Jack Halpern is the owner and CEO of Aerospace Comfort, a firm specialising in the manufacture of seats for aeroplanes. He has just received a copy of a letter written to the general audit section of the RAAF. He believes it is from an ex-employee of Aerospace Comfort.

Dear Sir,

Aerospace Comfort manufactured 100 X7 seats for the RAAF in 2014. The following may be of interest.

1- Direct materials costs billed for the 100 X7 seats were $25000.

2- Direct manufacturing labour costs billed for 100 X7 seats were $6000. These costs include 16 hours of set-up labour at $25 per hour, an amount included in the manufacturing overhead cost pool as well. The $6000 also includes 12 hours of design time at $50 an hour. Design time was explicitly identified as a cost the RAAF would not reimburse.

3- Manufacturing overhead costs billed for 100 X7 seats were $9000 (150% of direct manufacturing labour costs). This amount includes the 16 hours of set-up labour at $25 per hour that is incorrectly included as part of direct manufacturing labour costs.

You may also want to know that over 40% of the direct materials is purchased from Frontier Technology, a company that is 51% owned by Jack Halperns brother. For obvious reasons, this letter will not be signed.

cc: The Australian, Jack Halpern, CEO of Aerospace Comfort

Aerospace Comforts contract states that the RAAF reimburses Aerospace Comfort at 130% of total manufacturing costs. Assume that the facts in the letter are correct as you answer the following questions.

Required

a- What is the cost amount per X7 seat that Aerospace Comfort billed the RAAF? Assume that the actual direct materials costs were $25 000.

b- What is the amount per X7 seat that Aerospace Comfort should have billed the RAAF? Assume that the actual direct materials costs were $25000. 7 | Page Due Date: Monday the 16th of May 2016 at 23.59pm ACT202 Management Accounting Assignment one Semester one -2016

c- What should the RAAF do to tighten its procurement procedures to reduce the likelihood of such situations recurring in the future?

Good Luck