COMMERCE 294 WINTER 2011 ASSIGNMENT # 1 DUE: Monday, January 30 HAND IN ONLY THE PAGES BEGINNING WITH THE NAME SPACES (Pages 5-9) Question #1 Cost Behavior [Chapter 6] (15 marks) Guy Cabling Inc (Guy) supplies and installs fiber optic cable for data transmission. Guy has been approached by UBC to lay fiber optic cable in the existing space and the new development, in the Henry Angus building. You were hired for the summer by Guy, the owner of the company because of your remarkable success in Commerce 294. Guy will be relying upon you to assist in the assessment of this project for the company. To date, the company has not demonstrated much sophistication in understanding how their costs behave and in predicting costs. You spent some time pouring through financial information and you were able to obtain the following information from past projects that Guy had completed: Job # 1 2 3 4 5 6 7 8 9
Meters of cable laid in project
4000 5500 6500 3000 250 5000 3500 4500 6000
Project Cost $ 152,100 208,250 250,675 125,550 30,125 190,450 141,750 170,400 254,750
The costs in the table above include: Custom fibre optic cable: Guy purchases the custom fiber optic cable from a German supplier at a rate of $17.50/m. The supplier confirmed the price of $17.50 up to and including 6600 metre spools. For spools beyond 6,600 metres, the order requires a heavier cable and the cost increases by $2.50/m for the entire spool. ( i.e. , for every metre in the spool). Cable installers are contract labourers and are paid $1,100 per 100 metres of cable installed. Building amortization is allocated at $2,500 per job. The project costs include a charge of $5,000 for an engineer. Memos in the project files indicate that one engineer was just able to handle projects of this size, however, with the higher amounts of cable, there was a diminished ability of the engineer to service the project. It was recommended that in the future, any job (project) greater than 5,000 metres should include two engineers. Each job is allocated $3,000 of the marketing administration costs. Project Logistics includes shop supplies, support labour and other additional costs needed to support the projects. Guy charges a contractors fee of 15 percent on all of his projects. This represents the profit component for the company. This has not been included in the table above.
Required: a) For the Projects Costs, Identify the behaviour of each of the costs should be included (be specific). Explain why you may have excluded some costs. b) Using the hi/lo method, provide the cost function for logistics support costs. c) The Henry Angus project is estimated to be 6,750 metres of cable. Guy would like you to prepare a detailed analysis of this project. Ensure that you indicate what the different costs of the project would be. d) The Sauder School of Business has been given an approved budget by the UBC Senate of $300,000 for the fiber optic cabling of Henry Angus. Should Guy accept this contract? Explain your answer. e) Guy has seen your analysis and is quite concerned about the method that you used to predict the logistics support costs. He feels that the model selected cannot work with the activity level suggested. Identify what Guy is likely concerned about and address his concerns.
Question #2 [Chapter 3] (15 marks) Analysis of Cost Flows and Inventories under Job-Order Costing Quickmix Ltd. manufactures electric mixers and chopping tools. A job-order costing system is used, since the products are manufactured in batches rather than on a continuous basis. The company started operations on January 2, 2009. Operating activities during the first 11 months of the year (through November 30) resulted in the following balances in selected accounts: Raw Materials*, Beginning Balance: 36,000 *The raw materials account includes (both) direct materials and indirect materials Work-in-Process, Beginning Balance: 1,200,000 Finished Goods, Beginning Balance:...
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