Question 3 Costing & Pricing (20 marks)

Ginas jeans business uses a costing system for all customers who get a custom jeans made. The business uses a pre-determined indirect cost rate for allocating indirect costs/overheads to individual customers, with operating hours used as the cost driver. In August, the business had a budgeted allocation base of 500 operating hours. The budgeted business indirect overhead costs for August were $23,000. Customer Georg wanted to acquire a new custom jeans and visited the store for three hours during August. Other direct costs related to the three-hour session include $34 for the used materials, 30$/hour for labour, and $10 for other supplies.

Required:

1. Calculate the pre-determined indirect cost rate (PICR) the business used for August. (4 marks)

2. Calculate the total cost to the business for these sessions. (6 marks)

3. Assume the business applies a cost-based pricing model to set prices to customers, adding a mark-up of 25%. What price should Ginas jeans business charge Georg for his session and jeans? Explain your answer. (4 marks)

4. Volume-based cost drivers are no longer appropriate in todays business environment.

Is this statement true? Discuss and explain why you agree/disagree with this statement. (6 marks)

Please help with the above questions

Below is the example question with solutions just like the above one:

Question 3 Costing & Pricing 10 marks Heally Good Hospital uses a costing system for all customers who have surgery. The Hospital uses a pre-determined indirect cost rate for allocating indirect costs/overheads to patient visits, with operating hours used as the cost driver. In July, the Hospital had a budgeted allocation base of 1,000 operating hours. The budgeted Hospital indirect overhead costs for July were $66 000. Patient Peter Peters was in the surgery for four hours during July. Other costs related to Peter's four hour surgery include: Cost of therapist $250 Cost of products used $3,500 Other supplies Required: 1. Calculate the pre-determined indirect cost rate (PICR) the Hospital used for July? (2 marks) PICR Estimated Indirect Costs Estimated level of Cost Driver $800 PICR $66,000 1,000 operating hours = $66 per operating hour Page 6 of Direct Costs: Cost of therapist $250 Cost of products used $3,500 Other supplies $800 TOTAL $4,550 Indirect Cost: indirect cost rate x actual usage of cost driver $66 per operating hour x 4 operating hours = $264 Total Cost: = $4,550 + $264 = $4,814 3. Assume the Hospital applies a cost-based pricing model to charge prices to patients, adding a mark-up of 30%. What price should Heally Good Hospital charge Peter Peters' for his surgery? (2 marks) Cost $4,814 Markup $30% $4,814 x 1.3 $6,258.20 Question 4 Capital Investment Decisions 20 marks Crazy Joan's Mobiles is considering a new machine which will cost $10 000 in the current year, but will affect future cash flows as follows: Year Annual Inflows $2,000 Price 1 2 $3,000 3 $4,000 4 $5,000 5 $6,000 $7,000 6