Question 4

Anthony Consulting Limited (ACL) provides consulting services to large public corporations. ACL is required to submit bids to potential customers in a competitive bidding process. ACL has two major cost categories, Professional Salaries and Support Services. ACL bids total cost plus 30% in an attempt to win all competitive contracts.

Professional Salaries are a direct cost and are determined based on the hourly rate of the specific consultants and the number of hours on each specific project. Hourly rates differ widely within ACL due to experience and expertise. Allocated Support Service costs are indirect costs and are allocated to projects based on the number of Professional Salary hours per project. Total Support Services Costs for the year were $3,360,000 and total Professional Salary hours were 24,000.

ACL is concerned about their current costing system as they are losing a number of bids that they feel are unwarranted. They are considering trying Activity Based Costing and have gathered the following information:

Support Services Costs can be further broken down into the following pools and related cost drivers as follows:

Overhead Type	Cost	Cost Driver	Total per Year
Pool A	$1,200,000	Travel Kilometers	960,000 kilometers
Pool B	$768,000	Number of Documents	384,000 Documents
Pool C	$1,392,000	Professional Labour Hours	24,000 Hours

Information concerning two competitive bids are presented below:

	Comp A3208	Comp A4201
DirectCosts
Professional Salaries	$45,000	$28,000
Professional Hours	400	260
Kilometers Driven	9,000	21,000
Number of Documents	5,500	7,200

Required

1. Calculate the cost of bids A3208 and A4201 and submitted bid price assuming ACL uses Professional Labour Hours to allocate Support Services Costs.
2. Calculate the rates to be used by ACL if they implement Activity Based Costing
3. Calculate the cost of bids A3208 and A4201 and submitted bid price assuming ACL uses ABC costing.
4. ACL was unsuccessful with one of the above two bids. Which bid do you think was unsuccessful? Explain.
5. Do you think ACL should adopt ABC Costing? Explain.