ANSWER ALL QUESTIONS

Question 1 RRB has 'Know Your Customer' (KYC) procedures for their retail customers and corporate customers; the procedures are (i) Customer Identification Program (CIP), (ii) Customer Due Diligence (CDD), and (iii) Ongoing Monitoring. RRB currently uses the following cost-allocation rate per procedure, based on the following cost drivers used as the allocation base for the previous year: Table 1 - Cost-allocation rate KYC procedures Cost driver used as allocation base CIP Applications (potential customers) CDD Applications (potential customers) Ongoing Monitoring Ongoing customers Quantity 1,200 1,200 35,000 Cost-allocation rate $54 $125 $57 Currently, there has been much discussion regarding how much each procedure costs for each activity for retail customers and corporate customers. The accounting department has provided a breakdown for costs for each type of customer and procedure from the previous year. Table 2 - Costs of procedures per type of customer KYC procedures Retail customers Corporate customers Total CIP $50,000 $15,000 $65,000 CDD $50,000 $100,000 $150,000 Ongoing Monitoring $750,000 $1,250,000 $2,000,000 Total costs $850,000 $1,365,000 $2,215,000 The manager responsible for corporate customers, Jules De Martino, is concerned there is a product-cost cross-subsidisation. As an example, he argues the cost-allocation rate of $54 regarding CIP used for his corporate customers is artificially high because of the costs of CIP for retail customers. The manager responsible for retail customers, Katie White, argues exactly the opposite, that the corporate customers are the one pushing the cost-allocation rate higher, because, when compared to the retail customers, they are few applications in numbers. The commercial department has the breakdown of applications (potential customers) and ongoing customers from the previous year. Table 3 - Customers KYC procedures CIP CDD Ongoing Monitoring Retail customers Corporate customers | Total customers 1,000 200 1,200 1,000 200 1,200 30,000 5,000 35,000 Required a) Calculate the cost rate per unit of the cost driver for each KYC procedure for retail customers and corporate customers. (Chapter 11, 5 marks) b) Explain whether there is evidence of product-cost cross-subsidisation between retail customers and corporate customers. (Chapter 11, 5 marks) Question 2 The manager for retail customers, Katie White, wants to hear your opinion regarding one business offer she has offered Katie a partnership in the new business under the condition she shares with Easy Money all the RRB retail customers contact list. Katie will receive a commission for any person f contact list who installs the phone app called Easy Money. Required Please state one of the ethical standards, as provided by the Institute of Management Accountants (IMA) Statement of Ethical Professional Practice!, which would be jeopardized by Katie White by accepting the business offer and justify why this standard is being jeopardized. (There might be more than one ethical standard being jeopardized but only one is required for this question). (Chapter 1, 10 marks) RRB board is considering entering the business advisory service and there has been much discussion regarding how much an RRB business advisor should charge per hour of service. RRB has budgeted to supply 200,000 hours of business advisory service for the forthcoming year. Its variable cost is estimated at $21 per hour and its fixed costs are estimated at $300,000 for the forthcoming year. The board has been discussing whether to use a cost-plus approach or perhaps examining the demand levels. The marketing department has the following information on demand levels at different prices: Table 4-Demand levels Price per hour Demand in hours $25 220,000 $26 200,000 $27 180,000 $28 170,000 $29 140,000 Required a) Calculate the price per hour RRB should charge based on a cost-plus approach for pricing the service at full cost plus 20%. (Chapter 12, 10 marks) b) Considering RRB can meet any demand level in Table 4 and that fixed costs will remain unchanged for all the preceding demand levels, what price per hour should RRB charge? (e.g., Exercise 12.13, Chapter 12, 10 marks) You have been assigned for a Customer Due Diligence (CDD), more specifically, for reviewing the actual and budgeted figures of variable manufacturing overhead of Nowheresville Pty Ltd., a manufacturer of umbrellas. Jules De Martino is concerned whether this potential corporate customer is sticking to its variable manufacturing overhead budget or not. The analysis is for a specific month of the year, comparing the budgeted and actual figures. The variable manufacturing overhead cost is allocated to each umbrella based on budgeted direct manufacturing labour-hours per umbrella. For the specific month of the year, each umbrella is budgeted to take 4 labour-hours. Budgeted variable manufacturing overhead cost per labour-hour is $18. The budgeted number of umbrellas to be manufactured in this given month is 300. Actual variable manufacturing overhead costs in the given month were $20,000 for 280 umbrellas started and completed. There was no opening or closing stock of