QUESTION $3$

$20$ Marks

Brick by Brick $($BBB$)$ is a business which provides a range of building services to the public. Recently they have beenasked to quote for garage conversions $($GC$)$ and extensions to properties $($EX$)$ and have found that they are winningfewer 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, resulting in a budgeted total cost of R$11,000$ for each GC and R$20,500$ for each EX$.$ Consequently, the products are priced at R$16,500$ and R$30,750$ respectively.

The company is considering moving to an activity based cost approach. You are provided with the following data:

$\backslash$table$[[\backslash$table$[[$Overhead$],[$category$]],\backslash$table$[[$Annual$],[$overheads$]],$Activity driver,$\backslash$table$[[$Total number$],[$of activities$]]],[$per year,,,$]]$

A typical GC costs R$3,500$ in materials and takes $300$ labour hours to complete. A GC requires only one site visit bya supervisor and needs only one planning document to be raised. The typical EX costs R$8,000$ in materials and takes $500$ hours to complete. An EX requires six site visits and five planning documents. In all cases, labour is paid R$15$per hour.

Required:

$3\mathrm{.}1$ Calculate the cost and the quoted price of a GC and an EX using activity based costing $10$ marks$)$

$3\mathrm{.}2$ Assume that the cost of a GC falls by approximately $7\%$ and the cost of an EX rises by approximately $2\%$ as aresult of a change to ABC $.$

Suggest possible pricing strategies for the two products which BBB sells and suggest one reason other thanhigh prices for the current poor sales of the GC$.10$ marks$)$