1. Given the preceding information, what is the markup percentage on total direct costs? ________- 2. Suppose Whang is asked to bid on a job with estimated direct costs of $599,000. What is the bid? $________

1. Given the preceding information, what is the markup percentage on total direct costs? - 2. Suppose Whang is asked to bid on a job with estimated direct costs of $599,000. What is the bid? $

Name: Whang Construction Company is a general contractor that specializes in
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Description: Whang Construction Company is a general contractor that specializes in custom residential housing. Each job requires a bid that includes Whang's direct costs and subcontractor costs as well as an amount referred to as “overhead and profit.” Whang's b

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter18: Pricing And Profitability Analysis

Section: Chapter Questions

Problem 13E

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Whang Construction Company is a general contractor that specializes in custom residential housing. Each job requires a bid that includes Whang's direct costs and subcontractor costs as well as an amount referred to as “overhead and profit.” Whang's bidding policy is to estimate the costs of direct materials, direct labor, and subcontractors' costs. These are totaled, and a markup is applied to cover overhead and profit. In the coming year, the company believes it will be the successful bidder on 10 jobs with the following total revenues and costs: Revenue $9,226,800 Direct materials $2,212,000 Direct labor 1,834,000 Subcontractors 3,643,000 7,689,000 Overhead and profit $1,537,800 Required: 1. Given the preceding information, what is the markup percentage on total direct costs? ______% 2. Suppose Whang is asked to bid on a job with estimated direct costs of $553,000. What is the bid? $_________ 3. Briefly explain how Whang Construction’s accountant might…
Johnny Lopez Construction Company is a general contractor that specializes in custom residential housing. Each job requires a bid that includes Lopez's direct costs and subcontractor costs as well as an amount referred to as "overhead and profit." Lopez's bidding policy is to estimate the costs of direct materials, direct labor, and subcontractors'costs. These are totaled, and a markup is applied to cover overhead and profit. In the coming year, the company believes it will be the successful bidder on 10 jobs with the following total revenues and costs: Revenue P8,740,000 Direct materials P2,250,000 1,900,000 3,450,000 Direct labor Subcontractors 7,600,000 PL140.000 Overhead and profit Required: 1. Given the preceding information, what is the markup percentage on total direct costs? 2. Suppose Lopez is asked to bid on a job with estimated direct costs of P 750,000. What is the bid? If the customer complains that the profit seems pretty high, how might Lopez counter that accusation?
McCarty Associates is a construction engineering firm that prepares detailed construction drawings for single-family homes. The market for this service is very competitive. To compete successfully McCarty must deliver quality service at low cost. McCarty presents the following data for 2019 and 2020. (Click the icon to view the data.) Engineering labor-hour costs are variable costs. Engineering support costs for each year depend on the engineering support capacity that McCarty chooses to maintain each year (that is, the number of jobs it can do each year). Engineering support costs do not vary with the actual number of jobs done in a year. Read the requirements. Requirement 1. Calculate the amount and cost of unused engineering support capacity at the beginning of 2020, based on the number of jobs actually done in 2020. The amount unused capacity is jobs and the cost of unused capacity is Requirement 2. Suppose McCarty can add or reduce its engineering support capacity in increments of…
Alter's Home Center (AHC) sells renovation and remodeling products to both contractors and individual home owners. One of the services AHC offers is delivery of the purchased products to the customer's work site. Because not all customers take advantage of the delivery service option, ACH adds 10 percent to the cost of the products purchased to cover the delivery cost. A business intern spent the summer at ACH. The intern's assignment was to analyze the delivery service and recommend a better way to charge customers for using it. The intern, who had studied activity-based costing, identified the following activities and the data related to them: Activity Picking order Delivering order Handling complaints Total delivery cost Cost Driver Number of items Number of orders Number of complaints Annual Cost $ 353,875 1,190,000 40,500 $ 1,584,375 Total order value (before delivery charge) Number of orders Total number of items Number of delivery complaints The intern selected two customers,…
Fanning Construction Company is a building contractor specializing in small commercial buildings. The company has the opportunity to accept one of two Jobs; it cannot accept both because they must be performed at the same time and Fanning does not have the necessary labor force for both jobs. Indeed, it will be necessary to hire a new supervisor If either job is accepted. Furthermore, additional Insurance will be required if elther job is accepted. The revenue and costs associated with each job follow. Cost Category Contract price Unit-level materials. Unit-level labor Unit-level overhead Supervisor's salary Rental equipment costs Depreciation on tools (zero market value) Allocated portion of companywide facility-sustaining costs Insurance cost for job Complete this question by entering your answers in the tabs below. Required A Required a. Assume that Fanning has decided to accept one of the two Jobs. Fill in the information relevant to selecting one job versus the other. Recommend…
