Assignment on "IPE 481: Industrial Management"

Q1. Foam Products, Inc., makes foam seat cushions for the automotive and aerospace industries.
The companys activity-based costing system has four activity cost pools, which are listed below
along with their activity measures and activity rates:

The company just completed a single order from Interstate Trucking for 1,000 custom
seat cushions. The order was produced in two batches. Each seat cushion required 0.25 direct
labor hours. The selling price was $20 per unit, the direct materials cost was $8.50 per unit, and
the direct labor cost was $6.00 per unit. This was Interstate Truckings only order during the
year.
Required:
1. Prepare a report showing the product margin for this order from an activity viewpoint
At this point, ignore the customer service costs.
2. Prepare a report showing the customer margin on sales to Interstate Trucking from an
activity viewpoint.

Q2. The production department of Zan Corporation has submitted the following forecast of units
to be produced by quarter for the upcoming fiscal year:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Units to be produced .................. 5,000 8,000 7,000 6,000
In addition, the beginning raw materials inventory for the 1st Quarter is budgeted to be
6,000 grams and the beginning accounts payable for the 1st Quarter is budgeted to be $2,880.
Each unit requires 8 grams of raw material that costs $1.20 per gram. Management desires to end
each quarter with an inventory of raw materials equal to 25% of the following quarters
production needs. The desired ending inventory for the 4th Quarter is 8,000 grams. Management
plans to pay for 60% of raw material purchases in the quarter acquired and 40% in the following
quarter. Each unit requires 0.20 direct labor-hours and direct laborers are paid $11.50 per hour.
Required:
1. Prepare the companys direct materials budget and schedule of expected cash
disbursements for purchases of materials for the upcoming scal year.
2. Prepare the companys direct labor budget for the upcoming scal year, assuming that
the direct labor workforce is adjusted each quarter to match the number of hours required to
produce the forecasted number of units produced.
Q3.Chuck Wagon Grills, Inc., makes a single producta handmade specialty barbecue grill that
it sells for $210. Data for last years operations follow:

Required:
1. Assume that the company uses variable costing. Compute the unit product cost for one
barbecue grill.
2. Assume that the company uses variable costing. Prepare a contribution format income
statement for the year.
3. What is the companys break-even point in terms of the number of barbecue grills
sold?

Q4. For the following cash flow calculate NPV, IRR, ARR, Payback period, discounted payback
period and profitability index.
Year Cash flow

0 (Tk 1, 000,000)
1 200,000
2 200,000
3 300,000
4 300,000
5 350,000

Discount rate = 10%

Q5. John Fleming, chief administrator for Valley View Hospital, is concerned about the costs for
tests in the hospitals lab. Charges for lab tests are consistently higher at Valley View than at
other hospitals and have resulted in many complaints. Also, because of strict regulations on
amounts reimbursed for lab tests, payments received from insurance companies and
governmental units have not been high enough to cover lab costs.
Mr. Fleming has asked you to evaluate costs in the hospitals lab for the past month. The
following information is available:
a) Two types of tests are performed in the labblood tests and smears. During the past
month, 1,800 blood tests and 2,400 smears were performed in the lab.
b) 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.
1,500 of these plates were unused at the end of the month; no plates were on hand at the
beginning of the month.
c) During the past month, 1,150 hours of labor time were recorded in the lab at a cost of
$13,800.
d) The labs variable overhead cost last month totaled $7,820.
Valley View Hospital has never used standard costs. By searching industry literature,
however, you have determined the following nationwide averages for hospital labs:
Plates: Two plates are required per lab test. These plates cost $2.50 each and are disposed
of after the test is completed.
Labor: Each blood test should require 0.3 hours to complete, and each smear should
require 0.15 hours to complete. The average cost of this lab time is $14 per hour.
Overhead: Overhead cost is based on direct labor-hours. The average rate for variable
overhead is $6 per hour.
Required:
1. Compute a materials price variance for the plates purchased last month and a materials
quantity variance for the plates used last month.
2. For labor cost in the lab:
a) Compute a labor rate variance and a labor efficiency variance.
b) In most hospitals, one-half of the workers in the lab are senior technicians and one-
half are assistants. In an effort to reduce costs, Valley View Hospital employs only one-
fourth senior technicians and three-fourths assistants. Would you recommend that this
policy be continued? Explain.
3. Compute the variable overhead rate and efficiency variances. Is there any relation between the
variable overhead efficiency variance and the labor efficiency variance? Explain.