Question 3a
Brick by Brick (BBB) is a business which 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, resulting in a budgeted total cost of $11,000 for each GC and $20,500 for each EX. Consequently, the products are priced at $16,500 and $30,750 respectively.
The company is considering moving to an activity based cost approach. You are provided with the following data:
| Overhead category | Annual overheads | Activity driver | Total number of activities per year |
|---|---|---|---|
| $ | |||
| Supervisors | 90,000 | Site visits | 500 |
| Planners | 70,000 | Planning documents | 250 |
| Property related | 240,000 | Labour hours | 40,000 |
| Total | 400,000 |
A typical GC costs $3,500 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 $8,000 in materials and takes 500 hours to complete. An EX requires six site visits and five planning documents. In all cases, labour is paid $15 per hour.
Required:
(a) Calculate the cost and the quoted price of a GC and an EX using activity based costing (ABC). (5 marks)