Super Daycare provides two different services, full-time childcare for preschoolers, and afterschool care for older children 5 days a week from Monday to Friday. The director would like to estimate an annual cost per child in each of the daycare programs, ignoring any facilitysustaining costs. She is considering expanding the services and wants to know whether fulltime or after-school care is more profitable.

The following activities and annual costs apply to the daycare centre. Salaries and wages total $100,000 per annum. Full-time children arrive at about 8 am. Older children arrive about 3 pm. All of the children leave the Daycare by 6 pm. On a five day week basis employees estimate that they spend about 20 per cent of their time on meal-related activities, 20 per cent supervising naps or recreation, 10 per cent in greeting or sending children home, and the rest of the time presenting educational experiences to the children. Meals and snacks cost about $20,000 per annum. Preschoolers receive two snacks and one meal per day, and the older children receive one snack per day. On average, snacks and meals do not differ in cost. Supplies cost (e.g. art, craft) $10,000 for the full-time childcare program and $8,000 for the after-school program per annum.

Currently, 30 children participate in full-time care and 10 children in after-school care. Because Super Daycare maintains a waiting list for openings in its programs, the number of children in each program remains steady.

Question 1: ABC[20 marks]

Required: Refer to Part A Case - Super Daycare complete the following:

I. Using the activities your group identified in Part A, estimate the annual cost per child in each programme. Assuming Super Daycare opens Monday to Friday for 50 weeks a year excluding public holidays. Show all your workings.

Question 2: Support department cost allocation and departmental overhead rates [35 marks]

Yellow River Ltd produces a product called Elite, which requires work from both moulding and assembly departments. The company is developing departmental overhead rates based on machine hours for its moulding department and direct labour hours for its assembly department. The moulding department has 20 machines and each runs for 2,000 hours per year. The assembly department employs 80 people, each works for 2,000 hours per year. The production related overhead costs distributed to moulding and assembly departments are budgeted at $500,000 and $740,000, respectively. Two support departments, repairs, and engineering, directly support the two production departments and they have budgeted cost of $100,000 and $580,000, respectively. The production departments' overhead rates cannot be determined until the support department costs are allocated. The following schedule reflects use of the services in hours provided by the support departments to the various departments.

Support departments User departments Repairs Engineering Moulding Assembly Repairs (repair hours) 0 2,000 3,000 15,000 Engineering (kilowatt hours) 250,000 0 850,000 150,000

The cost of the repairs department is allocated based on repair hours, and the cost of engineering department is allocated on the basis on kilowatt hours.

Required: Show all your workings. Round the allocation ratios to 4 decimal places, overhead rates and cost to 2 decimal places.

I. Use the direct method to allocate support department costs, and thena. calculate the overhead rates per machine hour for the moulding department and per direct labour hour for the assembly department.(12 marks)

Part B - Question 2 continued over page

1801/110.229Assignment 2 Booklet Distance/InternalManawatu/Auckland

12

Part B - Question 2 continued

b. Estimate the overhead costs of Elite, which is produced using 3 machine hours in the moulding department and 5 labour hours in the assembly department.(2 marks)

II. Using the step-down method to allocate support department costs (Note: allocate the repairs department cost first), and then a. calculate the overhead rates per machine hour for the moulding department and per direct labour hour for the assembly department.(15 marks)

b. estimate the overhead costs of Elite, which is produced using 3 machine hours in the moulding department and 5 labour hours in the assembly department.(2 marks)

III. Which of the two methods of support department cost allocation results in the most accurate overhead rates and product cost and why? Use your calculations from parts I and II to answer this question.(4 marks)

Question 3: CVP analysis[23 marks]

Speedy Sophia makes baseballs that sell for $12.50 each. The company's current annual production and sales are 240,000 baseballs. Annual fixed costs are $589,550. Variable costs for each baseball are as follows: Direct material $3.00 Direct labour 1.50 Variable overhead 0.40 Variable selling expenses 1.10 Total variable cost $6.00

Required: Show all your workings. I. Calculate the break-even point in number of baseballs and contribution margin ratio as a percentage for the company.(2 marks)

II. Calculate the break-even point in dollars using the contribution margin ratio.(1 mark)

III. Determine the company's margin of safety in number of baseballs, in sales dollars and as a percentage (keep two decimal places in percentage).(3 marks)

IV. How many baseballs must the company sell if it desires to earn a before tax profit of $996,450?(3 marks)

Part B - Question 3 continued over page

1801/110.229Assignment 2 Booklet Distance/InternalManawatu/Auckland

13

Part B - Question 3 continued

V. How many baseballs must the company sell if it wants to earn an after tax profit of $657,800 with a tax rate of 20 percent?(4 marks)

VI. How many baseballs would the company need to sell to break even if its fixed costs increased by $7,865? (Using original data).(2 marks)

VII. Speedy Sophia has received an offer to provide a one-time sale of 8,000 baseballs at $10 each to a network of sports superstores. This sale would not affect other sales, nor would the cost of those sales change. However, the variable costs of the 8,000 baseballs would increase by $0.30 per ball for shipping, and fixed costs would increase by $18,000.

a. Based solely on financial information, should the company accept this offer? Show your calculations.(5 marks)

b. What other factors might the company wish to consider in accepting or rejecting this offer? Explain.(3 marks)

Question 4: Decision Making[22 marks] (a) Make or buy

Twinkle Light Company incurred the following costs to produce 25,000 light switches for floor lamps last year:

Direct materials $50,000 Direct labour 75,000 Variable manufacturing overhead 40,000 Fixed manufacturing overhead60,000 Total manufacturing costs $225,000

ABC Ltd has offered to supply the switches for $8 per unit. An analysis of the overhead costs has identified that if the switches are outsourced; Twinkle Light Company would eliminate $10,000 of fixed costs, and could use the released production capacity to generate additional income of $28,000 from producing a different product.

Required: Show all your workings. I. From a financial perspective, should the light switches be outsourced?(7 marks)

II. What qualitative factors need to be considered in the outsourcing decision? (4 marks)

Part B - Question 4 continued over page

1801/110.229Assignment 2 Booklet Distance/InternalManawatu/Auckland

14

Part B - Question 4 continued

(b) Sell at split-off or process further

Adam Chemicals Ltd processes a number of chemical compounds used in producing industrial cleaning products. Compound XL is decomposed into two chemicals: anderine and dofinol. The cost of processing one batch of Compound XL is $74,000, and the result is 6,000 gallons of anderine and 8,000 gallons of dofinol. The company can sell the anderine at split-off for $11 per gallon and the dofinol for $6.75 per gallon. Alternatively, the anderine can be processed further at a cost of $8 per gallon of anderine into cermine. It takes 3 gallons of anderine for every gallon of cermine. A gallon of cermine sells for $60.

Required: show all your workings.

I. From a financial perspective, should the company sell the anderine at split-off or process further into cermine?(11 marks)

[Total Part B = 100 marks]