Question 21

Brick by Brick (BBB) is a building business that provides a range of building services to the public. Recently they have been asked to quote for garage conversions (GC) and extensions to properties (EX) and have found that they are winning fewer GC contracts than expected. BBB has a policy to price all jobs at budgeted total cost plus 50%. Overheads are currently absorbed on a labour hour basis. BBB thinks that a switch to activity based costing (ABC) to absorb overheads would reduce the cost associated to GC and hence make them more competitive. You are provided with the following data:

Overhead category Annual overheads Activity driver Total number of activity per

GHS Year

Supervisors 90,000 site visits 500

Planners 70,000 planning documents 250

Property related 240,000 labour hours 40,000

400,000

A typical GC costs GHS3,500 in materials and takes 300 labour hours to complete. A GC requires only one site visit by a supervisor and needs only one planning document to be raised. The typical EX costs GHS8,000 in materials and takes 500 hours to complete. An EX requires six site visits and five planning documents. In all cases labour is paid GHS15 per hour.

Required:

1. Calculate the cost and quoted price of a GC and an EX using labour hours to absorb the overheads.
2. Calculate the cost and the quoted price of a GC and of an EX using ABC to absorb the overheads.