HBSP Product Number TCGZ61 THE CRIMSON PRESS CURRICULUM CENTER THE CRIMSON GROUP, INC. White Hills Children's Museum \"I'm outraged,\" said Jan Sweeney, director of the Urban Life Program of White Hills Chil- dren's Museum. A few weeks ago. I asked D&E [Design and Engineering Department] for a bid to build the Central Ar- tery Exhibit of my Cities and Streets Project. The D&E bid was $7,000 more than a bidI received from a local construction rm, yet it seems Mike [the museum's director] is encouraging me to use D&E anyway. It doesn't make sense! BACKGROUND White Hills Children's Museum was a medium-sized nonprot museum located in northern California, just outside San Francisco. Its charter stipulated that is was to orient its activities and ex- hibits toward the environment, and it had been enormously successful in attracting a wide following of regular visitors. The museum also enjoyed a national reputation, and attracted a sizable number of visitors who were vacationing in northern California. Recently, under the leadership of a new director, the museum had been organized into prot centers, and Ms. Sweeney's program had been designated as one of the programmatic prot cen- ters. As such, she was encouraged, but not required, to \"purchase\" all design and construction services for her program from the museum's Design and Engineering Department, a service prot center. Both managers -- as well as all other prot center managers -- had the possibility of earning annual bonuses based upon the prots of their prot centers. The services of the D&E Department ranged from the construction of relatively simple display cases to the design and manufacmre of rather complex exhibits. Some of the recent exhibits the D&E Department had developed included a miniature waterfall and an articial windstorm. Be- cause of the complexity of the demands made upon it, and the resulting need for a wide variety of technical skills, the D&E Department needed a rather large staff. Since the museum was too small to fully utilize its staff, however, the Department also sold its services to other organizations, includ- ing several smaller museums located within a radius of about a hundred miles from While Hills. At the moment, because it was a slow period for most museums, the Department's staff was not fully utilized. This was not an unusual situation. The Central Artery Exhibit In planning her Cities and Streets project, Ms. Sweeney knew that she needed several exhibits designed and built to rather exacting specifications. One was the Central Artery exhibit, a large scale illustration of the environmental impact of placing an expressway underground. Her plans called for four phases of construction, showing how the environment would be affected by each phase. The exhibits had to be large enough to allow children to explore them from the inside, thereby letting them experience as well as learn about the impact of the project. DATA Because the exhibit was a large one, Ms. Sweeney had asked John Harp, the D&E Department director to assist her in putting together the design and engineering specications. The two had spent several days discussing the exhibit's objectives and constraints, and Mr. Harp had prepared some architectural and engineering drawings. For use only in the course ACCT 422-Advanced Management Accounting at MacEwan University taught by Jim Hayes from January 06, 2019 to April 29. 2019. Use outside these parameters is a copyright violation. At that point, Ms. Sweeney had asked him for an estimate of the cost, and, after a few days of gathering the necessary information, he had provided her with a gure of $27,000. His calculations are shown in Exhibit 1. Shocked at the amount, Ms. Sweeney had called Mr. Harp to complain. At his suggestion, she had taken the drawings to a local construction rm and asked them for a bid. Using the drawings plus the design and engineering specications prepared by Mr. Harp, the local rm had given Ms. Sweeney a gure of $20,000. The rm had indicated that the gure was all-inclusive and was rm, ie. it included all supplies, materials, labor and prot. Ms. Sweeney would be charged $20,000 re- gardless of the actual costs the rm incurred in constructing the exhibit. THE DECISION When he heard of the situation, Mike Sampson, the museum's new director immediately called the two managers into his ofce, and asked for an explanation. Mr. Harp was the rst to speak: I simply can't do the job for less. I've been working for several months now to establish a fair pricing structure not only for people inside the museum but for my external customers. This is the priceI would use for our neighboring museums, and it's the one I feel I must use for J an as well. Besides, I spent all that time helping her design the project and preparing the drawings-- that must be worth something. Ms. Sweeney responded: When I was in school, we were taught that the transfer price should be the market price. I think I've pretty well established what the market price is, and I should not be asked to pay any more than that. IfI did, my prots would fall, and you've been asking us to worry about our bottom lines. This $7,000 di'erence would make a big difference at the end of the year, particularly in terms of my bonus. Mr. Sampson's main concern at this point was with the overall surplus of the Museum. It was clear that if Ms. Sweeney used the local construction rm to build her exhibit, the cost to her de- partment would be less, But he felt quite certain that the impact on the museum's surplus would be worse than if she used Mr. Harp's department. He was not sure if he should intervene in the deci- sion or not, and if he did, what his intervention should be. Assignment 1. What is the impact on the Museum's surplus of each of the options? 2. Should Mr. Sampson intervene in this decision? Why or Why not? 3. If Mr. Sampson intervenes, what should he do? Please be specic: For example, should he tell Ms. Sweeney to purchase the work for the exhibit from Mr. Harp? If so, at what price? 4. Ier. Sampson does not intervene, what do you think will happen? Is this good or bad for the museum in the short term? In the long term? 5. What other advice would you give Mr. Sampson? Ms. Sweeney? Mr. Harp? Exhibit 1. Budget Information Prepared by the Design and Engineering Department Materials 31 7,000 Direct labor (1) 10,000 Variable overhead (2) 2,000 Fixed overhead (3) 5,000 Total costs $24,000 Markup 3,000 Total bid $27,000 Notes: 1 . Carpenters, plumbers, electricians, painters, and gofers. All currently are on staff; ie. no one would be hired especially for this project. 2. Miscellaneous cleaning solvents, sandpaper, and other minor materials that will not be purchased specically for this project but that would not be used without the project. Also includes the cost of supervision. 3. Allocated portion of the cost of the department head, administrative assistant, and secretary, as well as several other administrative costs, such as the rent charged the department by the museum's central administration. For use only in the course ACCT 422Advaneed Management Accounting at MacEwan University taught by Jim Hayes from January 06, 2019 to April 29, 2019. Use outside these parameters is a copyright violation