Question

Question 8

• Time: 27 minutes
• Total: 19 marks

Juanita earns $63,000 annually as a marketing specialist in Mexico City, Mexico. She has applied for admission to the M.B.A program at Dalhousie University. If accepted, she will resign and move to Halifax, Nova Scotia. Juanita has assembled the following data to make the decision:

Juanita's annual salary	$63,000
Annual tuition and fees	13,400
Annual book and supply expense	3,500
Monthly living expenses in Mexico City	940
Monthly living expenses in Halifax	1,700
Monthly auto expenses in Mexico city	364
Monthly auto expenses in Halifax	364
Cost of two business suits purchased just prior to resigning	650
Moving expenses	5,950

Required:

a) Calculate the following in the context of Juanita's decision:

(i) Total sunk costs (if any) (2 marks)
(ii) Total differential or incremental costs (if any) (6 marks)
(iii) Total opportunity costs (if any) ( 2 marks)

b) What is your best estimate of the total cost to Juanita of earning an M.B.A. degree if it will take her 12 months to complete the program? (5 marks)
c). Suppose you are Juanita. What specific additional information would you need in order to make a rational decision to pursue and successfully complete the MBA program at Dalhousie? Explain. (4 marks)

Question 9

• Time: 28 minutes
• Total: 20 marks

For the Win (FTW) Corporation uses a standard costing system in the creation of awards and trophies. The Manufacturing overhead costs are applied to products based on machine time.

Required:

1. Unfortunately, due to accounting glitches in FTW’s software, several numbers and labels have been omitted from the analysis of fixed overhead below. Supply the missing numbers and labels to help FTW out: (10 marks)

Actual Fixed Overhead Cost	Flexible Budget Overhead Cost	Fixed Overhead Cost Applied to Work in Process
(a)	(b)	302,700 MH x $1.2 = (c)
	Budget variance, $3,020 U	(d)
	Total variance, $820 F	(e)

2. Next, assume that 6 minutes of machine time is standard per unit of production. How many units were produced in the situation above?    (5 marks)
3. Once again, assume that 6 minutes of machine time is standard per unit of production. How many units of production were assumed when the predetermined application rate for fixed overhead was established? (5 marks)

Answer 1

a) A sunk cost is a cost which is incurred in past and not relevant for current decision making i) Total sunk costs Cost of two business suits purchased $650 Moving expenses $5,950 Total sunk costs $6,600 ii) Differential cost is the difference between two alternatives Total differential cost Mexico Differential Halifax City Cost Monthly living expenses $940 $1,700 $760 Monthly auto expenses $364 $364 $0 Differential costs (Incremental) $760 iii) Opportunity cost is the cost of a alternative foregone by choosing another alternative course of action Total opportunity costs Juanita's annual salary $63,000 b) Best estimate of MBA Degree Annual tuition and fees Annual book and supply expense Monthly living expenses in Mexico City Monthly auto expenses in Mexico City Best estimate of MBA Degree $13,400 $3,500 $940 $364) $18,204 c) In addition to quantitative (financial) factors of cost of degree and cost of living qualitative (non-financial) factors should also be considered by Juanita The qualitative factors also equally influence the decision to select university Such qualitative factors should include: Reputation of college Opinion of college from past students and in general Campus facilities and learning environment Internship opportunities Past campus placement history

Actual Fixed Overhead Cost a) $362,420 Budget variance Flexible Budget Fixed Overhead Overhead cost Cost applied WIP b) $359,400 c) 302,700* $1.2 = $363,240 $3,020 v d) Volume variance e) Total variance = $820 F Budget variance + Volume variance $3,840 F Total variance Explanation: Budget variance = Budgeted overheads - Actual overheads Volume variance = Budgeted overheads - Applied overheads Total variance = Budget variance + Volume variance a) Units produced Standard machine hours Total minutes Standard time per unit Units produced 302,700 18,162,000 6 minute 3,027,000 Budget variance Total variance Volume variance $3,020 V $820 F $3,840 F Budgeted overheads Budget variance Actual overheads $359,400 $3,020 U $362,420 Applied overheads Volume variance Budgeted overheads $363,240 302,700*$1.2 $3,840 F $359,400 b) Budgeted units Machine hour rate Budgeted Machine hours Budgeted minutes Standard time per unit Budgeted units $1.20 299,500 $359,400/$1.20 17,970,000 6 minute 2,995,000