Problem 8-12
Marx 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:
Product costs including podiums, seating, lighting, etc. | $175,700 | |
Installer salaries | 29,900 | |
Total | 205,600 | |
Markup at 35 percent | 71,960 | |
Bid price | $277,560 |
The job turned out to be a big hassle. Orvieto requested 26 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 38 hours before its plan was
finalized. Normally, only two or three meetings are
necessary.
Alison Jackson, controller for Marx, 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 | 904 change orders | $205,208 | ||
Number of returns | 970 product returns | 63,050 | ||
Design meeting hours | 1,348 meeting hours | 80,880 |
Marx Conference Solutions has decided to adopt an activity-based
pricing scheme. On future jobs, the company will charge a 35
percent markup on the sum of product costs plus installer salaries.
In addition, the company will charge $299 per change order, $86 per
product return for products that are in excellent condition, and
$87 per meeting hour with a Marx 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) | $ |
Get Answers For Free
Most questions answered within 1 hours.