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Decision making
  • From Business, Management
  • Due on 10 May, 2015 07:54:00
  • Asked On 03 May, 2015 05:00:04
  • Due date has already passed, but you can still post solutions.
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    bmission:

    The assignment will need to be submitted electronically through the student portal – use the link under “Assessments overview and submission” to submit the information. The portal will close at 11:59 PM (AEST). Adelaide and Brisbane students please allow for time difference.

    . .Requirement:

    You are required to answer the following three questions. The assignment must be completed individually and submitted before the due date to avoid any late penalties. Please make sure you follow the guidelines noted in your subject outline especially those relating to presentation of written work, late policy and academic integrity.

Assessment Description

COMMONWEALTH OF AUSTRALIA Copyright Regulations 1969

This material has been reproduced and communicated to you by or on behalf of Kaplan Business School pursuant to Part VB of the Copyright Act 1968 (‘Act’). The material in this communication may be subject to copyright under the Act. Any further reproduction or communication of this material by you may be the subject of copyright protection under the Act. Kaplan Business School is a part of Kaplan Inc., a leading global provider of educational services. Kaplan Business School Pty Ltd ABN 86 098 181 947 is a registered higher education provider CRICOS Provider Code 02426B.

Assessment Information

CASE STUDY 1

Costello Corporation produces two grades of wine from grapes that it buys from California growers. It produces and sells roughly 600,000 gallon jugs per year of a low cost, high-volume product called Valley Fresh. Costello also produces and sells roughly 200,000 gallons per year of a low-volume, high-cost product called Costello Valley. Costello Valley is sold in 1-liter bottles. Based on recent data, the Valley Fresh product has not been as profit table as Costello Valley. Management is considering dropping the inexpensive Valley Fresh line so it can focus more attention on the Costello Valley product. The Costello Valley product already demands considerably more attention than the Valley Fresh line.

Frankie Costello, president and founder of Costello, is sceptical about this idea. He points out that for many decades the company produced only the Valley Fresh line, and that it was always quite profitable. It wasn’t until the company started producing the more complicated Costello Valley wine that the profitability of Valley Fresh declined. Prior to the introduction of Costello Valley, the company had simple equipment, simple growing and production procedures, and virtually no need for quality control. Because Costello Valley is bottled in 1-liter bottles, it requires considerably more time and effort, both to bottle and to label and box, than does Valley Fresh. The company must bottle and handle 4 times as many bottles of Costello Valley to sell the same quantity as Valley Fresh, since there are approximately 4 litres in a gallon. Valley Fresh requires 1 month of aging; Costello Valley requires 1 year. Valley Fresh requires cleaning and inspection of equipment every 2,500 gallons; Costello Valley requires such maintenance every 250 gallons. Frankie has asked the accounting department to prepare an analysis of the cost per gallon using the traditional costing approach and using activity-based costing. The following information was collected.

    

Valley Fresh
    page2image18312

Costello Valley

Direct materials per gallon
    page2image21080 page2image21400

$1.35
page2image22328 page2image22648    

$3.60

Direct labour cost per gallon
    

$0.75
    

$1.50

Direct labour hours per gallon
    

0.05
    page2image30496

0.10
page2image31424

Total direct labour hours
    

30,000
    

20,000
page2image35336

Activity Cost Pool
    page2image38160

Cost Driver
page2image39232    page2image40056

Estimated overheads
page2image41288    

Expected use of cost drivers
    page2image42912 page2image43232

Expected use of cost drivers per product
page2image44904

Valley Fresh
    page2image46448

Costello Valley

Grape processing
    

Cart of grapes
    

$146,000
    

8,000
    

6,000
    page2image53320

2,000

Aging
    

Total months
    

$420,000
    

3,000,000
    

600,000
    page2image60080

2,400,000

Bottling and corking
    page2image62712

Number of bottles
    page2image64296

$210,000
    

1,400,000
    page2image66088

600,000
    page2image67488

800,000

Labelling and boxing
    page2image69800

Number of bottles
    page2image71384

$140,000
    

1,400,000
    page2image73176

600,000
    page2image74576

800,000

Maintain and inspect equipment
    

Number of inspections
page2image78656    page2image79152

$234000
page2image80720    

1,040
    

240
page2image82856    

800
page2image84920

Required:

Write a memo to Frankie Costello providing a brief description of what is activity based costing as well as an explanation of how the traditional approach can result in distortions.