umbrellas. Actual direct manufacturing labour-hours for this given month were 1,200. Required a) Calculate the static-budget variance, the flexible-budget variance, and the sales volume variance for variable manufacturing overhead. (e.g., Exercise 16.11, Chapter 16, 5 marks) b) Based on the above answer, comment on whether Nowheresville Pty Ltd. is sticking to its variable manufacturing overhead budget or not. (e.g., Exercise 16.11, Chapter 16, 10 marks) c) Calculate the spending and efficiency variances for the given month and identify what has caused the flexible-budget variance for Nowheresville Pty Ltd. (e.g., Exercise 16.11, Chapter 16, 5 marks) Currently, Katie White (retail customers manager) and Jules De Martino (corporate customers manager) have their performance assessed based on how much profit/loss is made with their customers' loans and savings activities, but this has led to many disagreements. Based on figures from the previous year, the corporate customers' loans and savings activities have generated a profit of $124 million whereas the retail customers' loans and savings activities have generated a loss of $84 million. Jules is very happy with this outcome, but Katie argues Jules is lending money from her retail customers to his corporate customers. Table 5 - RRB loans and savings activities Retail Customers Corporate Customers All Customers $75 $ 1,925 $2,000 Values in million dollars Assets Loans to customers Liabilities Deposit from customers Interest income Loans (8%) Interest expense Deposits (6%) Profit/Loss with customers $1,500 $500 $2,000 $6 $154 $ 160 $90 $ 120 $30 $124 $40 RRB board is discussing implementing fund transfer pricing (FTP) for addressing Katie's concern about her customers funding Jules' activities. However, Jules argues implementing an arbitrary FTP rate will make the retail and customer managers performance evaluation too subjective. There has been some discussion in RRB board regarding implementing a Balanced Scorecard (BSC). Required a) Based on the figures from the previous year, what would be the adjusted profit/loss with retail customers and corporate customers if RRB set an FTP rate of 8% and which manager would benefit from this decision and why? (FTP, 10 marks) b) Is Jules correct on his statement that implementing an FTP rate will make the retail and customer managers performance evaluation too subjective? (Subjective performance evaluation}, 10 marks) c) If the RRB board implements a BSC, recommend a measure for each one of the four perspectives and justify why you have selected such measures. (Chapter 20, 10 marks) Question 1 RRB has 'Know Your Customer' (KYC) procedures for their retail customers and corporate customers; the procedures are (i) Customer Identification Program (CIP), (ii) Customer Due Diligence (CDD), and (iii) Ongoing Monitoring. RRB currently uses the following cost-allocation rate per procedure, based on the following cost drivers used as the allocation base for the previous year: Table 1 - Cost-allocation rate KYC procedures Cost driver used as allocation base CIP Applications (potential customers) CDD Applications (potential customers) Ongoing Monitoring Ongoing customers Quantity 1,200 1,200 35,000 Cost-allocation rate $54 $125 $57 Currently, there has been much discussion regarding how much each procedure costs for each activity for retail customers and corporate customers. The accounting department has provided a breakdown for costs for each type of customer and procedure from the previous year. Table 2 - Costs of procedures per type of customer KYC procedures Retail customers Corporate customers Total CIP $50,000 $15,000 $65,000 CDD $50,000 $100,000 $150,000 Ongoing Monitoring $750,000 $1,250,000 $2,000,000 Total costs $850,000 $1,365,000 $2,215,000 The manager responsible for corporate customers, Jules De Martino, is concerned there is a product-cost cross-subsidisation. As an example, he argues the cost-allocation rate of $54 regarding CIP used for his corporate customers is artificially high because of the costs of CIP for retail customers. The manager responsible for retail customers, Katie White, argues exactly the opposite, that the corporate customers are the one pushing the cost-allocation rate higher, because, when compared to the retail customers, they are few applications in numbers. The commercial department has the breakdown of applications (potential customers) and ongoing customers from the previous year. Table 3 - Customers KYC procedures CIP CDD Ongoing Monitoring Retail customers Corporate customers | Total customers 1,000 200 1,200 1,000 200 1,200 30,000 5,000 35,000 Required a) Calculate the cost rate per unit of the cost driver for each KYC procedure for retail customers and corporate customers. (Chapter 11, 5 marks) b) Explain whether there is evidence of product-cost cross-subsidisation between retail customers and corporate customers. (Chapter 11, 5 marks) Question 2 The manager for retail customers, Katie White, wants to hear your opinion regarding one business offer she has offered Katie a partnership in the new business under the condition she shares with Easy Money all the RRB retail customers contact