Process Improvement and Innovation Past Year Mid-Session Examination Time allowed: 90 minutes, plus 5 minutes reading time Total of 50 marks. The candidate may NOT retain this paper This exam represents 25% of your total mark for this course This paper consists of(3) questions of unequal value Answers must be written on the lines or in the boxed area provided – any other writing will NOT be marked.
Answers are to be written in ink Answer ALL questions Some spare pages have been left for y our rough workings at the end of the pap er. Workings on these pages will not be marked. Do not detach. A sbestos Re moval Company Ltd is in the busi ness of rem oving toxic asbestos insulation and related products from buildings. There has been an on going dispute between the company’s estimator and the work supervisors.
Mr Dennis Clean, the on-site supervisor, claims that the e stimators do not tak e enough care in disti nguishing between routin e wo rk such as the removal of a sbestos insulation a round heating pipes i n older homes, and nonroutine work such as the removal of asbestos-contaminated ce iling pla ster in industrial buildings. Dennis bel ieves that non-routine work i s far more expensive th an routine work and should attract higher customer charges. Mr Jonas Ca ble, one of the esti mators, su ms u p his position in this wa y: “M y job is to measure the area to b e cleared of asbe stos.
As directed by top management, I simply multiply each square metre by $20. 00 to deter mine the bid price. S ince our average cost is only $11. 00 pe r square metre, that leaves enoug h of a cushion to take care of the additional cost of any non-routine work that shows up. ” To shed light on this dispute, the company initiated an activity based costing study of all of its costs. Data from the activity-based costing system are as follows: Cost for 2006 Wages and salaries Disposal fees On-site supplies 550,000 850,000 85,000 1,485,000 Activity Cost Pool Job size Estimation and job setup Dealing with non-routine jobs Other (cost of idle capacity & organisation sustaining costs) Activity Drivers Square metres Number of jobs* Number of non-routine jobs Not a pplicable; the se costs a re not allocated to jobs Total Activity for 2006 125,000 650 200 n/a * Note: The 200 non routine jobs are included in the total of 650 jobs. Both routine and nonroutine jobs require estimation and setup.
Distribution of resource consumption across activity cost pools Job Size Estimation & Dealing with Other Job Setup Nonroutine Jobs Wages and salaries 40% 10% 30% 20% Disposal fees 60% 0% 40% 0% On-site supplies 55% 30% 10% 5% Total 100% 100% 100% 2 Required Note: Keep numbers to 2 decimal points in every step of your calculations (a) Compute the activity rates for each activity cost pool (ie cost per activity) (4. 5 marks). (b) Using the activity rates, determine the total cost of cleaning (2. 5 marks): i. A routine job with a total area of 100 square metres. ii.
A non-routine job with a total area of 100 square metres. (c) Given your a nswers to (a) and (b) above, do you agree w ith Jonas that th e company’s present policy for bidding on jobs is adequate? Explain. (3 marks) 3 Question 2 (16 marks) Part A (8 marks) Ignore Transfer Pricing. Not included in mid-sem. Micro HardRock Ltd produces an MP3 player known as the “m-Pod”. It has two productio n departments: the Headphone Division (HD); and the Assembly Division (AD). HD produces specially designed in-ear headphones, known as HD1000, which are transferred to AD (each m-Pod requires one unit of HD 1000).
AD combines this headphone with other components manufactured in its own divi sion and re -sells th e fin al product, th e m-Pod, to Micro HardRock’s final cus tomers (at $80 per unit). The follo wing tabl e s ummarises the cos t structure of these two decentralised divisions: Headphone Division (HD) 3 2,000 9,000 Assembly Division (AD) 45 2,000 30,000 Variable cost per unit ($) Capacity per month (units) Fixed cost per month ($) The external demand for m-Pod is 2,000 units per month (which means that the demand for HD1000 by the Assembly Division is also 2,000 units per month).
The HD 1000 is a unique product, therefore th ere i s no external supp lier in th e market and AD must s ource th ese headphones internally from HD. HD has also recei ved an offer from an external customer t o produce a differ ent ty pe of headphone, New-5000. New-5000 is designed for mobile phones and is quite diffe rent from HD1000. H owever, becaus e N ew-5000 is a simpler pro duct, H D ca n produ ce this n ew product with practically no cha nge to its operat ion f acilities.
Furthermore, the capacity requirement for both p roducts is exactl y the same (that is, HD’s ca pacity is 200 0 units regardless of whether the division is manufacturing the HD1000 or New-5000 headphones). The raw materials for New-5000 are a little bit cheaper, resulting in a variable cost per un it of $2, and the external customer has offered to buy 1,200 units of New-5000 at $10 per unit. Required: Note: Keep numbers to 2 decimal points in every step of your calculations (a) Given all of the a bove infor mation, assume that HD us es its manufacturing facil ity to make 2,000 un its of HD1 000 for AD.
