Q42PGB_3 - Horngren'S Financial And Managerial Accounting

Question

Rennie Plant Service completed a special landscaping job for Brenton Company. rennie 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 Rennie job included \(1,500 in plants; \)800 in direct labor; one design; and 30 plants.

 

Requirements

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

Step-by-Step Solution

Answer

Sales price: $2,197

Step-by-Step-Solution 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

$$\begin{gathered} \mathbf{Sales}\mathbf{ }\mathbf{Price}\mathbf{=}\mathbf{Total}\mathbf{ }\mathbf{Cost}\mathbf{\times }\frac{\mathbf{(}\mathbf{100}\mathbf{+}\mathbf{costpercent}\mathbf{)}}{\mathbf{100}} \\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{690}\mathbf{\times }\frac{\mathbf{130}}{\mathbf{100}} \\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{197} \end{gathered}$$