For most construction projects, Bradley Heating and Cooling buys sheet metal and
ID: 2371002 • Letter: F
Question
For most construction projects, Bradley Heating and Cooling buys sheet metal and forms the metal into heating
/cooling ducts as needed. The company estimates the costs of making and installing ductwork for Kerry Park
shopping mall to be as follows:
Materials------------------------------------------------------$35,000
Labor to form ductwork------------------------------------3,000
Labor to install ductwork---------------------------------9,000
Misc. variable cost----------------------------------------1,500
Fixed costs allocated based on labor hours------3,000
Total costs--------------------------------------------------$51,500
The fixed costs relate to the companys building equipment, and office staff. The company plans on billing the
Kerry Park developer $68,000 for services. Bradley is currently behind schedule on other projects and is
paying a late penaalty of $1,200 per day. Walt Bradley, the owner of bradley heating and cooling, is considering
ordering prefabricated ductwork for the Kerry Park job. The prefabricated ductwork will cost $40,000 (including the
cost of sheet metal). If Walt buys the prefabricated ductwork, he'll be able to reassign workers to another project
and avoid 5 days of late fees.
REQUIRED: Answer Question And fill out chart below.
Should Bradley make the ductwork or buy it prefabricated?
FILL OUT THE CHART
Do not buy prefabricated Buy prefabricated Buy difference
Materials ? ? ?
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Total Formula Formula Formula
Explanation / Answer
Particulars
Do not buy Fabricated
Buy Fabricated
Remark
Material
35000
-
Labor to form ductwork
3000
-
Labor to install ductwork
9000
9000
Misc Variable
1500
1500
Fixed Cost allocated based on labor hour
3000
2250
Fixed cost based on labor hour. Therefore ratio for making and installing the ductwork will be 1:3
Since in case of buy fabricated only labor for installation will be applicable therefore fixed cost allocated for installation will be 3000 *
Particulars
Do not buy Fabricated
Buy Fabricated
Remark
Material
35000
-
Labor to form ductwork
3000
-
Labor to install ductwork
9000
9000
Misc Variable
1500
1500
Fixed Cost allocated based on labor hour
3000
2250
Fixed cost based on labor hour. Therefore ratio for making and installing the ductwork will be 1:3
Since in case of buy fabricated only labor for installation will be applicable therefore fixed cost allocated for installation will be 3000 *
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