Sunflower, Inc. is a service-based business that provides landscaping architecture services to their clients. Management has been investigating whether a change to Activity-Based Costing (ABC) would benefit the company and help them achieve their goal of having the costs in their bids more closely mirror the actual costs while maximizing their profit. Currently, Sunflower bills at a flat rate of $9 per square foot of yard prep and had been adding a 15% markup to their bids. After analyzing their key tasks, they are going to use ABC for an upcoming customer bid:
Sunflower would like to increase their markup to 18% for all jobs using ABC. What would Sunflower's bid price be if they chose to utilize ABC?

Question

Sunflower, Inc. is a service-based business that provides landscaping architecture services to their clients. Management has been investigating whether a change to Activity-Based Costing (ABC) would benefit the company and help them achieve their goal of having the costs in their bids more closely mirror the actual costs while maximizing their profit. Currently, Sunflower bills at a flat rate of $9 per square foot of yard prep and had been adding a 15% markup to their bids. After analyzing their key tasks, they are going to use ABC for an upcoming customer bid:
 Sunflower would like to increase their markup to 18% for all jobs using ABC. What would Sunflower's bid price be if they chose to utilize ABC?

Quizplus · Accepted Answer

To answer this question, first determine the estimated cost for each activity. Design, $100 × 20 hours = $2,000; Yard Prep, $1.78 × 600 square feet = $1,068; Planting, $48.80 × 38 plants = $1,854.40; and SG&A, $75 × 5 hours = $375. Once they are totaled, the initial price is $5,297.40. The last step is to add the markup- $5,297.40 × 1.18 = $6,250.93 (Choice D).