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In: Accounting

Diamond Co. is offering agreements for both clients. The agreements can be easily met by Co....

Diamond Co. is offering agreements for both clients. The agreements can be easily met by Co. however the profits for both agreements are uncertain

Data as follows:

Customer                                                                               X                                 Y

Module Type                                                                           C15                             C16

Agreement Quantity                                                               1,000 unit                    2,000 units

Material cost/unit                                                                    $15                              $20

Agreement worth ($)                                                              $27,000                       $100,000

Casting hours                                                                          50                                300

Lot Size                                                                                   100 units                     50 units

Casting time/ Lot                                                                    5 hours                        7.5 hours

Annual Budgeted overheads as follows:

Activity                                   Cost Driver                Cost driver volume/yr           Cost pool

Production

Management                           Agreements                 20                                            $125,000

Assessment                             Lot                              150                                          $75,000

Casting                                    Casting hours             2,000                                       $150,000

Required:

(a) Calculate the profit for each job using Absorption costing (Traditional Costing). Absorb overheads using Casting hours. (Marks 6)

(b) Calculate the activity based costs and profits for each contract. (Marks 8)

(c) After a through analysis in part (a) suggest what could be done to make contract profitable. (Marks 2)

Solutions

Expert Solution

ekkarill92 answered 1 year ago
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