Exercise 4 ABC costing

Brick by Brick (BBB) is a building business that provides a range of building services to the public.

Recently they have been asked to quote for garage conversions (GC) and extensions to properties (EX) and have found that they are winning fewer GC contracts than expected. In addition, BBB also produces and sells different types of brick to the construction industry. The three types of brick produced are clay, concrete, and reclaimed bricks.

BBB has a policy to price all jobs at budgeted total cost plus 50%. Overheads are currently absorbed on a labour hour basis. BBB thinks that a switch to activity based costing (ABC) to absorb overheads would reduce the costs associated with GC and hence make them more competitive.

You are provided with the following data:

Overhead category Annual overheads Activity driver Total number of activities per year

Supervisors 90,000 $ Site visits 500

Planners 70,000 $ Planning documents 250

Property related 240,000 $ Labour hours 40,000

Total 400,000

A typical GC takes 300 labour hours to complete. A GC requires only one site visit by a supervisor and needs only one planning document to be raised.

An EX requires six site visits and five planning documents.

Required:

1. Calculate the total overheads assigned to a GC using labour hours to absorb the overheads.

2. Calculate the total overheads assigned to a GC using ABC principles in respect of supervisors

costs.

3. Calculate the total overheads assigned to a EX using ABC principles in respect of planning costs.