Problem 8-11 Tri Town Conference Solutions specializes in the design and install
ID: 2557259 • Letter: P
Question
Problem 8-11
Tri Town Conference Solutions specializes in the design and installation of meeting and conference centers for large corporations. When bidding on jobs, the company estimates product cost and direct labor for installers and marks up the total cost by 35 percent. On a recent job for Orvieto Industries, the company set its price as follows:
The job turned out to be a big hassle. Orvieto requested 27 change orders, although the dollar value of the products it requested changed very little. The company also returned 34 items that had extremely minor flaws (scratches that were barely visible and would be expected in normal shipping). Orvieto also requested seven meetings with designers taking 42 hours before its plan was finalized. Normally, only two or three meetings are necessary.
Alison Jackson, controller for Tri Town, decided to conduct a customer profitability analysis to determine the profitability of Orvieto. She grouped support costs into three categories with the following drivers:
Calculate the indirect service costs related to the job performed for Orvieto Industries.
Returns
Design hours
Product costs including podiums, seating, lighting, etc. $179,700 Installer salaries 22,800 Total 202,500 Markup at 35 percent 70,875 Bid price $273,375Explanation / Answer
Calculate the indirect service costs related to the job performed for Orvieto Industries.
Indirect service cost Change orders (198400/800*27) 6696 Returns (71780/970*34) 2516 Design hour (83160/1320*42) 2646 Total 11858