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 brice 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. Overheads of Activities Supervisors Planners Property Related Total Annual Costs RO 90,000 70,000 240,000 400,000 Activity Drivers Site Visits Blue Prints Labor Hours Total Number of Activities Per Year 500 250 40,000 A typical GC costs RO 3,500 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 RO 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 RO 15 per hour. Required: (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. Also comment it.
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 brice 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. Overheads of Activities Supervisors Planners Property Related Total Annual Costs RO 90,000 70,000 240,000 400,000 Activity Drivers Site Visits Blue Prints Labor Hours Total Number of Activities Per Year 500 250 40,000 A typical GC costs RO 3,500 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 RO 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 RO 15 per hour. Required: (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. Also comment it.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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 brice 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.
Overheads of
Activities
Supervisors
Planners
Property Related
Total
Annual
Costs RO
90,000
70,000
240,000
400,000
Activity
Drivers
Site Visits
Blue Prints
Labor Hours
Total Number of
Activities Per Year
500
250
40,000
A typical GC costs RO 3,500 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 RO 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 RO 15 per hour.
Required:
(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. Also comment it.
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