ACCT 2251-Management Accounting 1 Assignment 6

Subject: Business    / Accounting    

Question
ACCT 2251: Management Accounting 1 Assignment 6 (100 marks; 8%)
Introduction
Assignment 6 covers chapters 10 and 12 of the textbook and should be
completed after Module 11. If you are following the Suggested Schedule, it is due
at the end of Week 12. Be sure you review the relevant course material before
completing this assignment and the Assignment Submission Instructions. Instructions
Question 1 (10 marks)
Roster Roofing Ltd. is planning on purchasing two new trucks for its operation.
The operating cost of these trucks is expected to be lower per mile than the
trucks it is trading in. The owner is trying to determine if the company would be
better off keeping the older vehicles or purchasing the new trucks. He has
identified the following decision factors to consider:
a. Original cost and book value of the old trucks
b. Roofing revenues, which are not expected to change with the purchase of
the new vehicles
c. Operating costs of the new and the old vehicles
d. Cost of the new trucks and the related depreciation costs
e. Proceeds from the sale of the old vehicles
f. The 10% return on alternative investments that Roster will forego by tying
up the company’s cash in new vehicles
g. Drivers’ wages and fringe benefits
Required:
1. Classify the seven decision factors into the following categories (factors
may be used more than once):
a. Relevant costs
b. Opportunity costs
c. Sunk costs
d. Factors to be considered in the decision TRU Open Learning 2 Assignment 6 Question 2 (50 marks)
Flash Corporation manufactures light fixtures. The company has received a
special order inquiry from West Inc. West wants to sell a light similar to Model
Number AB and has offered to purchase 5,000 units. The following information is
available:
a. Cost data for Flash’s Model AB: direct materials, $50; direct labour $25 (2
hours at $12.50 per hour); and manufacturing overhead, $80 (2 hours at
$40 per hour).
b. The normal selling price of Model AB is $190; however, West has offered
Flash only $120 because of the volume it is willing to purchase.
c. West requires a design modification that will allow a $5 reduction in directmaterial cost.
d. Flash’s production supervisor indicates that the company will incur $9,000
in additional set-up costs and will have to purchase a $3,500 device to
manufacture these units. The device will have no use once the special
order is completed.
e. Total manufacturing overhead costs are applied to production at the rate
of $40 per labour hour. This figure is based on budgeted yearly fixed
overhead of $625,000 and planned production activity of 25,000 labour
hours.
f. Flash will allocate $10,000 of existing fixed administrative costs to the
order as “part of the cost of doing business.”
Required:
1. One of the managers wants to reject the special order because “financially
it’s a loser.” Do you agree with this conclusion if Flash has excess
capacity? Show your calculations to support your answer.
2. If Flash currently has no excess capacity, should the order be rejected
from a financial perspective? Briefly explain.
3. Assume that Flash currently has no excess capacity. Would outsourcing
be an option that Flash could consider if the owners clearly wanted to do
business with West? Briefly discuss, noting several considerations for
Flash in your answer. TRU Open Learning ACCT 2251: Management Accounting 3 Question 3 (25 marks)
A regional hospital is considering an outsourcing arrangement to provide food
services. The following data has been summarized for the year just ended: food
costs, $950,000; labour $80,000; variable overhead, $40,000; allocated fixed
overhead, $50,000; and cafeteria sales revenue, $75,000.
Discussions with the potential supplier revealed the following:
a. The hospital will be charged $15 for each patient served. This figure has
been “marked up” by the supplier to reflect the cost of operating the
hospital cafeteria.
b. The hospital is a 250-bed facility and typically has an average occupancy
rate of 75%.
c. Labour is the primary driver for variable overhead. If outsourcing is
negotiated, hospital labour costs will drop by 90%. The outside supplier
will use the hospital’s facilities for meal preparation.
d. Cafeteria sales revenue is estimated to increase by 10% due to the
improved menu selection.
Required:
1. Should the food service operation be outsourced? Support your answer
with appropriate calculations and qualitative factors. Question 4 (15 marks)
The following information has been gathered from the records of Green
Company:
Processing time 20 days Inspection time 0.75 days Waiting time:
From order receipt to start of production 8.0 days From start of production through project completion 4.0 days Move time 1.25 days TRU Open Learning 4 Assignment 6 Required:
1. How long did it take to complete the project once production commenced?
2. Compute the manufacturing cycle efficiency.
3. What percentage of the overall production time was spent on (1) valueadding activities and (2) non-value adding activities? TRU Open Learning