ASSIGNMENT 1 ACCT 214 WINTER 2021 40 POINTS DECISION MAKING AND ETHICS Situation 1: Job Costing (10 Points) Tech Solutions is a consulting firm that uses a job-order costing system. Its direct materials consist of hardware and software that it purchases and installs on behalf of its clients. The firms direct labor includes salaries of consultants that work at the clients job site, and its overhead consists of costs such as depreciation, utilities, and insurance related to the office headquarters as well as the office supplies that are consumed serving clients. Tech Solutions computes its predetermined overhead rate annually on the basis of direct labor-hours. At the beginning of the year, it estimated that 80,000 direct labor-hours would be required for the periods estimated level of client service. The company also estimated $680,000 of fixed overhead cost for the coming period and variable overhead of $0.50 per direct labor-hour. The firms actual overhead cost for the year was $692,000 and its actual total direct labor-hours was 83,000 hours. During the year, Tech Solutions started and completed the Xavier Company engagement. The following information was available with respect to this job: Direct Materials $38,000 Direct Labor Cost $21,000 Direct labor-hours worked 280 Required 1. Compute the Predetermined Overhead Rate (3 points) 2. Compute the total job cost for the Xavier Company (7 points) _______________________________________________________________________________________ Situation 2: CVP Analysis (15 Points) Aranguez Corporation produces a molded plastic casing, LX20A, for desktop computers. Summary data from its 2013 income statement are as follows: Revenues $ 6,000,000 Variable costs (3,600,000) Fixed costs (2,000,000) Operating income $ 400,000 Jane Dall, Aranguezs president, is very concerned about Aranguez Corporations poor profitability. She asks Giselle James, production manager, and Lester Saline, controller, to see if there are ways to reduce costs. After two weeks, James returns with a proposal to reduce variable costs to 50% of revenues by reducing the costs Aranguez currently incurs for safe disposal of waste plastic. Saline is concerned that this would expose the company to potential environmental liabilities. He tells James, We would need to estimate some of these potential environmental costs and include them in our analysis. You cannot do that, James replies. We are not violating any laws. There is some possibility that we may have to incur environmental costs in the future, but if we bring it up now, this proposal will not go through because our senior management always assumes these costs to be larger than they turn out to be. The market is very tough, and we are in danger of shutting down the company. We dont want all our colleagues to lose their jobs. The only reason our competitors are making money is because they are doing exactly what I am proposing. Required 1. Calculate Aranguez Corporations breakeven revenues for 2013. (2 Points) 2. Calculate Aranguez Corporations breakeven revenues for 2013, if variable costs were 50% of revenues. (2 Points) 3. Calculate Aranguez Corporations margin of safety as a percent of sales assuming that variable costs have been reduced to 50% of sales. (2 Points) 4. Given Giselle Jamess comments, what should Lester Saline do? Be sure to refer to the IMAs Ethical Guidance which is presented on in the Canvas Site of the course text. (9 Points) Situation 3: Constrained Resources (15 Points) Outdoor Luggage, Inc., makes high-end hard-sided luggage for sports equipment. Data concerning three of the companys most popular models appear below-: _________________Product_____________________ Ski Guard Golf Guard Fishing Guard Selling price per unit $200 $300 $255 Variable Costs per unit 60 140 55 Plastic injection molding machine processing Time required to produce one unit 2 minutes 5 minutes 4 minutes Pounds of plastic pellets per unit 7 pounds 4 pounds 8 pounds Required: 1. If we assume that the total time available on the plastic injection molding machine is the constraint in the production process, how much contribution margin per minute of the constrained resource is earned by each product? (6 points) 2. Which product offers the most profitable use of the plastic injection molding machine? (1 points) 3. If we assume that a severe shortage of plastic pellets has required the company to cut back its production so much that its new constraint has become the total available pounds of plastic pellets, how much contribution margin per pound of the constrained resource is earned by each product? (6 points) 4. Which product offers the most profitable use of the plastic pellets? (1 point) 5. Which product has the largest contribution margin per unit? Why wouldnt this product be the most profitable use of the constrained resource in either case? (2 points)