David owns a small boutique that sells products created by local vendors and artisans. He would very much like to update his store and will be hiring a contractor to complete the work. The contractor has informed him that the project will entail the following activities: Store design, 15 hours at $137 per hour; Carpet installation, 1,250 square feet at $10.80 per square foot; Fixture construction, $112 per piece with a total of 22 pieces; and SG&A expenses, 20 hours at $40.75 per hour. This estimate will also include a 26% additional markup based on the total of the estimated job costs for the entire project. A competing bid has been returned with a flat rate of $18.50 per square foot of carpet installation that would cover the whole project. Using Activity-Based Costing (ABC), what is the final bid price for the first bid?
A) $18,824.00
B) $23,125.00
C) $23,730.84
D) $29,137.50

Question

Quizplus · Accepted Answer

Before determining the final bid price, determine the total cost for each activity as follows: Store design, $137/hour × 15 hours = $2,055.00; Carpet installation, $10.80/square foot × 1,250 square feet = $13,500.00; Fixture construction, $112/piece × 22 pieces = $2,464.00; and SG&A expenses, = $40.75/hour × 20 hours = $815.00. The total cost of all activities can be found by summing the individual totals: $2,055.00 + $13,500.00 + $2,464.00 + $815.00 = $18,834.00. Next, add the additional markup $18,834.00 × 1.26 = $23,730.84, and that is the final bid price (Choice C).

David Owns a Small Boutique That Sells Products Created by Local