Top Catering operates a chain of 10 hospitals in the Los Angeles area. Its central food-catering facility, Topman, prepares and delivers meals to the hospitals. It has the capacity to deliver up to 1,025,000 meals a year. In 2014, based on estimates from each hospital controller, Topman budgeted for 925,000 meals a year. Budgeted fixed costs in 2014 were $1,517,000. Each hospital was charged $6.24 per meal$4.60 variable costs plus $1.64 allocated budgeted fixed cost. (Click the icon for additional information.) (Click the icon for additional data.) In 2015, only 740,000 Topman meals were produced and sold to the hospitals. Smith suspects that hospital controllers had systematically inflated their 2015 meal estimates. Read the requirements. i X te Requirements or 1. Recall that Topman uses the master-budget capacity utilization to allocate fixed costs and to price meals. What was the effect of production-volume variance on Topman's operating income in 2015? 2. Why might hospital controllers deliberately overestimate their future meal counts? 3. What other evidence should Top Catering's president seek to investigate Smith's concerns? 4. Suggest two specific steps that Smith might take to reduce hospital controllers' incentives to inflate their estimated meal counts. on ibl Print Done nor moal Requirement 1. Recall that Topman uses the master-budget capacity utilization to allocate fixed costs and to price meals. What was the effect of production-volume variance on Topman's operating income in 2015? Determine the formula, then compute the effect of production-volume variance on Topman operating income in 2015. (Abbreviation used: Bud. = - Budgeted.) Fixed cost allocated using master-budget capacity Production- volume variance If Topman uses its master-budget capacity utilization to allocate fixed costs in 2015, production-volume variance will operating income by $ Requirement 2. Why might hospital controllers deliberately overestimate their future meal counts? Determine the formula, then compute the fixed cost per meal for each type. (Enter your answers to the nearest cent.) Fixed cost per meal Allocated = Budgeted = hence the amount charged to individual hospitals is By deliberately overstating budgeted meal count, hospitals are able to By overestimating budgeted meal counts, the denominator-level is the price charged for each meal. In this scheme, Topman demand overestimates. Requirement 3. What other evidence should Top Catering's president seek to investigate Smith's concerns? (Select two choices that apply.) An analysis to compare budgeted meal-count estimates to actual meal-counts for each hospital on an annual basis. Hospitals can be ranked on both their percentage and frequency of overestimations. Demand estimates are derived from numerous sources, such as patient counts and increased employment of nurses. If these factors are inconsistent with the meal-count demand figures provided to the central food-catering facility, explanations should be sought. An analysis showing the direct correlation between hospital cleanup staff employment cycles and actual meal-counts used by each hospital. Patient count fluctuations do not directly affect the use of actual meals. Calculate the practical capacity, rather than normal capacity utilization or master-budget capacity utilization, to be used to evaluate a hospital's performance in the current year. That's because the practical capacity is the principal short-run planning and control tool. Requirement 4. Suggest two specific steps that Smith might take to reduce hospital controllers' incentives to inflate their estimated meal counts. (Select two choices that apply.) Have each hospital calculate their breakeven, then the controller of Top Catering calculates the meal-count based on master-budget capacity utilization. Have individual hospitals contract in advance for their budgeted meal count. Unused amounts would be charged to each hospital at the end of the accounting period. Use an incentive program that has an explicit component for meal-count forecasting accuracy. For example, each meal-count "forecasting error" would reduce the bonus by $0.05. Require normal capacity utilization, rather than master-budget capacity utilization or practical capacity, to be used for a hospital's performance based on the prior year for capacity evaluations. That's because the normal capacity is the principal short-run planning and control tool. Top Catering operates a chain of 10 hospitals in the Los Angeles area. Its central food-catering facility, Topman, prepares and delivers meals to the hospitals. It has the capacity to deliver up to 1,025,000 meals a year. In 2014, based on estimates from each hospital controller, Topman budgeted for 925,000 meals a year. Budgeted fixed costs in 2014 were $1,517,000. Each hospital was charged $6.24 per meal$4.60 variable costs plus $1.64 allocated budgeted fixed cost. (Click the icon for additional information.) (Click the icon for additional data.) In 2015, only 740,000 Topman meals were produced and sold to the hospitals. Smith suspects that hospital controllers had systematically inflated their 2015 meal estimates. Read the requirements. i X te Requirements or 1. Recall that Topman uses the master-budget capacity utilization to allocate fixed costs and to price meals. What was the effect of production-volume variance on Topman's operating income in 2015? 2. Why might hospital controllers deliberately overestimate their future meal counts? 3. What other evidence should Top Catering's president seek to investigate Smith's concerns? 4. Suggest two specific steps that Smith might take to reduce hospital controllers' incentives to inflate their estimated meal counts. on ibl Print Done nor moal Requirement 1. Recall that Topman uses the master-budget capacity utilization to allocate fixed costs and to price meals. What was the effect of production-volume variance on Topman's operating income in 2015? Determine the formula, then compute the effect of production-volume variance on Topman operating income in 2015. (Abbreviation used: Bud. = - Budgeted.) Fixed cost allocated using master-budget capacity Production- volume variance If Topman uses its master-budget capacity utilization to allocate fixed costs in 2015, production-volume variance will operating income by $ Requirement 2. Why might hospital controllers deliberately overestimate their future meal counts? Determine the formula, then compute the fixed cost per meal for each type. (Enter your answers to the nearest cent.) Fixed cost per meal Allocated = Budgeted = hence the amount charged to individual hospitals is By deliberately overstating budgeted meal count, hospitals are able to By overestimating budgeted meal counts, the denominator-level is the price charged for each meal. In this scheme, Topman demand overestimates. Requirement 3. What other evidence should Top Catering's president seek to investigate Smith's concerns? (Select two choices that apply.) An analysis to compare budgeted meal-count estimates to actual meal-counts for each hospital on an annual basis. Hospitals can be ranked on both their percentage and frequency of overestimations. Demand estimates are derived from numerous sources, such as patient counts and increased employment of nurses. If these factors are inconsistent with the meal-count demand figures provided to the central food-catering facility, explanations should be sought. An analysis showing the direct correlation between hospital cleanup staff employment cycles and actual meal-counts used by each hospital. Patient count fluctuations do not directly affect the use of actual meals. Calculate the practical capacity, rather than normal capacity utilization or master-budget capacity utilization, to be used to evaluate a hospital's performance in the current year. That's because the practical capacity is the principal short-run planning and control tool. Requirement 4. Suggest two specific steps that Smith might take to reduce hospital controllers' incentives to inflate their estimated meal counts. (Select two choices that apply.) Have each hospital calculate their breakeven, then the controller of Top Catering calculates the meal-count based on master-budget capacity utilization. Have individual hospitals contract in advance for their budgeted meal count. Unused amounts would be charged to each hospital at the end of the accounting period. Use an incentive program that has an explicit component for meal-count forecasting accuracy. For example, each meal-count "forecasting error" would reduce the bonus by $0.05. Require normal capacity utilization, rather than master-budget capacity utilization or practical capacity, to be used for a hospital's performance based on the prior year for capacity evaluations. That's because the normal capacity is the principal short-run planning and control tool