Outdoor Luggage, Inc., makes high-end hard-sided luggage for sports equipment. Data concerning three of the company’s most popular models appear below.

Required:

1. If we assume that the total time available on the plastic injection molding machine is the constraint in the production process, how much contribution margin per minute of the constrained resource is earned by each product?

3. If we assume that a severe shortage of plastic pellets has required the company to cut back its production so much that its new constraint has become the total available pounds of plastic pellets, how much contribution margin per pound of the constrained resource is earned by each product?

Memo Assignment #4

Instructions: This will be done in a professional memo format with complete sentences that explain your process and conclude in a recommendation. I would expect the memo to be no less than one full page and no more than four pages. The goal is two-fold: the professional recommendations AND the appropriate presentation.

Heavenly Scents was founded by Riley Williams when she bought Bund Farm in 2015. Heavenly Scents has two departments, a harvesting department and a processing department. Currently, all of the harvesting department’s output goes to the processing department for extraction of the oils, and the oils are then sold to Frutarom (a division of IFF, a major flavor and fragrance supplier).  The processing division averages a yield of 500 milliliter (ml) of oils for each 1000 pounds (lb) of source materials (flowers and other plant materials). Cost and market data for the two divisions are as follows:

As the new accountant, you have been tasked with determining several items and with making some suggestions:

1. What is the operating income for the 2020 growing season from the estimated harvest of 480,000 pounds of source materials and processing it for final sale to Frutarom?
2. Heavenly Scents rewards its division managers with a bonus equal to 6% of their division’s operating income. Compute the bonus earned by each division manager for the 2020 growing season for each of two transfer pricing policies, a) 225% of full cost and b) market cost.
3. Which transfer-pricing method will each division manager prefer? Give some suggestions on how Heavenly Scents could resolve or reduce transfer pricing and bonus compensation conflicts?

You need not show every detail of your calculations, keep this at a fairly high level, but still give the requested details. Remember the harvest weight is an estimate, so don’t give figures to the penny because that makes them seem more accurate that they really are - implausibly exact figures give the appearance of certainty.

1. You are an accounting student at Berkeley College and will not graduate for another year. But because of your excellent grades so far, you have been able to land a job in the purchasing department of a retailer. One of the purchasing agents in your company is negotiating for the receipt of a very large order of uninsured goods from a supplier. The purchasing agent is able to get a better deal on the goods if they are shipped FOB shipping point rather than FOB destination. The agent doesn’t know the difference between these two concepts. He also doesn’t understand why choosing one over the other should make any difference to the company. As a student of accounting at Berkeley College, you know well the difference between these 2 concepts and you know why one would be a better choice over the other in the case of uninsured goods. Please explain these two concepts in this discussion and tell the purchasing agent which shipping method is preferable and why. In addition to your response, please comment to at least one classmate’s post including information from Chapter 6 in your eText.

2. Explain the difference between the Perpetual and Periodic inventory systems and let us know why anyone would use Periodic inventory in this computerized age.

Type II Diabetes is a costly and potentially debilitating disease. The total costs incurred over a lifetime by a person with Type 2 diabetes were recently estimated to be $85,000 – from treating the disease directly, and complications like nerve damage, amputations, and stroke. Consider a simplified model of the market for health insurance, where diabetes is the only future health risk people face. Assume that there are 1,000 people classified as “normal weight” and 1,000 people classified as “overweight.” Normal weight people face a 20% chance of developing Type II diabetes in their lifetime, and overweight people a 30% chance. Assume an individual can expect to earn $2,000,000 over the course of their lifetime. Additionally, assume individuals spend all their money on consumption, and u(c)=c. Ignore any intertemporal considerations of interest rates, inflation or discount factors, i.e. r=0. Suppose insurance companies may measure the weight of an individual prior to offering them an insurance contract, and price their contract based on the result. Assume the only costs the insurance company faces are payments for medical costs if a person develops diabetes, that insurance companies are risk-neutral, and that the market for providing insurance is perfectly competitive. What prices for insurance contracts will be offered? p(normal weight)= ?? p(overweight)= ?? What will be the consumer and producer surplus in this market? CS= ?? PS= ??

(I have already calculated myself how much people are willing to pay for insurance so please answer the questions I have stated here)

A Ltd specialises in the distribution of pharmaceutical products. It buys from pharmaceutical companies and re-sells to each of the three different distribution channels: (i) General supermarket chains, (ii) Drug store chains, and (iii) Individual chemist shops. The company plans to use activity-based costing for analysing the profitability of its distribution channels. The following data relates to the quarter ending March 2020. Particulars General supermarket chains Drug store chains Individual chemist shops Average sales per delivery $96,500 $32,450 $6,225 Average cost of goods sold per delivery $94,650, $31,800, $5,950 Number of deliveries 960 ,2,470, 8,570 Number of orders 1,000, 2,650, 9,500 Average number of cartons shipped per delivery 250 75 12 Average number of hours of shelf stocking per delivery 2, 0.5, 0.1 The following information is available in respect of operating costs (other than cost of goods sold) for the quarter ending March 2020. Activity areas Cost Cost driver Customer purchase order processing $591,750 Purchase orders by customers Customer store delivery $960,000 Number of deliveries Cartons dispatched to customer stores $792,135 Number of cartons dispatched to customer stores Shelf stocking at customer location $80,240 Hours of shelf stocking Required: (a) Calculate the activity cost driver rates for each of the activity areas. (b) Prepare an income statement showing details of each distribution channel for the quarter ending March 2020 using activity-based costing.

