ACC00724 (Accounting for Managers) S2, 2020

Assessment 3 – Total 15 marks

Due Date: 16 September 2020, 11PM

This assessment consists of two main questions covering Topics 7 and 8.

Submit your answers in one Word document.

Do NOT include the questions in your submission document. Instead, use the question/part numbers
as headings.

Show all relevant formulas and workings for all calculations. Failure to do so will result in a loss of
marks.

Question 1 (7.5 marks total)

Happy Jones is the Facilities Manager for a university. She is considering an opportunity that involves
renting food vending machines and placing them in various locations throughout the university. This
would allow students and staff to conveniently access a quick range of similarly priced food items for
snacking “pick-me-up” purposes. (Assume a non-COVID-19 state of affairs on campus.) As a not-for-
profit university, the main aim is to cover all costs. If any profits are made, they will be used to boost
student support services.

For the purposes of analysing this opportunity, Happy has the following estimates:

Per unit (food item) forecasts:

Average selling price of each food item: $2.00
Average variable cost of each food item: $1.60

Annual fixed cost forecasts:

Rental $12,000
Labour $10,000
Other fixed expenses $2,000

Happy has asked you to undertake a cost-volume-profit analysis of the opportunity.

a) Calculate the contribution per unit and the contribution margin ratio. (1.5 marks)
b) Calculate the break-even point in number of food items and in dollars of revenue. (1.5 marks)
c) Calculate the sales (in units) needed to earn a target annual profit of $2,000. (1 mark)
d) The vending machine owner initially offered Happy a fixed rental fee option. However, the owner
has since provided another rental agreement option: a $9,000 fixed rental plus 2.5% of revenues
from the sale of food items. Calculate the break-even point in units under this option and briefly
explain from the university’s perspective which rental agreement option might be preferred. Your
explanation should not exceed 100 words. (3.5 marks)
Question 2 (7.5 marks total)

You need a new roof on your old home. You employ William, the owner of a sole trader roofing
business, to do the job. Although William’s quote was the lowest you received, you picked him because
he was highly recommended by several friends. You were sure the low quote did not suggest a low
quality job. As it turned out, you were right.

William works alone so you chatted with him during lunch breaks to keep him company. During one
of these chats, you were surprised to hear that his business was struggling financially, even though
William had jobs booked 5 days a week for a year ahead, except for 4 weeks in summer when he wants
to take a well-earned break. You thought about that low quote. Was he charging enough to cover all
his costs?

The answer became clear when you received William’s invoice. It included the correct list of materials,
all charged at appropriate, going-rate-in-the-market prices (total $10,000). No obvious problems
there. It was the other item on the invoice – labour – that suggested a problem. William had charged
the correct amount of hours (total 80 hours = 8 hours per day, 5 days per week for 2 weeks) but at
only $30 per hour! Clearly such a low rate could only be the direct labour rate. It seemed that no
overheads had been incorporated into that rate, as would normally be the case for ‘tradies’. You guess
William’s overheads would be around $50,000 per year.

You pay the invoice but then decide you want to help William out by explaining how he could apply a
job costing approach in the future.

In your explanation to William, you will need to include the following:

a) A brief description of job costing and its purpose. (1 mark)
b) A definition of overheads along with 4 examples of overheads applicable to jobs for William’s
business. (1.5 marks)
c) A numerical example applied to your roofing job that derives the full cost of your job. The
example should correctly use the information above, provide any necessary formulas and justify
any choices. The example should be well presented in a logical order that will be easy for
William to follow and understand. (5 marks)

Your Question 2 answer should not exceed 500 words.