list. Katie will receive a commission for any person f contact list who installs the phone app called Easy Money. Required Please state one of the ethical standards, as provided by the Institute of Management Accountants (IMA) Statement of Ethical Professional Practice!, which would be jeopardized by Katie White by accepting the business offer and justify why this standard is being jeopardized. (There might be more than one ethical standard being jeopardized but only one is required for this question). (Chapter 1, 10 marks) RRB board is considering entering the business advisory service and there has been much discussion regarding how much an RRB business advisor should charge per hour of service. RRB has budgeted to supply 200,000 hours of business advisory service for the forthcoming year. Its variable cost is estimated at $21 per hour and its fixed costs are estimated at $300,000 for the forthcoming year. The board has been discussing whether to use a cost-plus approach or perhaps examining the demand levels. The marketing department has the following information on demand levels at different prices: Table 4-Demand levels Price per hour Demand in hours $25 220,000 $26 200,000 $27 180,000 $28 170,000 $29 140,000 Required a) Calculate the price per hour RRB should charge based on a cost-plus approach for pricing the service at full cost plus 20%. (Chapter 12, 10 marks) b) Considering RRB can meet any demand level in Table 4 and that fixed costs will remain unchanged for all the preceding demand levels, what price per hour should RRB charge? (e.g., Exercise 12.13, Chapter 12, 10 marks) You have been assigned for a Customer Due Diligence (CDD), more specifically, for reviewing the actual and budgeted figures of variable manufacturing overhead of Nowheresville Pty Ltd., a manufacturer of umbrellas. Jules De Martino is concerned whether this potential corporate customer is sticking to its variable manufacturing overhead budget or not. The analysis is for a specific month of the year, comparing the budgeted and actual figures. The variable manufacturing overhead cost is allocated to each umbrella based on budgeted direct manufacturing labour-hours per umbrella. For the specific month of the year, each umbrella is budgeted to take 4 labour-hours. Budgeted variable manufacturing overhead cost per labour-hour is $18. The budgeted number of umbrellas to be manufactured in this given month is 300. Actual variable manufacturing overhead costs in the given month were $20,000 for 280 umbrellas started and completed. There was no opening or closing stock of umbrellas. Actual direct manufacturing labour-hours for this given month were 1,200. Required a) Calculate the static-budget variance, the flexible-budget variance, and the sales volume variance for variable manufacturing overhead. (e.g., Exercise 16.11, Chapter 16, 5 marks) b) Based on the above answer, comment on whether Nowheresville Pty Ltd. is sticking to its variable manufacturing overhead budget or not. (e.g., Exercise 16.11, Chapter 16, 10 marks) c) Calculate the spending and efficiency variances for the given month and identify what has caused the flexible-budget variance for Nowheresville Pty Ltd. (e.g., Exercise 16.11, Chapter 16, 5 marks) Currently, Katie White (retail customers manager) and Jules De Martino (corporate customers manager) have their performance assessed based on how much profit/loss is made with their customers' loans and savings activities, but this has led to many disagreements. Based on figures from the previous year, the corporate customers' loans and savings activities have generated a profit of $124 million whereas the retail customers' loans and savings activities have generated a loss of $84 million. Jules is very happy with this outcome, but Katie argues Jules is lending money from her retail customers to his corporate customers. Table 5 - RRB loans and savings activities Retail Customers Corporate Customers All Customers $75 $ 1,925 $2,000 Values in million dollars Assets Loans to customers Liabilities Deposit from customers Interest income Loans (8%) Interest expense Deposits (6%) Profit/Loss with customers $1,500 $500 $2,000 $6 $154 $ 160 $90 $ 120 $30 $124 $40 RRB board is discussing implementing fund transfer pricing (FTP) for addressing Katie's concern about her customers funding Jules' activities. However, Jules argues implementing an arbitrary FTP rate will make the retail and customer managers performance evaluation too subjective. There has been some discussion in RRB board regarding implementing a Balanced Scorecard (BSC). Required a) Based on the figures from the previous year, what would be the adjusted profit/loss with retail customers and corporate customers if RRB set an FTP rate of 8% and which manager would benefit from this decision and why? (FTP, 10 marks) b) Is Jules correct on his statement that implementing an FTP rate will make the retail and customer managers performance evaluation too subjective? (Subjective performance evaluation}, 10 marks) c) If the RRB board implements a BSC, recommend a measure for each one of the four perspectives and justify why you have selected such measures. (Chapter 20, 10 marks)