1. Deeds Company sells custom-made machine parts to industrial equipment manufacturers by bidding cost plus 40 percent, where cost is defined as manufacturing cost plus order processing cost. There are two types of customers: those who place small, frequent orders and those who place larger, less frequent orders. Cost and sales information by customer category is provided below.

   	Frequently Ordering Customers				Less Frequently Ordering Customers
   Sales orders		43,000				4,300
   Order size		15				150
   Average unit manufacturing cost		$45				$45
   Order-processing activity costs:
   Processing sales orders						$2,878,500

   Order-filling capacity is purchased in steps (order-processing clerks) of 1,000, each step costing $46,000; variable order-filling activity costs are $35 per order. The activity capacity is 45,000 orders; thus, the total order-filling cost is $3,725,500 [(45 steps × $46,000) + ($35 × 47,300)]. Current practice allocates ordering cost in proportion to the units purchased.

   Deeds recently lost a bid for 100 units. (The per-unit bid price was $2 per unit more than the winning bid.) The manager of Deeds was worried that this was a recurring trend for the larger orders. (Other large orders had been lost with similar margins of loss.) No such problem was taking place for the smaller orders; the company rarely lost bids on smaller orders.

   Required:

   1. Calculate the unit bid price offered to Deeds’s customers assuming that order-filling cost is allocated to each customer category in proportion to units sold. Note: Do not round interim calculations. Round your final answer to the nearest cent.
   $

   2. Assume that a newly implemented ABC system concludes that the number of orders placed is the best cost driver for the order-filling activity. Assign order-filling costs using this driver to each customer type and then calculate the new unit bid price for each customer type. Note: Do not round interim calculations. Round the final order cost allocation to the nearest whole dollar. Round final bid prices to the nearest cent.

   	Order Cost Allocation round to whole dollar	Bid Price round to two decimals
   Frequently ordering	$	$
   Less frequently ordering	$	$

   Using this new price, would Deeds have won the bid for the units recently lost?
   

   • Yes
   • No

   3. What if Deeds offers a discount for orders of 35 units or more to the frequently ordering customers? Assume that all the frequently ordering customers can and do take advantage of this offer at the minimum level possible. Compute the new order cost allocation and bid price.

   Note: Round the number of steps UP to the nearest whole number, using that result in future calculations. For the Order Cost Allocation and Bid Price, do not round interim calculations. Then round the final order cost allocation to the nearest whole dollar and final Bid Price the nearest cent.

   	Order Cost Allocation round to whole dollar	Bid Price round to two decimals
   Frequently ordering	$	$

   Can Deeds offer the original price from Requirement 1 to the frequently ordering customers and not decrease its profitability?
   

   • Yes
   • No

Deeds Company sells custom-made machine parts to industrial equipment manufacturers by bidding cost plus 40 percent, where cost is defined as manufacturing cost plus order processing cost. There are two types of customers: those who place small, frequent orders and those who place larger, less frequent orders. Cost and sales information by customer category is provided below.

Order-filling capacity is purchased in steps (order-processing clerks) of 1,000, each step costing $41,000; variable order-filling activity costs are $35 per order. The activity capacity is 45,000 orders; thus, the total order-filling cost is $3,346,500 [(45 steps × $41,000) + ($35 × 42,900)]. Current practice allocates ordering cost in proportion to the units purchased.

Deeds recently lost a bid for 100 units. (The per-unit bid price was $2 per unit more than the winning bid.) The manager of Deeds was worried that this was a recurring trend for the larger orders. (Other large orders had been lost with similar margins of loss.) No such problem was taking place for the smaller orders; the company rarely lost bids on smaller orders.

1. Calculate the unit bid price offered to Deeds’s customers assuming that order-filling cost is allocated to each customer category in proportion to units sold. Note: Do not round interim calculations. Round your final answer to the nearest cent.

2. Assume that a newly implemented ABC system concludes that the number of orders placed is the best cost driver for the order-filling activity. Assign order-filling costs using this driver to each customer type and then calculate the new unit bid price for each customer type. Note: Do not round interim calculations. Round the final order cost allocation to the nearest whole dollar. Round final bid prices to the nearest cent.

Using this new price, would Deeds have won the bid for the units recently lost?
Yes

3. What if Deeds offers a discount for orders of 35 units or more to the frequently ordering customers? Assume that all the frequently ordering customers can and do take advantage of this offer at the minimum level possible. Compute the new order cost allocation and bid price.

Note: Round the number of steps UP to the nearest whole number, using that result in future calculations. For the Order Cost Allocation and Bid Price, do not round interim calculations. Then round the final order cost allocation to the nearest whole dollar and final Bid Price the nearest cent.

