium commercial contract. The service contract price was set at $1,250,000 per new small corporate contract and $400,000 per new small private contract.

The 1,200 highly-trained professional staff included the following 3 employee groups:

1. 600 Engineering staff (mechanical, electrical, and software engineers) Engineering staff were paid an annual salary of $120,000 plus an additional 25% in fringe benefits (health plan, pension);

2. 200 Documentation staff (technical and aeronautical professionals, professional pilots) Documentation staff were paid an annual salary of $95,000 plus an additional 20% in fringe benefits;

3. 400 General maintenance staff (pre-boarding cleaning, decontamination, stocking, fueling of aircraft) General maintenance staff were paid and annual salary of $60,000 plus an additional 15% in fringe benefits.

All staff worked 160 hours per person per month (over 20 days/month). This included an average of 2 hours per person per day of training, quality meetings, staff meeting, break times, etc., which were not production time. All staff worked on a rotating schedule such that the Division was able to maintain its commitment to 24/7 service (all day/year-round); in other words, the company operated during the entire 8,760 hours per year. The Division utilized state-of-the-art facilities and sophisticated equipment. These included hangars, towing trucks, specialty cranes, diagnostic equipment, computers, laser sensors, acoustic sensors, fueling depots and de-contamination devices, to name a few. In total, the facilities and equipment represented an annual expense of $145,000,000. The facilities operated non-stop throughout the year (for 8,760 hours).

Large Commercial Service Contracts

On average, each service contract required $300,000 of materials (parts), and $400,000 of direct labour, and the following consumption of resources by activities: (hours)

Engineering staff Documentation Staff General Maintenance Staff

Administration 90 100 200

Parts 275 50 100

Maintenance 16,000 100 200

Preparation 175 - 10

Inspection 750 8000 16,000

Facilities and Equipment usage was 120 hours for each large commercial contract.

Medium Commercial Service Contracts

On average, each service contract required $100,000 of materials (parts), and $150,000 of direct labour, and the following consumption of resources by activities: (hours)

Engineering Staff Documentation Staff General Maintenance Staff

Administration 90 90 180

Parts 275 50 100

Maintenance 8000 20 40

Preparation 90 100 10

Inspection 350 6000 12,000

Facilities and Equipment usage was 100 hours for each medium commercial contract.

Small Corporate Service Contracts

On average, each service contract required $25,000 of materials (parts), $50,000 of direct labour, and the following consumption of resources by activities: (hours)

Engineering Staff Documentation Staff General Maintenance Staff

Administration 90 80 160

Parts 275 100 200

Maintenance 3000 40 80

Preparation 35 - 5

Inspection 18 500 1000

Facilities and Equipment usage was 50 hours for each small corporate contract.

Small Private Service Contracts

On average, each service contract required $10,000 of materials (parts), and $15,000 of direct labour, and the following consumption of resources activities: (hours)

Engineering Staff Documentation Staff General Maintenance Staff

Administration 75 70 140

Parts 180 30 60

Maintenance 1700 8 15

Preparation 35 - 10

Inspection 15 100 200

Facilities and Equipment usage was 10 hours for each small private contract.

Q1) Assume the Division has entered into the two new market segments and that it uses its current traditional job costing system. Calculate the gross margin for each of the four market segments and for the Division for the past year.

Q2) Assume the Division uses a TDABC system. Reflecting on its impact on the profitability of the Division last year, provide one recommendation to address the issue of unused capacity. Clearly show your calculations of unused capacity.