Q.36PGA-3 - Horngren'S Financial And Managerial Accounting

Question

Question: Blanchette Plant Service completed a special landscaping job for Kerry Company. Blanchette uses ABC and has the following predetermined overhead allocation rates:

                  Activity                                                                   Predetermined

                                                  Allocation Base               Overhead Allocation Rate

                Designing               Number of designs                  \( 290 per design

                  Planting                Number of plants                     \) 20 per plant

 

The Kerry job included \(750 in plants; \)1,300 in direct labor; one design; and 30 plants.

Requirements

3. If Blanchette desires an operating income of 30% of cost, how much should the company charge for the Kerry job?

Step-by-Step Solution

Answer

Answer

Sales price: $2,847

 

Step 1: Full product cost

Full product cost is the total cost relating to developing, producing, and delivering the product or services. It includes all the pre-production, during-production, and post-production costs. 

Full product cost is used to determine the sales price under cost-based pricing. 

 

Step 2: Computation of sales price

$$\begin{gathered} \mathit{S}\mathit{a}\mathit{l}\mathit{e}\mathit{s}\mathbf{ }\mathit{p}\mathit{r}\mathit{i}\mathit{c}\mathit{e}\mathbf{ }\mathbf{=}\mathit{T}\mathit{o}\mathit{t}\mathit{a}\mathit{l}\mathbf{ }\mathbf{cos}\mathit{t}\mathbf{ }\mathbf{+}\frac{\left(100 + \cos t percent\right)}{\mathbf{100}} \\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{190}\mathbf{\times }\frac{\mathbf{130}}{\mathbf{100}} \\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{847} \end{gathered}$$