Can Deeds offer the original price from Requirement 1 to the frequently ordering customers and not decrease its profitability?

Activity-Based Customer Costing

Deeds Company sells custom-made machine parts to industrial equipment manufacturers by bidding cost plus 40 percent, where cost is defined as manufacturing cost plus order processing cost. There are two types of customers: those who place small, frequent orders and those who place larger, less frequent orders. Cost and sales information by customer category is provided below.

Order-filling capacity is purchased in steps (order-processing clerks) of 1,000, each step costing $50,000; variable order-filling activity costs are $35 per order. The activity capacity is 55,000 orders; thus, the total order-filling cost is $4,174,500 [(55 steps × $50,000) + ($35 × 40,700)]. Current practice allocates ordering cost in proportion to the units purchased.

Deeds recently lost a bid for 100 units. (The per-unit bid price was $2 per unit more than the winning bid.) The manager of Deeds was worried that this was a recurring trend for the larger orders. (Other large orders had been lost with similar margins of loss.) No such problem was taking place for the smaller orders; the company rarely lost bids on smaller orders.

Required:

1. Calculate the unit bid price offered to Deeds’s customers assuming that order-filling cost is allocated to each customer category in proportion to units sold. Note: Do not round interim calculations. Round your final answer to the nearest cent.
$

2. Assume that a newly implemented ABC system concludes that the number of orders placed is the best cost driver for the order-filling activity. Assign order-filling costs using this driver to each customer type and then calculate the new unit bid price for each customer type. Note: Do not round interim calculations. Round the final order cost allocation to the nearest whole dollar. Round final bid prices to the nearest cent.

Using this new price, would Deeds have won the bid for the units recently lost?
Yes

3. What if Deeds offers a discount for orders of 35 units or more to the frequently ordering customers? Assume that all the frequently ordering customers can and do take advantage of this offer at the minimum level possible. Compute the new order cost allocation and bid price.

Note: Round the number of steps UP to the nearest whole number, using that result in future calculations. For the Order Cost Allocation and Bid Price, do not round interim calculations. Then round the final order cost allocation to the nearest whole dollar and final Bid Price the nearest cent.

Can Deeds offer the original price from Requirement 1 to the frequently ordering customers and not decrease its profitability?

​Co-browsing refers to the ability to have a contact center agent and customer jointly navigate an application on a real time basis through the web. A study of businesses indicates that 88 of 126 ​co-browsing organizations use​ skills-based routing to match the caller with the right​ agent, whereas 61of 180 ​non-co-browsing organizations use​ skills-based routing to match the caller with the right agent.

a. At the0.01 level of​ significance, is there evidence of a difference between​ co-browsing organizations and​ non-co-browsing organizations in the proportion that use​ skills-based routing to match the caller with the right​ agent? Let π1represent the proportion of​ co-browsing organizations, and let π2 represent the proportion of​ non-co-browsing organizations. What are the null and alternative hypotheses to​ test?

calculate the test statistic

x2stat =

What is the critical value for .01

x2 .01 =

b. The p-value =

b. An earlier​ Z-test for the difference between two proportions in parts​ (a) and​ (b) resulted in a test statistic of ZSTAT=6.19 against critical values of −2.33 and 2.33 with a​ p-value of .000. Compare the results of​ (b) and​ (c) to the results of the​ Z-test.

Question 3 (5 + 5 + 4 = 14 Marks)
a. Match FIVE of the 11 audit sampling terms (1-11) with the five definitions
provided below in items (i-v):
1. attributes sampling
2. block sample selection
3. haphazard sample selection
4. non-statistical sampling
5. probability proportional to size
6. random selection
7. representative sample
8. sampling distribution
9. statistical sampling
10. stratified sampling
11. systematic sample selection
i the use of mathematical measurement techniques to calculate formal
statistical results and quantify sampling risk.
ii a statistical, probabilistic method of sample evaluation that results in an
estimate of the proportion of items in a population containing a characteristic
of interest.
iii a non-probabilistic method of sample selection in which items are chosen
without regard to their size, source, or other distinguishing characteristics.
iv a method of sampling in which all the elements in the total population are
divided into two or more subpopulations that are independently tested and
statistically measured.
v a sample in which every possible combination of items in the population has
an equal chance of constituting the sample.
Required:
State the above individual definition (i to v) is defined as which audit sampling item?

Suggested Answer for part a:
Click or tap here to enter text.

b. Describe the audit risk model and the interrelationships of its components. Which
components of the audit risk model can be controlled by the auditor?
Suggested Answer for part b:
Click or tap here to enter text.

BUACC5935 Auditing and Assurance Services Semester 2 2020

Page 7 of 10

c. Outline the difference between tests of control and substantive tests and give an
example of a substantive test.

