Question

Tarjee 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 30 percent. On a recent job for Orvieto Industries, the company set its price as follows:

Product costs including podiums, seating, lighting, etc.		$173,900
Installer salaries		28,600
Total		202,500
Markup at 30 percent		60,750
Bid price		$263,250

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 32 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 43 hours before its plan was finalized. Normally, only two or three meetings are necessary.

Alison Jackson, controller for Tarjee, decided to conduct a customer profitability analysis to determine the profitability of Orvieto. She grouped support costs into three categories with the following drivers:

Driver		Annual Value of Driver		Annual Cost
Change orders		882 change orders		$237,258
Number of returns		1,010 product returns		67,670
Design meeting hours		1,410 meeting hours		88,830

Tarjee Conference Solutions has decided to adopt an activity-based pricing scheme. On future jobs, the company will charge a 30 percent markup on the sum of product costs plus installer salaries. In addition, the company will charge $314 per change order, $91 per product return for products that are in excellent condition, and $85 per meeting hour with a Tarjee conference room designer.

What would the profit be on the order from Orvieto? (Enter loss using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Profit / (Loss)

??

Answer 1

Profit/(Loss): $63679

Price charged:
Product costs	173900
Installer salaries	28600
Total costs	202500
Markup at 30%	60750
Support costs charged	15045
Total price charged		278295
Product costs	173900
Installer salaries	28600
Support costs	12116
Total costs		214616
Profit/(Loss) $		63679

Driver	Annual Cost $	Annual Value of Driver	Activity Rate $		Orvieto Order
					Value of Driver	Cost $	Rate Charged $	Total Charge $
Change orders	237258	882	269	per change order	27	7263	314	8478
Number of returns	67670	1010	67	per return	32	2144	91	2912
Design meeting hours	88830	1410	63	per meeting hour	43	2709	85	3655
Total $						12116		15045