~ ffl-: -t1t...:.,;j:f:~*~ _ 1. ChungHsing Company adopts a traditional activity-based costing system to assign $1,000.,000 ofcommitted resource costs for customer service on the basis of the following information gathered from interviews with customer service personnel: Activity Time Percentage Estimated Cost Driver Quantity Handle customer orders. 70% 10,000 customer orders Process customer complaints 15% 500 customer complaints Perform customer credit checks 12% 600 credit checks Process customer lawsuit 3% 50 customer lawsuits 100% Required: (22%) (1) Compute the activity cost driver rates usmg traditional activity-based costing system. (2) Assume instead that ChungHsing adopts time-driven activity-based costing to assign the $1,000,000 of committed resource costs to the four activities. Compute the time-driven activity cost driver rates, assuming 20,000 hours of useful work and the unit time estimates that follow: Activity Unit Time (Hours) Handle customer orders 1.50 Process customer complaints 4.00 Perform customer credit checks 2.50 Process customer lawsuit 3.50 (3) Assume that the quantities of activities this period are 10,000 customer orders, 500 customer complaints, 600 credit checks, and 50 customer lawsuits. Using the information and activity cost driver rates obtained in (2), compute the cost assigned to each of the activities and the estimated hours of unused capacity as well as the associated cost. (4) Compare and explain why the activity cost driver rates developed in (1) are different from the activity cost driver rates developed in (2).
l@.il tf *:k~99~~j.t,l;~ ±JjItg 1-~~~~~,t!.fl.. z ex.i:1t T 1 t-1t:f: ~ ffi-: t1l:f:..l-...:.;l.;ffi:..- _ 2. Taiwan Company is considering introducing a new faucet model at a price of $150 per unit. Taiwan's controller has provided the following incremental cost information based on an estimate of 180,000 units of sales annually for the new model product: Direct materials cost $6,480,000 Direct labor cost $4,500,000 Variable manufacturing overhead $3,600,000 Sales commission 10% of sales Other variable selling expense $1,800,000 Fixed cost $3,000,000 The average inventory levels for the new faucet model are estimated as follows: Raw materials 3 months of production Work in process (100% complete for materials and 40% complete for labor and variable manufacturing overhead).. 2 month of production Finished goods 2 months ofproduction The annual inventory carrying costs that are not included in the variable manufacturing overhead listed earlier are estimated to be 14% of inventory value. Moreover, the sales manager expects the introduction of the new faucet model to induce a reduction in sales of the existing faucet model from 320,000 to 250,000 units. The contribution margin for the old model product is $50 per unit. Required: (21 %) (1) Determine the total impact on Taiwan's profit from the introduction of the new faucet model. Show your calculations. (2) Should Taiwan introduce the new model product? Explain your answer by calculations. (3) Compute the breakeven point (in units) for the new model product. Assume that sales of the old model product decrease by one unit for every two-unit increase in the sales ofthe new model product.
~ SL. tf ~*-~99~if-ll~~±JjI{g 1.~1~1~,t! iffl':' fix.#1itfjf.:t1t:f: ~fjf-: ~rt...:.l",...fo*c...'-"'""'--------- 3. Taichung Company is a mail-order catalog business with customers worldwide. The headquarters of. company is in a small town some distance from any major metropolitan area. Taichung's sales have grown steadily over the years, and the call center facilities are currently inadequate for the sales volume. Taichung's management is deciding on whether the call center operations should outsource to a company specializing in such operations. If the call center is outsourced, most of the current employees will lose their jobs. Regardless of where the call center is located, customers will call a toll-free phone number. However, if the call center is outsourced, more multilingual operators would be available. Taichung has identified the following operating costs per year when the call center is in-house: Labor $800,000 Phone charges 100,000 Building rent 150,000 Facility- sustaining support 80,000 The building insurance and facility & equipment -sustaining support in headquarters are $600,000 and 300,000, respectively. If the call center is outsourced, the related office equipment would be sold to the new call center for $105,000. The equipment was originally purchased at a cost of $250,000 by Taichung, equipment's useful life is five years, and remaining life is two years. Taichung will no longer rent the building, and the employees in existing call center will have the opportunity to transfer to the outside call center, in which their salaries will be paid by the outside call center. If Taichung outsources the call center and same number and pattern of calls occur next year, Taichung will pay the new call center finn $1,020,000 for the year. Required: (7%) (1) What costs are relevant for the decision on outsourcing the call center? What should Taichung do? Show your calculations.
~ 1L tf 1fA~99~1f-lih~ ±J)Ifg!t;:lft~t~"!.fi 8':" J #1tt JJ.:t"tt:!: ~ tjt-: bt--,,-",~~.r.:...' _ *#8~~*'7J( 4. The following data pertain to the budgeted overhead for Coolbelly, Inc., which makes bags and shoes. Item Amount Materials handling and inventory $3,200,000 Supervision 400,000 Payroll 600,000 Factory administration 1,600,000 Machine depreciation 3,650,000 Machine operations 1,680,000 Sales offices 960,000 Travel and other customer development 1,200,000 Selling administration 1,510,000 Total capacity costs $14,800,000 Coolbelly, Inc., has asked for your help in estimating capacity costs if it implements an ambitious plan to rationalize its product portfolio. If implemented, the change would dramatically alter Coolbelly's activity profile. Coolbelly provides you with the following additional information concerning activity levels before and after the change in product portfolio. Item Current Amount Expected Amount (prior to change) (after the change) Material cost $50,000,000 $65,000,000 Labor hours 125,000 hours 118,000 hours Machine hours 80,000 hours 142,000 hours Revenue $160,000,000 $190,000,000 Required: (18%) (1) Coolbelly currently uses labor hours to allocate all capacity costs (including SG&A costs) to products. Using the allocation rate per unit of this driver, estimate the capacity cost after the change in operations. (2) Repeat the above exercise with machine hours and revenues as the sole drivers. (3) Could you construct a better estimate using a combination of these four drivers to model the change in activity levels? Please show your estimate in more detail. (4) How does the refinement in part (3) bring the analysis closer to direct estimation of capacity costs? Comment on the relative merits and demerits of direct estimation and using allocations to estimate capacity costs.
