chicago consulting group which uses an activit based costing system offers a sof
ID: 2373493 • Letter: C
Question
chicago consulting group which uses an activit based costing system offers a software training program seminar to companies for $ 12,000 per seminar for 100 students, unit level activity cost $30 per student and facility cost total $ 180,000 per year additional data
Batch level activity are $ 2,500 per seminar
product levelactivity consist of 1,000 product maintenance hours per year to keep the seminar up to date at $ 75 per hour
A from ABC identify one problem associate with the basic cost voluom profit
B compute chicago consulting group's operating income befor tax considering the cost in the preceding bulleted and an expected 100 seminar per year
C what is the company break even seminar quantity
Explanation / Answer
a. Basic CVP model uses single cost driver. However in real world, costs can change due to various reasons. in ABC, costs can vary due to Unit level, Batch level & product level activities.
b. No of seminars per year = 100
Total No of students = 100 Seminar* 100 Student per seminar = 10,000 Students
Facility Cost 180,000
Unit Level Cost
(10000 Students*$30) 300,000
Batch Levl Costs
(100 seminar*$2500) 250,000
Product level cost
(1000 hrs*$75) 75,000
----------------------------
Total Cost 805,000
SO Operating Income = No of seminar*Per seminar Rev-Cost
= (100*$12000)-805,000 = $395,000
c. BEP is approx = Op Income/No fo seminar
= 395000/100 = 39.5 or 40 Seminars.
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