i need help with my accounting final. especially question #3

GEORGIA SOUTHERN UNIVERSITY MBA PROGRAM ACCT 7230 FINAL FALL, 2016 NAME =================================================================== GENERAL INSTRUCTIONS. THE TIMES ASSOCIATED WITH THE QUESTIONS ARE THERE TO GIVE YOU SOME SORT OF LIMIT. THE QUESTIONS MAY BE ABLE TO BE DISCUSSED MORE FULLY, BUT I HAVE LIMITATIONS TO MY GRADING, SO PLEASE KEEP THINGS IN BULLET FORM, BE CONCISE BUT CLEAR. IF YOU HAVE PASSED THE TIME LIMIT FOR THE QUESTION, CONSIDER WINDING UP THE QUESTION IF YOU HAVE HIT THE MAIN POINTS. THE IDEA IS TO MAKE SURE THAT I BELIEVE YOU KNOW WHAT YOU ARE TALKING ABOUT. ENJOY! Q1 - 60 MINUTES. ABC vs. Simpler system First Company fishes the Firth River and prepares Fresh and Frozen fish products. In order to determine the product costs, the following information is available. The company currently uses direct labor hours (DLH) as its allocation base (cost driver) to allocate the $934,000 overhead from a single pool. Thus: All Overhead Total Cost Cost driver Fresh Fish Frozen Fish Total $934,000 40,000 DLH 10,000 DLH (25%) 30,000 DLH (75%) A study investigated the Total Overhead and determined the Total could be broken down into the following Activities and drivers. Amount of driver consumed in Activity Activity Cost Cost driver Fresh Fish Frozen Fish Unloading Fish $300,000 20,000 loads 5,000 loads 15,000 loads Utilities for filleting line $24,000 60,000 gallons 14,400 gals 45,600 gals Equipment maintenance $330,000 4,000 machine hrs 2,680 mach hr 1,320 mach hr Setups $280,000 1400 setups 1,120 setups 280 setups Total $934,000 To be clear, take Unloading fish. 76% of the loads (the cost driver) are associated with Frozen Fish. REQUIRED. 1. Is the above information based on actual costs and volumes or anticipated costs and volumes? Explain your reasoning and what benefits can come from companies using the choice you suggest. This information is based on anticipated costs and volumes since the company currently uses the DLH as its allocation base. 2. Remember that the company, at present, is using direct labor hours (DLH) to assign costs. It is now considering the use of just two of the above cost drivers to drive all the overhead costs to the two products. The two drivers considered are loads and gallons of water. If you compare the overhead costs allocated to the products using DLH to the overhead allocated using the two above noted drivers (loads and gallons), do the new drivers produce different product costs (remember that all the overhead will be allocated under both alternatives)? To answer this: (a) prove with calculations (b) also, please explain, with analysis of the production process data provided above, how and why using these two drivers will or will not produce significantly different costs for each of the products, compared to using DLH. 3. If all four of the activities were used to allocate the overhead (ie a full ABC calculation), would the cost be significantly different from using the DLH allocation method? (a) prove with calculations (b) also, explain why or why not, with analysis of the production process data provided above. Q2.60 MINUTES. Performance report. FALL, 2016 France Inc. has two divisions: Bastille and Versailles. This question concerns Bastille Div. Bonuses for the division managers are based on a formula that (1) compares the two division's ROIs to award one part of the total bonus, and (2) evaluates the individual division's variances from their own budget to award the second part of the bonus. Some information on the divisions is as follows: 1. The divisions are completely decentralized. 2. All (100%) of Bastille's sales are to the other division: Versailles. Bastille's original purpose is to make and supply Versailles with components it requires. 3. Versailles is 10 times larger than Bastille. Below are the detailed accounts used to calculate the ROI measure and the variances (ie differences) for Bastille. Bastille Division. Performance report For the year ended December 31, 2015 Actual results 2015 Original (Master) Budget for 2015 Difference 2,400 2,300 100 $138,000 $162,800 (24,800) (15.2%) $32,000 $41,700 $29,000 $102,700 $40,000 $53,000 $37,000 $130,000 (8,000) (20.0%) (11,300) (21.3) (8,000) (21.6%) $(27,300)(21.0%) $228 $425 $300 $953 $210 $440 $525 $1,175 18 (15) (225) $(222) 0 $52 ($52) (100.0%) $125 $125 0 $52 125 $73 Total expenses and deductions $103,778 $131,227 (27,449) (20.9%) Division income $34,222 $31,573 $2,649 Production data Units produced Financial Data ($000) Sales Production cost of units sold Raw materials Labor Factory Overhead Cost of units sold Other costs Headquarter charges for: IT services Administrative services Headquarter costs Total other costs Adjustments to Income Unreimbursed fire loss Losses due to raw materials deterioration Total adjustments Division investments $92,000 $73,000 (defined as net book value of Property, Plant, and Equipment) Return on Investment (Div Inc / Div investments) 37% 43% 4.3% 8.6% (3.4%) (42.9%) (18.9%) 140.4% 8.4% $19,000 26.0% Some additional information on the Bastille costs are: Corporate practices include: - Headquarters does all personnel and accounting work for the divisions. - IT services are allocated based on sales dollars; head office administrative expenses are allocated based on total expenses paid. Headquarter costs are costs of CEO, CFO, etc. salaries and personnel and accounting work; these costs are split between divisions based on size. Divisional administration expenses are included in the manufacturing fixed overhead costs. The Division Investment dollars equal net book value of the fixed assets for the division. It should be noted that the divisional managers have the authority and responsibility to manage these fixed assets as well as accounts receivable and accounts payable. Divisional managers do not have authority and responsibility for inventory, marketable securities, and remaining other current working capital accounts. Also, divisional investment includes a building that has not been used for decades because headquarters has ordered it held for future use. As well, the minimum rate of return for the company is 20%. Required. 