chicago consulting group which uses an activit based costing system offers a sof

Question

chicago consulting group which uses an activit based costing system offers a software training program seminar to companies for $ 12,000 per seminar for 100 students, unit level activity cost $30 per student and facility cost total $ 180,000 per year additional data

Batch level activity are $ 2,500 per seminar

product levelactivity consist of 1,000 product maintenance hours per year to keep the seminar up to date at $ 75 per hour

A from ABC identify one problem associate with the basic cost voluom profit

B compute chicago consulting group's operating income befor tax considering the cost in the preceding bulleted and an expected 100 seminar per year

C what is the company break even seminar quantity

Explanation / Answer

Hi,

Please find the answers as follows:

Part A:

CVP model is based on the assumption of a single cost driver. On the other hand, in ABC, costs may vary due to activities at the unit level, batch level, etc.

Part B:

Facilties Cost = 180000

Unit Level Costs = 10000*30 = 300000

Batch Level Costs = 100*2500 = 250000

Product Level Costs = 1000*75 = 75000

Total Costs = 805000

Net Operating Income = 12000*100 - 805000 = 395000

Part C:

Break Even Quantity would be 40 approximately and 39.23 exactly.

Thanks.

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