PROBLEM 8-12. Activity-Based Pricing [LO 6] Consider the information in Problem

Question

PROBLEM 8-12. Activity-Based Pricing [LO 6] Consider the information in Problem 8-11.Lauden
Conference Solutions has decided to adopt an activity-based pricing scheme.On future jobs,the company
will charge a 35 percent markup on the sum of product costs plus installer salaries. In addition,
the company will charge $300 per change order,$90 per product return for products that are in excellent
condition, and $85 per meeting hour with a Lauden conference room designer.
Required
a. What would the profit be on the order from Orvieto in Problem 8-11?
b. Identify pros and cons of adopting the activity-based pricing scheme.

Explanation / Answer

Profit form the order of Orvinto will be 35% and if any re-work or extra work incure on the same the same will be charged as per the activity.

These activity of extra work will be the profit as it has not been chared to the client by Lauden Conference Sloutions.

Pros and Cons of Activity Based costing (ABC) are :

Advantages

The major advantage of activity based costing is the ability to estimate the cost of individual products and services precisely. By transferring overhead costs to individual units of products or services, ABC helps identify inefficient or non-profitable products or activities that eat into the profitability of efficient processes or highly profitable products.

The advantages of ABC are:

Disadvantages

The major disadvantage of activity based costing is

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