Question 2 Black and White (B&W) 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. B&W has a policy to price all jobs at budgeted total cost plus 52%. Overheads are currently absorbed on a labour hour basis. B&W 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. Overheads of Annual Costs RO 290,000 150,000 Property Related 490,000 Total 930,000 A typical GC costs RO 7,000 in materials and takes 600 labour hours to complete. A GC requires only one site visit by a supervisor and needs only one Activity Drivers Site Visits Blue Prints Labor Hours Activities Supervisors Planners Total Number of Activities Per Year 1000 650 80,000 planning document to be raised. The typical EX costs RO 16,000 in materials and takes 1000 hours to complete. An EX requires six site visits and five planning documents. In all cases labour is paid RO 30 per hour. Required with appropriate formulas: (a) Calculate the cost and quoted price of a GC and of an EX using labour hours to absorb the overheads. (b) Calculate the cost and the quoted price of a GC and of an EX using ABC to absorb the overheads. Give your comments.
Question 2 Black and White (B&W) 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. B&W has a policy to price all jobs at budgeted total cost plus 52%. Overheads are currently absorbed on a labour hour basis. B&W 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. Overheads of Annual Costs RO 290,000 150,000 Property Related 490,000 Total 930,000 A typical GC costs RO 7,000 in materials and takes 600 labour hours to complete. A GC requires only one site visit by a supervisor and needs only one Activity Drivers Site Visits Blue Prints Labor Hours Activities Supervisors Planners Total Number of Activities Per Year 1000 650 80,000 planning document to be raised. The typical EX costs RO 16,000 in materials and takes 1000 hours to complete. An EX requires six site visits and five planning documents. In all cases labour is paid RO 30 per hour. Required with appropriate formulas: (a) Calculate the cost and quoted price of a GC and of an EX using labour hours to absorb the overheads. (b) Calculate the cost and the quoted price of a GC and of an EX using ABC to absorb the overheads. Give your comments.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Question 2
Black and White (B&W) 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. B&W has a policy to price all
jobs at budgeted total cost plus 52%. Overheads are currently absorbed on a
labour hour basis. B&W 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.
Overheads of
Activity
Drivers
Site Visits
Blue Prints
Labor Hours
Activities
Supervisors
Planners
Annual
Costs RO
290,000
150,000
Property Related
490,000
Total
930,000
A typical GC costs RO 7,000 in materials and takes 600 labour hours to
complete. A GC requires only one site visit by a supervisor and needs only one
Total Number of
Activities Per Year
1000
650
80,000
planning document to be raised. The typical EX costs RO 16,000 in materials
and takes 1000 hours to complete. An EX requires six site visits and five
planning documents. In all cases labour is paid RO 30 per hour.
Required with appropriate formulas:
(a) Calculate the cost and quoted price of a GC and of an EX using labour
hours to absorb the overheads.
(b) Calculate the cost and the quoted price of a GC and of an EX using
ABC to absorb the overheads. Give your comments.
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