Company XYZ has 2 fixed price contract for 2 different customers.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 |
|
Moulding time/batch |
5 hours |
7.5 hours |
|
Batch Size |
100 units |
50 units |
Annual Budgeted overheads as follows:
|
Activity |
Cost Driver |
Cost driver volume/yr |
Cost pool |
|
Moulding |
Moulding hours |
2,000 |
$150,000 |
|
Inspection |
Batches |
150 |
$75,000 |
|
Production Management |
Contracts |
20 |
$125,000 |
Required:
(a) Calculate the activity based costs and profits for each contract
(b) Calculate the profit for each job using Absorption costing. Absorb overheads using moulding hours.
FCCA,CA(MIA)with more than 26 years of post-qualifying working experiences. Previous working stints with one of the big accounting four, Regional GFC & Group Treasurer in a group of Malaysian and Group CFO in Singapore public listed concern.
Also author to another very popular free educational accounting cum finance blog: http://basiccollegeaccounting.com under the branding of College Accounting Coach.
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