Company XYZ has two fixed price contracts for two different clients. The company
ID: 2391119 • Letter: C
Question
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.
Explanation / Answer
Answers
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
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
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