1. What is the residual income for Bastille? Defend the ROI or residual income measure as most appropriate for part (1) of the bonus for France Inc.'s Bastille Division. 2. Criticize the components of the performance metric for Bastille. Use bullet form, but make sure a brief justification for your criticism is clear and concise. For example, you will note that the comparisons (ie difference calculations = variances presented) are to original budget. Is this a valid criticism and why is it valid (what's the issue in this particular example)? ... As another example, should \"Losses due to raw material deterioration\" be included in the performance metric? ... Then continue looking at the other detailed pieces of this performance metric calculation for other criticisms. Please provide 7 criticisms. GEORGIA SOUTHERN UNIVERSITY MBA PROGRAM ACCT 7230 FINAL FALL, 2016 =================================================================== Q3. 40 minutes. Variances. Sucre Six makes a candy bar and has the following standards for the production of the bar: Materials: (5.27 oz @ $0.04/oz) $0.2108 Labor: (0.05 hr @ $2.60/hr) $0.13 Total per unit direct costs $0.3408 During this week the company produced 100,000 bars and incurred the following actual costs: a. Purchased and used 570,000 ounces for $21,090. b. Direct labor worked 5200 hours and total wages were $15,184. The accountant prepared the following analysis for the first week for feedback to the manager: Original Budget for the week Materials Labor $26,400 $15,600 Total Actual Costs for the week $21,090 $15,184 Price/Rate Variance based on flexible budget $1,710 $1,664 Quantity/Efficiency Variance based on flexible budget $1,720 $520 Additional information. The company had purchased materials from a new source and hired new labor crew. REQUIRED: 1. Evaluate the new materials source and the new labor crew decision based on the variance information contained in the accountant's report. 2. Given the interpretations of the variances above, can you think of an underlying set of reasons (scenarios) that may explain all the variances and what may have happened (what the manager may have tried out to see if savings could be gained) last week? It doesn't have to be the best or the actual story, but is there a story? For instance, might the manager have tried to reduce the quantity of materials and that reduction effected all the other components? This is not the story, but illustrates the type of thing I am looking for. Related to the story that you believe may have happened, please indicate below what line of inquiry you may follow in your review of the four variances with the manager: please provide a question you would ask per variance that you might pursue in a meeting with the Sucre Six manager who reports to you. We have noted three general areas/paths of investigation, so I am also looking for each of the three paths to be covered at least once. What is your 'story' to be investigated? Variance 1. Materials price - 2. Materials quantity - 3. Labor Rate - 4. Labor efficiency - Investigative question How does this question relate to your \"Story\" that you think describes what may have happened? GEORGIA SOUTHERN UNIVERSITY MBA PROGRAM ACCT 7230 FINAL FALL, 2016 =================================================================== Q4. 30 minutes. Using regression to derive a \"cost estimating equation\". Managers in the Stamping Department are analyzing the cost behavior of the rework dollars to answer the question, are rework dollars related to employee training? Data from the most recent 12 months follow. The following data, by month, identifies: Month, $ value of rework, Training minutes. January february March April May June July august september october november december 2100 6010 7210 5030 6880 6520 6230 5570 8200 5810 4580 4560 2050 2864 3403 2730 3411 2586 3364 2411 3660 2897 2207 2200 REQUIRED: 1. Using spreadsheet software, prepare a scatterplot to graph the above observations in a spreadsheet. Plot the above and submit it to me with your exam. 2. Using regression analysis, what is the \"Cost estimating equation\" and is it a good way to predict the Rework dollars? Make any adjustments to the data that you deem necessary to derive your \"Cost estimating equation\". 3. In the Word.doc of your exam, answer the following. In order to reduce measurement costs, the manager decided to just measure the beginning of year rework dollars and training minutes and the end of year rework dollars and training minutes, instead of taking measures once a month as indicated above. His idea was to use just those two months' (Jan and Dec) observations to determine and interpret the relationship (ie positive, strong, variable, fixed, etc.) between the rework costs and training time because these two months spanned the timeframe of the operating cycle. Please explain, with specific reference to the graph you have created in (1), how the interpretations would differ when using just the two (January and December) observations instead of the regression analysis. Would he come to different conclusions than you have? You need to direct me to your graph for evidence of your agreement with his conclusions from his measure using the two points and a conclusion you might make using all the points. Also, please explain whether the variable cost per training minute and the fixed costs would be overstated or understated using the two-point (high-low) method compared to what they are as indicated by your scatterplot