Alter's Home Center (AHC) sells renovation and remodeling products to both contractors and individual home owners. One of the services AHC offers is delivery of the purchased products to the customer's work site. Because not all customers take advantage of the delivery service option, ACH adds 10 percent to the cost of the products purchased to cover the delivery cost. A business intern spent the summer at ACH. The intern's assignment was to analyze the delivery service and recommend a better way to charge customers for using it. The intern, who had studied activity-based costing, identified the following activities and the data related to them: Activity Cost Driver Annual Cost Annual Driver Volume Picking order Number of items $ 353,875 372,500 items Delivering order Number of orders 1,190,000 35,000 orders Handling complaints Number of complaints 40,500 150 complaints Total delivery cost $ 1,584,375 The intern selected two customers, who were frequent customers,…
Alter's Home Center (AHC) sells renovation and remodeling products to both contractors and individual home owners. One of the services AHC offers is delivery of the purchased products to the customer's work site. Because not all customers take advantage of the delivery service option, ACH adds 10 percent to the cost of the products purchased to cover the delivery cost. A business intern spent the summer at ACH. The intern's assignment was to analyze the delivery service and recommend a better way to charge customers for using it. The intern, who had studied activity-based costing, identified the following activities and the data related to them: Activity Cost Driver Annual Cost Annual Driver Volume Picking order Number of items $ 330,750 367,500 items Delivering order Number of orders 942,500 32,500 orders Handling complaints Number of complaints 32,500 125 complaints Total delivery cost $ 1,305,750 The intern selected two customers, who were frequent customers,…
Alter's Home Center (AHC) sells renovation and remodeling products to both contractors and individual home owners. One of the services AHC offers is delivery of the purchased products to the customer's work site. Because not all customers take advantage of the delivery service option, ACH adds 10 percent to the cost of the products purchased to cover the delivery cost. A business intern spent the summer at ACH. The intern's assignment was to analyze the delivery service and recommend a better way to charge customers for using it. The intern, who had studied activity-based costing, identified the following activities and the data related to them: Activity Picking order Delivering order Handling complaints Total delivery cost Cost Driver Number of items Number of orders Number of complaints Annual Cost $ 308,125 720,000 40,000 Annual Driver Volume 362,500 items 30,000 orders 160 complaints $ 1,068,125 The intern selected two customers, who were frequent customers, to use as an…
Recently, the sales and marketing manager for Pasifika Company, Mr. Reece Rooney couldn’t understand the result of two bids that the firm has submitted. According to the company’s policy, a 50 percent mark-up is added to the full manufacturing cost when calculating the bid. One particular job (Job A01) had been rejected by a prospective customer since the proposed bid was $4 per unit higher than the winning bid. However, a customer has accepted a second job (Job B01) and was pleased with the favorable bid. This customer revealed that Pasifika’s price was $44 per unit lower than the next-lowest bid. Reece knew that the implementation of the cost leadership strategy has resulted in Pasifika’s competitive advantage, therefore he assumed that the issue must be related to cost allocation procedures. When Reece further investigated the matter, he found that Pasifika used a pre-determined plantwide overhead rate based on direct labor hours. The budgeted data used to calculate this rate…
Recently, the sales and marketing manager for Pasifika Company, Mr. Reece Rooney couldn’t understand the result of two bids that the firm has submitted. According to the company’s policy, a 50 percent mark-up is added to the full manufacturing cost when calculating the bid. One particular job (Job A01) had been rejected by a prospective customer since the proposed bid was $4 per unit higher than the winning bid. However, a customer has accepted a second job (Job B01) and was pleased with the favorable bid. This customer revealed that Pasifika’s price was $44 per unit lower than the next-lowest bid. Reece knew that the implementation of the cost leadership strategy has resulted in Pasifika’s competitive advantage, therefore he assumed that the issue must be related to cost allocation procedures. When Reece further investigated the matter, he found that Pasifika used a pre-determined plantwide overhead rate based on direct labor hours. The budgeted data used to calculate this rate…
Recently, the sales and marketing manager for Pasifika Company, Mr. Reece Rooney couldn’t understandthe result of two bids that the firm has submitted. According to the company’s policy, a 50 percent mark-upis added to the full manufacturing cost when calculating the bid. One particular job (Job A01) had beenrejected by a prospective customer since the proposed bid was $4 per unit higher than the winning bid.However, a customer has accepted a second job (Job B01) and was pleased with the favorable bid. Thiscustomer revealed that Pasifika’s price was $44 per unit lower than the next-lowest bid.Reece knew that the implementation of the cost leadership strategy has resulted in Pasifika’s competitiveadvantage, therefore he assumed that the issue must be related to cost allocation procedures. When Reecefurther investigated the matter, he found that Pasifika used a pre-determined plantwide overhead rate basedon direct labor hours. The budgeted data used to calculate this rate…
TAC Industries Inc. sells heavy equipment to large corporations and federal, state, and local governments. Corporate sales are the result of a competitive bidding process, where TAC competes against other companies based on selling price. Sales to the government, however, are determined on a cost-plus basis, where the selling price is determined by adding a fixed markup percentage to the total job cost. Tandy Lane is the cost accountant for the Equipment Division of TAC Industries Inc. The division is under pressure from senior management to improve income from operations. As Tandy reviewed the division's job cost sheets, she realized that she could increase the division's income from operations by moving a portion of the direct labor hours that had been assigned to the job order cost sheets of corporate customers onto the job order costs sheets of government customers. She believed that this would create a “win–win” for the division by (1) reducing the cost of corporate jobs, and (2)…