Problem 8-12

Marx Conference Solutions specializes in the design and installation of meeting and conference centers for large corporations. When bidding on jobs, the company estimates product cost and direct labor for installers and marks up the total cost by 35 percent. On a recent job for Orvieto Industries, the company set its price as follows:

Product costs including podiums, seating, lighting, etc.		$175,700
Installer salaries		29,900
Total		205,600
Markup at 35 percent		71,960
Bid price		$277,560

The job turned out to be a big hassle. Orvieto requested 26 change orders, although the dollar value of the products it requested changed very little. The company also returned 34 items that had extremely minor flaws (scratches that were barely visible and would be expected in normal shipping). Orvieto also requested seven meetings with designers taking 38 hours before its plan was finalized. Normally, only two or three meetings are necessary. Alison Jackson, controller for Marx, decided to conduct a customer profitability analysis to determine the profitability of Orvieto. She grouped support costs into three categories with the following drivers:

Driver		Annual Value of Driver		Annual Cost
Change orders		904 change orders		$205,208
Number of returns		970 product returns		63,050
Design meeting hours		1,348 meeting hours		80,880

Marx Conference Solutions has decided to adopt an activity-based pricing scheme. On future jobs, the company will charge a 35 percent markup on the sum of product costs plus installer salaries. In addition, the company will charge $299 per change order, $86 per product return for products that are in excellent condition, and $87 per meeting hour with a Marx conference room designer. What would the profit be on the order from Orvieto? (Enter loss using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Profit / (Loss)

$