In: Accounting
Company XYZ has two fixed price contracts for two different clients. The company has enough capacity for both contracts but is uncertain whether they will be profitable.
Data as follows:
Customer AAA BBB
Component Type A999 B999
Contract Value($) $27,000 $100,000
Contract Quantity 1,000 unit 2,000 units
Material cost/unit $15 $20
Molding time/batch 5 hours 7.5 hours
Batch Size 100 units 50 units
Annual Budgeted overheads as follows:
Activity Cost Driver Cost driver Cost
volume/year pool
Molding Molding hours 2,000 $150,000
Inspection Batches 150 $75,000
Production Mgmt Contracts 20 $125,000
Calculate the activity-based costs and profits for each contract.
Working |
AAA |
BBB |
|
A |
No. of units |
1000 |
2000 |
B |
Batch Size |
100 |
50 |
C= A/B |
No. of batches |
10 |
40 |
D |
molding time per batch |
5 |
7.5 |
E = C x D |
Total Molding hours |
50 |
300 |
Activity |
Cost driver |
Cost driver |
Cost |
Activity Rate per cost driver |
[A] |
[B] |
[B/C] |
||
Molding |
Molding Hours |
2000 |
$ 1,50,000.00 |
$ 75.00 per moulding hours |
Inspection |
Batches |
150 |
$ 75,000.00 |
$ 500.00 per batch |
Production management |
Contracts |
20 |
$ 1,25,000.00 |
$ 6,250.00 per contract |
Activity |
Activity Rate per cost driver |
No. of cost driver |
Cost allocated |
[A] |
[B] |
[A x B] |
|
Molding |
$ 75.00 per moulding hours |
50 Molding Hours |
$ 3,750.00 |
Inspection |
$ 500.00 per batch |
10 Batches |
$ 5,000.00 |
Production management |
$ 6,250.00 per contract |
1 Contract |
$ 6,250.00 |
Total Overhead cost allocated |
$ 15,000.00 |
Activity |
Cost allocated |
No. of cost driver |
Cost allocated |
[A] |
[B] |
[A x B] |
|
Molding |
$ 75.00 per moulding hours |
300 Molding Hours |
$ 22,500.00 |
Inspection |
40 Batches |
$ 20,000.00 |
|
Production management |
$ 6,250.00 per contract |
1 Contract |
$ 6,250.00 |
Total Overhead cost allocated |
$ 48,750.00 |
Working |
AAA |
BBB |
|
A |
Contract Value |
$ 27,000.00 |
$ 1,00,000.00 |
B = Material cost per unit x Units |
Material cost |
$ 15,000.00 |
$ 40,000.00 |
C [Allocated above] |
Overheads allocated as per ABC |
$ 15,000.00 |
$ 48,750.00 |
D = A - B - C |
Profit (Loss) for contract |
$ (3,000.00) |
$ 11,250.00 |