Using the “transfer price formula” (also known as the general transfer pricing rule), calculate the average transfer price per unit of HD1000. (4 marks) (b) Based on your answer to part (a), prepare an income statement (ignoring tax) for the two divisions. (4 marks) Part B (8 marks) This section has been removed as it is not relevant to 2A this year. 4 Question 3 (24 marks) Mymn Cleaning Solutions Lt d (M ymn Ltd) manufactures i ndustrial clean ing solutions. Mymn L td recently introduced a n ew ant ibacterial cleaning solut ion fo r hospital surgi cal equipment called Cynaps.
Ms Wendy Merlin, the production manager, is trying to develop a standard cost for the new product. The following information is available on the production of Cynaps. Cynaps is made by m anually measuring out and t hen co mbining a ch emical c ompound Porstosuchus (P1) wit h a solution known as Pherrerasaurus (Ph2), a nd boiling the mixture. The original mixture consists of 12 litres of P1 and 15 kilograms of Ph2, which after boiling results in 10 litres of Cynaps. It takes an e mployee 25 minutes to mix and boil 10 litres o f Cynaps. Due to the unstable nature of the che mical mixture, a nd to e nsure th at t he c rrect r atio of chemicals is mixed, each 10 litre lo t of s olution is quality tes ted.
Approximately 10,0 00 lots of Cy naps are prod uced each month. A n average of 20% fail th e quality test, and are rejected. Rejected solution has no commercial value and is thrown out. It takes an employee 8 minutes to test each 10 litre lot of solution. Rejected solution is s tored and then disposed of once a month. It takes an employee an h our to safely pack and dispose of th e discarded solution. The resulting solution is then bottled into a 10 litre plastic container.
Each plastic container costs $2. I t takes an employee 2 minutes to bottle and pr operly seal a 10 litre container of Cynaps. Further, due to curren t health regulations, quality inspectors from the Department of Health make monthly visits to inspect Mymn Ltd’s facilities and test the quality of the final product (i. e. , after the mixture has been bottled). O ne in every fifty 10 litre con tainers of Cynaps is tested. Tested mixtures have no commercial value and are thrown out. It takes an employee 2 hours to assist the inspectors with their tests and inspections.
Wendy has gathered the following information from the accounts department: • The average purchase price for P1 is $1. 50 per litre • The average purchase price for Ph2 is $2. 80 per kilogram • Employees are paid $11. 00 per hour Part A (16 marks) Required: Note: Keep numbers to 2 decimal points in every step of your calculations (a) Using currently attainable standards, calculate the following: i. Standard P1 cost per container of 10 litre Cynaps (3 marks). ii. Standard direct labour cost per container of 10 litre Cynaps (4 marks).
If Wend y were to set ideal st andards instead, w hat costs sh ould she in clude or 5 (b) exclude fro m the currently attainable s tandards calculated in P art (a)? Explain y our answer. (5 marks). (c) What are two (2) possible negative effects on employee behaviour that could result from Wendy using ideal standards instead of currently attainable standards? (4 marks) Part B (8 Marks) After th e first month of production, th e following dat a were ob tained f rom th e accounting department: • • • • Budgeted production level was 10,000 10 litre containers of Cynaps.
Actual production level was 12,000 10 litre containers of Cynaps. Direct materials purchased: P1: 160,000 litres for $272,000. Actual P1 used was 186,000 litres. Required: Note: Keep numbers to 2 decimal points in every step of your calculations Assuming that Wendy decides to use currently attainable standards: (e) (f) Calculate the direct material price and quantity variances for P1 (4 marks). Provide two (2) possible reasons for each of the variances calculated above (4 marks).
DECISION MAKING, POWERPOINT, AND SWOT ANALYSIS
DECISION MAKING, POWERPOINT, AND SWOT ANALYSIS.
Lisa McDonald is the new VP of HR at Company XYZ. She has been with this company for 4 years and is nervous of this demanding position. While working for Company XYZ as an HR Generalist, she went to school in the evenings and earned a Master’s degree in Human Resource Management at a local university. As a result of her education, she was the right person for the job when the VP of HR left the company without notice. Unfortunately, Company XYZ did not have a succession plan in place and the CEO decided to “throw” Lisa into this prestigious position of VP of HR. Her first big project was to figure out why productivity levels have been decreasing over the last three quarters. She decided to create a survey. She had all of the employees at Company XYZ take the survey. After analyzing the results of the “Employee Climate and Work-life” survey, she learned that many of the employees feel as if they are overworked and burnt-out. After conducting some personal research and reviewing the data from the last survey, she learned that many of the employees have over 200 hours of unused sick-time (i.e., 5 weeks) and over 400 hours (i.e., 10 weeks) of unused vacation time. Her employees did not want to take any time off from work. She wondered if it was because they simply loved their job or if they were so overwhelmed with work, they could not afford to take time off from work.
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