ACCT 2242 Summer 2014 Assignment #6 due Tuesday August 19th by Midnight
Note: Optional Assignment Best 5 of 6 Assignments will count
Question 1 (28 points) Last year, Bandana Corp produced and sold 10,500 bandanas. Each bandana has a standard requiring 2 feet of material at a budgeted cost of $1.50 per foot and 30 minutes of sewing time at a cost of $0.30 per minute. The bandanas sell for $ 14.75. Actual costs for the production of 10,500 bandanas were $33,880 for materials (22,000 feet @ $1.54 per foot) and $92,800 for labour (320,000 minutes @ $0.29 per minute). Required: a. Compute Bandana’s direct material efficiency/usage variance. Indicate whether this variance is Favorable (F) or Unfavorable (U). Compute Bandana’s direct material price variance. Indicate whether this variance is Favorable (F) or Unfavorable (U). Compute Bandana’s direct labour efficiency variance. Indicate whether this variance is Favorable (F) or Unfavorable (U). Compute Bandana’s direct labour price/rate variance. Indicate whether this variance is Favorable (F) or Unfavorable (U).

b.

c.

d.

Question 2 (32 points)
John Fleming, chief administrator for a district hospital, is concerned about costs for tests in the hospital’s lab. Mr. Fleming has asked you to evaluate costs in the hospital’s lab for the past month. The following information is available: Basically, two types of tests are performed in the lab—blood tests and smears. During the past month, 1,800 blood tests and 2,400 smears were performed in the lab. Small glass plates are used in both types of tests. During the past month, the hospital purchased 12,000 plates at a cost of $28,200. This cost is net of a 6% quantity discount. Some 1,500 of these plates were still on hand unused at the end of the month; there were no plates on hand at the beginning of the month. During the past month, 1,150 hours of labour time were recorded in the lab. The cost of this labour time was $13,800.

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The hospital has never used standard costs. By searching industry literature, however, you have determined the following nationwide averages for hospital labs: Plates: Labour: Two plates are required per lab test. These plates cost $2.50 each and are disposed of after the test is completed. Each blood test should require 0.3 hour to complete, and each smear should require 0.15 hour to complete. The average cost of this lab time is $14 per hour.

Mr. Fleming would like a complete analysis of the cost of plates and labour in the lab for the last month so that he can get to the root of the lab’s cost problem. Required:

a.

Compute a materials price variance for the plates purchased last month and a materials efficiency/quantity variance for the plates used last month. Indicate whether these variances are Favorable (F) or Unfavorable (U). Compute a labour price/rate variance and a labour efficiency variance. Indicate whether these variances are Favorable (F) or Unfavorable (U).

b.

Question 3 (20 points)
Sushi Heavy Industries manufactures primarily heavy machinery and drilling installations for mining, oil wells, and other similar industries. The vice-president of the transport division, newly created for bulk transportation of raw materials, is preparing a capital budget for the coming year for inclusion in the company-wide capital budget. The managers of the six subdivisions of the transport division have each submitted a capital investment proposal to the vice-president, who must decide which project or projects to include in the submission to corporate head office. The proposals are listed following. All are considered equally risky. Project 1 2 3 4 5 6 Investment Required $4,800,000 1,900,000 1,400,000 950,000 650,000 300,000 Expected Return $1,200,000 627,000 182,000 152,000 136,000 90,000

The vice-president has to decide which of the proposed projects to include in the transport division’s submission. Sushi has a cost of capital of 15%. The transport division has been allocated $7 million for capital investment purposes. Required: a) Calculate the ROI and RI for each project. b) Which project or projects should be included in the submission to the corporate head office based on the following two criteria?
- The company has a rule that all projects with an expected return of 20% or more should be taken if

funds are available.
- The vice-president is expected to maximize RI as computed using the 15% cost of capital.

Question 4 (20 points) The accountant for a subunit of Zacer Sports Co. went on vacation before completing the subunit’s monthly flexible budget performance report. This is as far as she got: Flexible Budget Actual Variance Racer—Subunit X Revenue by Product Downhill Model ZB Model ZC CrossCountry Model ZR Model ZS Snowboard Model ZX TOTAL $ 326,000 155,000 Sales Volume Variance Static (Master) Budget

Flexible Budget

$ 20,000 F $ 165,000

$ 300,000 150,000

283,000 252,000

$ 2,000 U

285,000 245,000

17,500 U

300,000 262,500

425,000 $ 1,441,000

5,000 F

400,000 $ 1,412,500

Requirements a) Complete the performance evaluation report for this subunit. If you are calculating a variance, make sure you indicate whether it is F or U. b) Based on the data presented, what type of responsibility centre is this subunit?