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Brick by Brick (BBB) is a building business that provides a range of building services to the public

Accounting

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Brick by Brick (BBB) is a building business that provides a range of building services to the public. Recently they have been asked to quote for garage conversions (GC) and extensions to properties (EX) and have found that they are winning fewer GC contracts than expected. BBB has a policy to price all jobs at budgeted total cost plus 50%. Overheads are currently absorbed on a labour hour basis. BBB thinks that a switch to activity based costing (ABC) to absorb overheads would reduce the cost associated to GC and hence make them more competitive.

Overheads                     Annual Costs             Activity Drivers                     Number of Activities

                                                          K

Supervisors                         90,000                        Site Visits                                                     500

Planners                                70,000                        plannining documents                         250

Property related      240,000            Labour hours                   40,000                               

Total                   400,000                                                        

 

A typical GC costs K3,500 in materials and takes 300 labour hours to complete. A GC requires only one site visit by a supervisor and needs only one planning document to be raised. The typical EX costs K8,000 in materials and takes 500 hours to complete. An EX requires six site visits and ?ve planning documents. In all cases labour is paid K15 per hour.

Required

A.   Calculate the cost and quoted price of a GC and of an EX using labour hours to absorb the overheads.                                                                                                                                                                    (8 Marks)

 

 

Brick by Brick

Costs and quoted prices for the GC and the Ex using ABC to absorb overheads;

 

 

GC

EX

 

$

$

Materials

3,500

8,000

Labour:

300hours x $15/hr

500hours x $15/hr

 

4,500

 

 

7,500

Overheads:(W2 & W3)

Supervisor

Planners

Property

 

180

280

1,800

 

1,080

1,400

3,000

Total Cost

10,260

20,980

Quoted price

15,390

31,470

Working 2:                                  Number                     Cost per

                             Costs              of drivers                   driver

Supervisor            90,000.00       500                             180

Planners                70,000.00       250                             280

Property               240,000.00     40,000                        6

 

Working 3:

                             

                                   Supervisor                 Planner                      Property

Cost per driver (W2)  180                             280                             6

GC                             180 x1 = 180              280 x 1 = 280             300 x 6 = 1,800

EX                              180 x 6 = 1,080          280 x 5 = 1,400          500 x 6 = 3,000                      

 

B. Calculate the cost and the quoted price of a GC and of an EX using ABC to absorb the overheads.                                                                                                                                                                 (17 Marks)

 

QUESTION TWO

Alta Production, Inc., reported the following production costs for the 12 months January through December.

Reporting Period

(Month)

Total Production

Costs

Level of Activity

(Units Produced)

 

K

 

January

460,000

300

February

300,000

220

March

480,000

330

April

550,000

390

May

570,000

410

June

310,000

240

July

440,000

290

August

455,000

320

September

530,000

380

October

250,000

150

November

700,000

450

December

490,000

350

Required

A. Using this information, define the cost function using regression analysis.                

Y = a + bx

B. Assume Alta Production, Inc., will produce 400 units next month. Calculate total production costs for the month.                                                                                                                                               

C. Accepting that the coefficient of determination arising from the data given in the question is approximately 0.86, interpret the significant of this fact.