Hint: You should support your discussion by calculating and comparing the total manufacturing cost per gallon for both products under both traditional costing systems as well activity based costing.

COMMONWEALTH OF AUSTRALIA Copyright Regulations 1969

This material has been reproduced and communicated to you by or on behalf of Kaplan Business School pursuant to Part VB of the Copyright Act 1968 (‘Act’). The material in this communication may be subject to copyright under the Act. Any further reproduction or communication of this material by you may be the subject of copyright protection under the Act. Kaplan Business School is a part of Kaplan Inc., a leading global provider of educational services. Kaplan Business School Pty Ltd ABN 86 098 181 947 is a registered higher education provider CRICOS Provider Code 02426B.
page2image93616

Assessment Information

CASE STUDY 2

Curtis Rich, the cost accountant for Hi-Power Mower Company, recently installed activity based costing at Hi-Power’s St. Louis lawn tractor (riding mower) plant where three models—the 8-horsepower Bladerunner, the 12-horsepower Quickcut, and the 18-horsepower Supercut—are manufactured.

Curtis’s new product costs for these three models show that the company’s traditional costing system had been significantly under costing the 18-horsepower Supercut. This was due primarily to the lower sales volume of the Supercut compared to the Bladerunner and the Quickcut.

Before completing his analysis and reporting these results to management, Curtis is approached by his friend Ed Gray, who is the production manager for the 18-horsepower Supercut model. Ed has heard from one of Curtis’s staff about the new product costs and is upset and worried for his job because the new costs show the Supercut to be losing, rather than making, money.

At first, Ed condemns the new cost system, whereupon Curtis explains the practice of activity based costing and why it is more accurate than the company’s present system. Even more worried now, Ed begs Curtis, “Massage the figures just enough to save the line from being discontinued. You don’t want me to lose my job, do you? Anyway, nobody will know.” Curtis holds firm but agrees to recompute all his calculations for accuracy before submitting his costs to management.

Required:

Draft a response from Curtis to Ed Gray.
page3image12720

COMMONWEALTH OF AUSTRALIA Copyright Regulations 1969

This material has been reproduced and communicated to you by or on behalf of Kaplan Business School pursuant to Part VB of the Copyright Act 1968 (‘Act’). The material in this communication may be subject to copyright under the Act. Any further reproduction or communication of this material by you may be the subject of copyright protection under the Act. Kaplan Business School is a part of Kaplan Inc., a leading global provider of educational services. Kaplan Business School Pty Ltd ABN 86 098 181 947 is a registered higher education provider CRICOS Provider Code 02426B.

Assessment Information

CASE STUDY 3

Gonzalez Company produces one product, Olpe. Because of wide fluctuations in demand for Olpe, the Assembly Department experiences significant variations in monthly production levels.

The annual master manufacturing overhead budget below is based on 300,000 direct labour hours. In July, 27,500 labour hours were worked. The master manufacturing overhead budget for the year and the actual overhead costs incurred in July are as follows.

Overhead costs
    page4image6328

Master budget
    page4image7448

Actual results for July

Variable
    page4image10728 page4image11208    page4image11696 page4image12496

• Indirect labour
    

$ 300,000

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Ethical CASE STUDY 2 Curtis Rich,
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  • Submitted On 04 May, 2015 03:56:32
Solution posted by
solution
Who are the stakeholders in this situation? Stakeholders are defined as "Someone other than a stockholder or creditor who potentially has a claim on the cash flows of the firm". Employees, suppliers, customers, and even government are stakeholders. In this situation, the stakeholders are Curtis, Ed Gray, management, as well as the employees of the "18 horse power super cut model Department". The stakeholders are Ed Gray (negative stakeholder), Curtis Rich (stakeholder), company management (decision making stakeholder), and Curtis’s staff that disclosed the information to Ed (passive stakeholder). These are the influential stakeholders to the situation. What if any, are the ethical considerations in this situation? The ethical considerations will be a blend of truth, honesty and teamwork of the company's staff. The ethical considerations are related to the codes of Competence, & Integrity that are outlined in the "Standard of Ethical Conduct for Practitioners of Management Accounting and Financial Management". Marcus as a practitioner of Management Accounting shou...
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