QUESTION ONE

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.

OverheadsAnnual CostsActivity DriversNumber of Activities

K

Supervisors90,000Site Visits500

Planners70,000plannining documents250

Property related240,000Labour hours40,000

Total400,000

A typical GC costs K3,500 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 K8,000 in materials and takes 500 hours to complete. An EX requires six site visits and ve planning documents. In all cases labour is paid K15 per hour.

Required

A.Calculate the cost and quoted price of a GC and of an EX using labour hours to absorb the overheads.(8 Marks)

Brick by Brick

Costs and quoted prices for the GC and the Ex using ABC to absorb overheads;

GC

EX

$

$

Materials

3,500

8,000

Labour:

300hours x $15/hr

500hours x $15/hr

4,500

7,500

Overheads:(W2 & W3)

Supervisor

Planners

Property

180

280

1,800

1,080

1,400

3,000

Total Cost

10,260

20,980

Quoted price

15,390

31,470

Working 2:NumberCost per

Costsof driversdriver

Supervisor90,000.00500180

Planners70,000.00250280

Property240,000.0040,0006

Working 3:

SupervisorPlannerProperty

Cost per driver (W2)1802806

GC180 x1 = 180280 x 1 = 280300 x 6 = 1,800

EX180 x 6 = 1,080280 x 5 = 1,400500 x 6 = 3,000

B. Calculate the cost and the quoted price of a GC and of an EX using ABC to absorb the overheads.(17 Marks)

QUESTION TWO

Alta Production, Inc., reported the following production costs for the 12 months January through December.

Reporting Period

(Month)

Total Production

Costs

Level of Activity

(Units Produced)

K

January

460,000

300

February

300,000

220

March

480,000

330

April

550,000

390

May

570,000

410

June

310,000

240

July

440,000

290

August

455,000

320

September

530,000

380

October

250,000

150

November

700,000

450

December

490,000

350

Required

A. Using this information, define the cost function using regression analysis.(17 Marks)

Y = a + bx

B. Assume Alta Production, Inc., will produce 400 units next month. Calculate total production costs for the month.(3 Marks)

C. Accepting that the coefficient of determination arising from the data given in the question is approximately 0.86, interpret the significant of this fact.(5 Marks)