Question 1 – Case Study Alpha Homes is a private limited company involved in specialist home improvements, with two (2) main products. These are: Garage Conversions (GC) and Extension to Properties (EX). Alpha Homes currently implements the full-costing absorption method in providing price quotes to customers. The company seeks to remain competitive and has an existing policy to price all jobs at budgeted total costs plus 50%. You are the new management accountant, and currently reviewing the cost records, for materials, labour and overheads. Table 1 indicates the expected costs of jobs in both product areas: Cost subheads Garage Conversion (GC) Extension to property (EX) Prices quotes (£) Units 10,000 25,000 Construction Materials (£) 3,500 8,000 Labour 5,500 6,500 Fixed overheads (£) 1,000 2,000 Variable overheads (£) 1,000 4,000 Table 2 below indicates the expected annual overhead cost for the overall business. overhead category (cost Pools) Annual Overheads(£) Activity Driver Total number of activities Supervisors 90,000 Site Visits 500 Planners 70,000 Planning documents 250 Property Administration 240,000 Labour hours 40,000 Total (£) 400,000 The annual usage of each overhead category for both products is indicated in table 3: Overhead Category (cost Pools) GC EX Supervisors visits 300 200 Planners documents 50 200 Property administration: Labour hours 25,000 15,000 Required: a. i) Define and calculate the marginal costs and throughput costs for each unit of GC and EX products, using the data in Table 1. ii) Calculate the selling price for jobs in both product categories using marginal and throughput costing. Using tables 2 and 3, calculate the annual overhead cost for each product category using activity-based costing.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Question 1 – Case Study

Alpha Homes is a private limited company involved in specialist home improvements, with two (2) main products. These are: Garage Conversions (GC) and Extension to Properties (EX). Alpha Homes currently implements the full-costing absorption method in providing price quotes to customers. The company seeks to remain competitive and has an existing policy to price all jobs at budgeted total costs plus 50%.

You are the new management accountant, and currently reviewing the cost records, for materials, labour and overheads.

Table 1 indicates the expected costs of jobs in both product areas:

Cost subheads	Garage Conversion (GC)	Extension to property (EX)
Prices quotes (£) Units	10,000	25,000
Construction Materials (£)	3,500	8,000
Labour	5,500	6,500
Fixed overheads (£)	1,000	2,000
Variable overheads (£)	1,000	4,000

Table 2 below indicates the expected annual overhead cost for the overall business.

overhead category (cost Pools)	Annual Overheads(£)	Activity Driver	Total number of activities
Supervisors	90,000	Site Visits	500
Planners	70,000	Planning documents	250
Property Administration	240,000	Labour hours	40,000
Total (£)	400,000

The annual usage of each overhead category for both products is indicated in table 3:

Overhead Category (cost Pools)	GC	EX
Supervisors visits	300	200
Planners documents	50	200
Property administration: Labour hours	25,000	15,000

Required:

a.
i) Define and calculate the marginal costs and throughput costs for each unit of

GC and EX products, using the data in Table 1.

ii) Calculate the selling price for jobs in both product categories using marginal and throughput costing.

Using tables 2 and 3, calculate the annual overhead cost for each product category using activity-based costing.

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