~ Pft-: t-"tt~.--::;*.c...' _ *#~~~*'JJ{ 5. GrayLine Corporation specializes in the manufacture of electric equipment. Approximately two years ago, Richard Marks, president of GrayLine, became concerned that the company's bonus plan, which focused on division profitability, was not helping GrayLine remain competitive. Richard decided to implement a gain-sharing plan that would encourage employees to focus on operational areas that were important to customers and that added value without increasing cost. In addition to a profitability incentive, the revised plan also includes incentives for reduced rework costs, reduced sales returns, and on-time deliveries. Bonuses are calculated and awarded semiannually on the following basis. The bonuses are distributed among the relevant employees according to a formula developed by the division manager. <'Profltability: 1.5% of operating income. <Rework: Costs in excess of 1.5% of operating income are deducted from the bonus amount. V"On-:time delivery: $15,000 if over 98% of deliveries are on time, $6,000 if 96% to 98% of deliveries are on time, and no increment if on-time deliveries are below 96%. < Sales returns: $8,000 if returns are less than 2% of sales. Fifty percent of any amount in excess of 2% of sales is deducted from the bonus amount. V"Note: If the calculation of the bonus results in a negative amount for a particular period, there is no bonus, and the negative amount is not carried forward to the next period. The revised bonus plan was implemented on January 1, 2008. Presented in the following table are the results for two of GrayLine's divisions, ABX and CDY division, for the first year under the new bonus plan. Both of these divisions had similar sales and operating income results for the prior year, where the old bonus plan was in effect. Based on the 2007 results, the employees of the ABX Division earned a bonus of $55,500 while the employees of the CDY Division earned $45,000.
r@.!l 'f ~":k!f99~~1i~~ ±J)l{g!t~1~1~"! ff"llo; ex.#$tfg-tt±5f: ~Pft-: t1±~!f:~~c...' _ ABX Division CDY Division January 2008 July 2008 January 2008.: July 2008 June 2008 December 2008 June 2008 December 2008 Sales $8,000,000 $9,000,000 $6,000,000 $6,500,000 Operating income $950,000 $900,000 $650,000 $850,000 On-time delivery 95% 98% 99% 94% Rework costs $24,000 $23,000 $12,000 $16,000 Sales returns $170,000 $150,000 $90,000 $88,000 Required: (18%) (1) Compute the semiannual installments and total bonus awarded for year 2008 for the ABX division, and discuss the likely behavior of the ABX Division employees under the revised bonus plan. (2) Compute the semiannual installments and total bonus awarded for year 2008 for the CDY division, and discuss the likely behavior of the CDY Division employees under the revised bonus plan. (3).Evaluate whether or not Richard's revisions to the bonus plan at GrayLine Corporation have achieved the desired results, and recommend any changes that might improve the plan. 6. EasyGo Manufacturing manufactures over 10,000 different products made from plastics, including building materials, tools, and bicycle parts. Robin Lee, the manager of the bicycle parts division has proposed that his division expand into furniture parts as well. The bicycle parts division currently generates case revenues of $5,800,000 and incurs cash costs of $3,600,000, with an investment in assets of $13,500,000. One-fourth ofthe cash costs are direct labor. Robin estimates that the expansion of the business will require an investment in working capital of $50,000. Because the company already has a facility, there would be no additional rent or purchase costs for a building, but the project would generate an additional $380,000 in annual cash overhead. Moreover, Robin expects annual materials cash costs for furniture parts to be $1,800,000, and labor for the furniture parts to be about the same as the labor cash costs for bicycle parts.
~ 1L"t **~9g~1f-J.i-b~ ±JjIfg 1.3If"1~1~1! fi~":" a*="1!-fj.!t-1"tf: ~tjt-: 't1±-of,:f:...:.*c..' _ The Controller of EasyGo, working with various managers, estimates that the expansion would require the purchase of equipment with a $6,000,000 cost and an expected disposal value of $500,000 at the end of its 10-year useful life. Depreciation would occur on a straight -line basis. The CFO of EasyGo determines the finn's cost of capital as 11%. The CFO's salary is $960,000 per year. Adding another division will not change that. The CEO asks for a report on expected revenues for the project, and is told by the marketing department that it might be able to achieve cash revenues of $4,200,000 annually from furniture parts. Required: (14%) (1) Separate the cash flows into four groups: (a) net initial investment cash flows, (b) cash flows from operations, (c) cash flows from terminal disposal of investment, and (d) cash flows not relevant to the capital budgeting problem. (2) Assuming a tax rate of 30%, should the expansion project be accepted? Please calculate the net present value of this project and comment on your analysis. (present value of 1 for 9 periods at 11% is 0.391; present value of 1 for 10 periods at 11 % is 0.352; present value of 1 for 11 periods at 11% is 0.317; present value of an ordinary annuity of 1 for 9 periods at 11% is 5.537; present value of an ordinary annuity of 1 for 10 periods at 11% is 5.889; present value of an ordinary annuity of 1 for 11 periods at 11% is 6.207)