Curtis owns Mayflower Construction, a company that specializes in the design and construction of what they have promoted as a backyard oasis. Curtis is putting together an informational packet to distribute to potential clients that will include examples of projects and suggested pricing. The first project in the packet will be backyard oasis consisting of a large pergola and seating. Curtis would like to upgrade Mayflower's costing to be in line with Activity-Based Costing (ABC) and has put together the following information about the first example project:
Curtis would like to add a 19% markup to the total cost of the project. This would be a big transition from his current method of billing at a flat rate of $194 per linear square foot. Should Curtis switch to the new ABC method?
A) No, Curtis will make $108.30 less using ABC
B) No, Curtis will make $1,330.00 less using ABC
C) Yes, Curtis will make $108.30 more using ABC
D) Yes, Curtis will make $1,330.00 more using ABC

Question

Curtis owns Mayflower Construction, a company that specializes in the design and construction of what they have promoted as a backyard oasis. Curtis is putting together an informational packet to distribute to potential clients that will include examples of projects and suggested pricing. The first project in the packet will be backyard oasis consisting of a large pergola and seating. Curtis would like to upgrade Mayflower's costing to be in line with Activity-Based Costing (ABC) and has put together the following information about the first example project:
 Curtis would like to add a 19% markup to the total cost of the project. This would be a big transition from his current method of billing at a flat rate of $194 per linear square foot. Should Curtis switch to the new ABC method?
A) No, Curtis will make $108.30 less using ABC 
B) No, Curtis will make $1,330.00 less using ABC 
C) Yes, Curtis will make $108.30 more using ABC 
D) Yes, Curtis will make $1,330.00 more using ABC

Quizplus · Accepted Answer

Determine the total cost for each activity as follows: Pergola Construction, $125/linear foot × 40 linear feet = $5,000.00; Design, $142.00/hour × 5 hours = $710.00; Furniture Construction, $90/piece × 8 pieces = $720.00. The total cost of all activities can be found by summing the individual totals: $5,000.00 + $710.00 + $720.00 = $6,430.00. Next, add the markup: $6,430.00 × 1.19 = $7,651.70 is the final bid price. Lastly, compare the marked-up cost of $7,651.70 against the flat billed price of $194.00 × 40 linear square feet, or $7,760.00. This gives $7,651.70 - $7,760.00 = $108.30 less profit under the ABC method (Choice A). Hence, Curtis should not switch to the new ABC method.

Curtis Owns Mayflower Construction, a Company That Specializes in the Design