Pharma Save Ltd specialises in the distribution of pharmaceutical products. It buys from pharmaceutical companies and re-sells to each of the three different distribution channels: (i) General supermarket chains, (ii) Drug store chains, and (iii) Individual chemist shops. The company plans to use activity-based costing for analysing the profitability of its distribution channels. The following data relates to the quarter ending March 2020.

The following information is available in respect of operating costs (other than cost of goods sold) for the quarter ending March 2020.

Required:

1. Calculate the activity cost driver rates for each of the activity areas.

2. Prepare an income statement showing details of each distribution channel for the quarter ending March 2020 using activity-based costing.

Do you agree or disagree with the selected aspects for an organization? Explain

The three key aspects that a company must consider when developing a successful loyalty and reward program complete satisfaction of the customer needs, give the customer ultimate pleasure in buying the services or products with their loyalty program; in addition, if the consumer spends more genuinely they get more back on their loyalty or reward program, which they will want to focus on the same loyalty program that offers them savings. Customers frown upon any changes to their loyalty program that is not totally benefiting the consumer. “Loyalty program managers are frequently asked to find ways to tighten down budgets within their programs; it is also the case that senior executives do not always have data demonstrating the importance of their program as it contributes to return on investment or ROI. Consequently, programs are often cut or changed in ways that may negatively influence consumers”. Many customers just love their reward program with their vendors; furthermore, it makes the customer spend more with the vendor as well. For instance, I truly love Steven Madden shoes, they have a rewards program that is amazingly great; moreover, you get points for just signing up for the rewards program. All companies are gearing for customers to have a death do us apart relationship with their services or products based on their loyalty program.

     When developing any time of advertising strategy to lure consumers to buy their product or services; consequently, you will have a deal with cost or decrease in the value of the company in order to maintain the loyalty or reward program. For example, “Restaurant chain Chart House program, the Aloha Club, offered free around the world trips to any member who ate in all 65 Chart House restaurants. Unfortunately, the company underestimated the zeal of its 300,000 members. Forty-one members qualified, costing the company a considerable sum of money” (Winer, 2016 pg. 429). Many consumers think they are getting great deals; in addition, at low cost too. Customers and the companies tend to try to get over each other in this marketing structure. “Reward programs are incentives designed to create loyalty among customers with the idea that they can provide the best rewards to the “best” customers. Loyal customers are, by definition, less price-sensitive customers. However, managers frequently question the value of their reward programs and wonder what, if any, incrementality is gained from offering rewards for customer patronage. Consequently, managers are frequently challenged to think of ways to manage their loyalty programs that reward high patronage without creating “deal” seeking customers and without further discounting price”. Consumers only want the deals; consequently, the company wants the long-term shopper, without a return of investments

1. Archway Adventures has compiled data for 2017 on customer orders by region and product group as follows:

Let us assume that these are representative of the pattern of orders that they anticipate seeing in 2018.

1. What is the probability that a randomly selected order will be from North America?
2. What is the probability that an order is from North America and it is for a game?
3. What is the probability that an order is from outside North America and Europe or is for something other than a toy or game?
4. Among orders from the “rest of the World”, what is the probability it is for a toy?
5. Among orders for toys, what is the probability that the order comes from the “Rest of the World”?
6. Are the events “Toy” and “Rest of the World” independent? Explain.
7. The rows of the table are mutually exclusive categories. How would our summary be complicated if some orders were for multiple products?

2. 54.5% of Archway’s orders come from North America, 31.5% from Europe and the remaining 14% from the rest of the world. Among North American customers, 3% complained about late or lost deliveries. Similarly, complaints were received from 8% of European customers and 15% of customers from the rest of the world.

1. Construct a probability tree that shows all combinations of where orders originated and whether customers complained. Label all branches in terms of what the event is on the branch and the corresponding probability (e.g., P(A), PA’), P(B|A), P(B’|A),…). Also determine the probability for each ending joint event (e.g., P(Europe and Complain)).
2. Summarize all of the joint probabilities in a probability table.
3. What percentage of Archway customers complained about delivery problems?
4. Among those who complained, what percentage were from Europe?

You are the audit senior responsible for the audit of Spectrum Ltd for the year ended 30 June 2018. During your initial planning meeting with Justin James, the chief financial officer (CFO), he informs you of the following changes in the company’s operations.

(a) To help achieve budgeted sales for the year, Spectrum is about to introduce bonuses for sales staff. The bonuses will be an increasing percentage of the gross sales made by each salesperson above certain monthly targets.

(b) Spectrum plans to close an inefficient factory in country Tasmania before the end of 2018. It is expected that the redeployment and disposal of the factory assets will not be completed until the end of

(c) the following year. However, Justin is confident that he will be able to determine reasonably accurate closure provisions.

(d) The chief executive officer (CEO), Geoff Alderton, has just returned from Italy, where he signed a contract to import a line of clothing that has become the latest fashion fad there. The company has not previously been engaged in the clothing industry.

Due to Justin’s workload, the company recently employed a treasurer, Alice Campbell. Justin is excited about the appointment, because in the three months since Alice has been with the company she has realized a small profit for the company through foreign exchange transactions in US dollars.

For each of the scenarios provided, outline how the information affects inherent risk.