Governments must now account for their capital assets, including infrastructure, and they must recognize in their accounts that the assets may not last forever (unless continually preserved). In the year a road maintenance district was established, it engaged in the transactions that follow
involving capital assets (all dollar amounts in thousands). The district maintains only a single governmental fund (a general fund).

1. Received authority over roads previously “owned” by the county. The estimated replacement cost of the roads was $60,000. On average they have a remaining useful life of 40 years.
2. Acquired machinery and equipment for $700, with general fund resources. They have a useful life of 10 years.
3. Incurred costs of $3,000 to construct a building. The construction was financed with general obligation bonds. The building has a useful life of 30 years.
4. Acquired equipment having a fair value of $60 in exchange for $20 cash (from general-fund resources) plus used equipment for which the district had paid $50. The used equipment had a fair value at the time of the trade of $40; depreciation of $25 had previously been recognized.
5. Sold land for $70 that had been acquired for $90.
6. Received a donation of land from one of the towns within the district. The land had cost the town $120, but at the time of the contribution had a fair market value of $500.
7. Incurred $1,200 in road resurfacing costs. The district estimates that its roads must be resurfaced every four years if they are to be preserved in the condition they were in when they were acquired.
8. Recognized depreciation of $100 on its building, $70 on its machinery and equipment, and $1,500 on its roads, in addition to any depreciation relating to the resurfacing costs.

a. Prepare entries to record the transactions so that they could be reflected in the district’s government-wide statements. The district has opted to depreciate its infrastructure assets.
b. Suppose instead that the district has elected not to depreciate its roads but to record as an expense only the costs necessary to preserve the roads in the condition they were in when acquired. How would your entries differ?
c. If, in fact, the roads have a useful life of 40 years, do you think it is sound accounting not to depre-ciate the roads? Explain.
d. If, in fact, the preservation costs are sufficient to preserve the roads in the condition they were in when the district acquired them, do you think it is sound accounting to depreciate the roads? Explain.

1. T F The number of defects on a product produced by a process is distributed as a Poisson distribution.

2. T F For large binomially distributed populations and small samples you can use sampling without replacement

3. T F Given a triangular distribution with minimum 2, maximum 8 and mode 7, the probability of being smaller than 7 is greater than 60%

4. T F The hypergeometric distribution describes sampling without replacement

5. T F The relative frequency of a value is the proportion of times the value occurs.

6. T F The permutation of n numbers is always smaller than the combination of the same n numbers, taken the same number of times

7. T F The intersection of two events is greater than zero when they are mutually exclusive

8. T F The probability of rolling a 6 with a fair six sided die is 1/6.

9. T F The product of the probability of two independent events is called conditional probability.

10. T F When we use both a beta and a triangular distribution to represent a variable, the probability of a low value will always be grater with the triangular distribution

McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $860 per set and have a variable cost of $260 per set. The company has spent $184,000 for a marketing study that determined the company will sell 22,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 4,000 sets of its high-priced clubs. The high-priced clubs sell at $1,170 and have variable costs of $610. The company will also increase sales of its cheap clubs by 4,000 sets. The cheap clubs sell for $480 and have variable costs of $190 per set. The fixed costs each year will be $7,370,000. The company has also spent $1,105,000 on research and development for the new clubs. The plant and equipment required will cost $18,900,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $1,038,000 that will be returned at the end of the project. The tax rate is 33 percent, and the cost of capital is 15 percent. Assume that the values are accurate to within only ±9 percent. (Hint: The price and variable costs for the two existing sets of clubs are known with certainty; only the sales gained or lost are uncertain.) Required: (a) What is the best-case NPV? (Do not round your intermediate calculations.) (b) What is the worst-case NPV? (Do not round your intermediate calculations.)

McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $860 per set and have a variable cost of $260 per set. The company has spent $184,000 for a marketing study that determined the company will sell 22,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 4,000 sets of its high-priced clubs. The high-priced clubs sell at $1,170 and have variable costs of $610. The company will also increase sales of its cheap clubs by 4,000 sets. The cheap clubs sell for $480 and have variable costs of $190 per set. The fixed costs each year will be $7,370,000. The company has also spent $1,105,000 on research and development for the new clubs. The plant and equipment required will cost $18,900,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $1,038,000 that will be returned at the end of the project. The tax rate is 33 percent, and the cost of capital is 15 percent. Assume that the values are accurate to within only ±9 percent. (Hint: The price and variable costs for the two existing sets of clubs are known with certainty; only the sales gained or lost are uncertain.) Required: (a) What is the best-case NPV? (Do not round your intermediate calculations.) (b) What is the worst-case NPV? (Do not round your intermediate calculations.)