XYZ Constructions is a leading engineering and construction company providing a range of infrastructure and industrial services. Recently, they have…

(a) Cost and Quoted Price Using Labour Hours to Absorb Overheads RBC (in lakhs) IPC (in lakhs) Materials 5.00 12.00 Labour 1200 x 100; 2500 x 100 1.20 2.50 Overheads 1200 x 1200; 2500 x 1200 14.40 30.00 Total cost 20.60 44.50 Add: Profit 50% of Total Cost 10.30 22.25 Quoted Price 30.90 66.75 (b) Cost and Quoted Price Using ABC Step 1: Calculate Overhead Rates for Each Activity Overhead Category Total Overhead (₹ Lakhs) Activity Driver Activity Rate Site Engineers 120 Site Visits 120 / 600 = 20,000 per site visit Project Planners 80 Planning Documents 80 / 300 = 26,667 per planning document Equipment Depreciation 400 Labour Hours 400 / 50,000 = 800 per labour hour Step 2: Allocate Overheads Using ABC RBC (in lakhs) IPC (in lakhs) Materials 5.00 12.00 Labour 1200 x 100; 2500 x 100 1.20 2.50 Overheads Site Engineers 2 x 20,000; 10 x 20,000 0.40 2.00 Project Planners 2 x 26,667; 8 x 26,667 0.53 2.13 Equipment Depreciation 1200 x 800; 2500 x 800 9.60 20.00 Total cost 16.73 38.63 Add: Profit 50% of Total Cost 8.37 19.32 Quoted Price 25.10 57.95 (c) Possible pricing strategies for the two services offered by XYZ Constructions The pricing policy is a matter for XYZ Constructions to decide. They could elect to maintain the current 50% mark-up on cost and if they did the price of the RBC would fall by around 7% in line with the costs. This should make them more competitive in the market.They could also reduce the prices by a little less than 7% (say 5%) in order to increase internal margins a little. Reasons other than high prices for the current poor sales of RBC: If the quality of work or the reputation and reliability of the builder are questionable, lowering prices is unlikely to boost sales.While it is possible that XYZ Constructions has a strong reputation for IPC but not for RBC, it is more likely that a poor reputation would impact all their products. Poor service or inflexibility in meeting customer needs may also hurt sales and can't be fixed by lowering prices.Poor marketing strategies also discourage customers from selecting XYZ Constructions.XYZ Constructions faces competition and may need to adopt a more competitive pricing strategy, such as 'going rate pricing,' instead of simply adding a markup to costs.XYZ Constructions could enter the market by pricing some projects competitively to establish a foothold. Completed projects could then be leveraged to attract new customers.