04 Feb calculations. Standard compound

Question 1: Activity-based costing 1. Calculate the material handling rate that would have been used by Eloise Smith’s predecessor at East Coast Marine. 2. Calculate the revised material handling costs to be allocated on a per purchase order basis. 3. Discuss why purchase orders might be a more reliable cost driver than the dollar amount of direct material. 4. Calculate the difference due to the change to the new method of allocating material handling costs to government contracts. 5. Prepare a forecast of the cumulative dollar impact over a three-year period (based on the coming year plus 2 more years) of Eloise Smith’s recommended change for allocating Material Handling Department costs to the Government Contracts Unit. Round all calculations to the nearest whole number. 6. Referring to the standards of ethical conduct for accountants described in Chapter 1: (a) Discuss why Eloise Smith has an ethical conflict. (b) Identify several steps that Smith could take to resolve the ethical conflict. Question 2: Pricing & Possible plant closure 1. What unit selling price should management select for each of the Clean & Bright compounds for the remaining six months of the year to maximise profit? Support your selection with appropriate calculations. Standard compound calculation is as follows: 2. Independently of your answer to requirement 1, assume that the optimum alternatives for the last six months were as follows: a selling price of $23 and volume of 50 000 boxes for the standard compound, and a selling price of $35 and volume of 35 000 boxes for the commercial compound. (a) Should management consider closing down the plant’s operations until January 1 of the next year in order to minimise its losses? Support your answer with appropriate calculations. (b) Identify and discuss the strategic factors that should be considered in deciding whether the Fremantle plant should be closed down during the last six months of the current year. Question 3: Budgeting 1. Will HLW’s new membership plan and fee structure improve its ability to plan its cash receipts? Explain your answer. 2. Estimate the effect on sales revenue resulting from the planned change in fee structure for the next financial year, which starts 1 October and ends on 30 September. State any assumptions that you need to make. 3. Hawthorn Leisure Works should evaluate the new membership plan and fee structure completely before it decides to adopt or reject it. (a) Identify the key factors that HLW should consider in its evaluation. (b) Explain what type of financial analyses HLW should prepare in order to make a complete evaluation. 4. Explain how HLW’s cash management practices may differ from the present if the new membership plan and fee structure are adopted.

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