Swinburne University of ACC20014

Technology Faculty of Business & Management Decision Making

Law

Take Home Final Assessment

ACC20014
Management Decision Making
Semester 2 2020
Due date: by 9 am on 14 November 2020

1. This assessment contains 5 questions. The total mark will be out

of 100 and will constitute (depending on your results) up to 50% of
your total assessment for this unit. You need to answer all the
questions.

2. This is a time bound assessment with a limit of 24 hours.

3. You are required to submit your answers together with the

cover sheet signed by you by 9 am on 14 November 2020 on
Canvas> Assignments > A4: Final Assessment.

4. Please submit your answers in a word document, not PDF.

5. Please write your name and id at the top of the first page of your
document.
6. Please ensure that your answers are clearly numbered.
7. Please save your word document using your id and your name.
8. Please ensure some time before 9 am to submit your answers.

Final Assessment - Semester 2 Page 1 of 7

2020
Swinburne University of ACC20014
Technology Faculty of Business & Management Decision Making
Law

Question 1

The Farm Equipment Ltd, a manufacturer of components used for heavy farm equipment, is
organized along decentralized product lines with each manufacturing division operating as a
separate profit Centre. Each manager has been delegated full authority on all decisions
involving the sale of that division’s output both to outsiders and to other divisions of Farm
Equipment.
Two of these divisions are the Large Part Division and the Small Part Division.
The Large Parts Division produces a tractor-engine component. To manufacture that part it
requires a particular part no 303X which is manufactured by the Small Parts Division. In the
past the Large Parts Division has purchased part 303X from the Small Parts Division for
$14,000 per unit. However, the Large Parts Division manager decided to purchase a similar
part from an external supplier for $13,500.
The Small Parts Division manager is surprised with this decision as his division will not be able
to utilize the freed-up capacity if they stopped supplying to the Large Parts Division.
The Small Parts Division manager appeals to the top management of Farm Equipment for support
but is told that because of the company’s policy, top management cannot interfere in any decisions
made by the division managers.

Additional data:
Large Parts Division’s selling price of the tractor-engine component is $18,000. In addition to the
cost of part 303X, it also incurs $1000 per unit of additional variable costs and $1000 per unit of
fixed costs (allocated).
Small Parts Division’s variable cost per unit to produce part 303X is $11,500.
Small Parts Division’s fixed cost (allocated) per unit is $2,500.

Required
1. Evaluate the top management’s decision and provide a brief rationale for your assessment
using the following criteria:

External Supplier
SP LP Company
Revenue $18,000 $18,000
Less VC $13,500 $13,500
$1,000 $1,000
CM $3,500 $3,500
Less FC $2,500 $1,000 $3,500

Final Assessment - Semester 2 Page 2 of 7

2020
Swinburne University of ACC20014
Technology Faculty of Business & Management Decision Making
Law

Profit/Loss ($2,500) $2,500 0

a) Goal congruence - From calculation above, the company has not achieved its
congruence goals, since there is a company loss.

b) evaluating division performance - The company has poor performance, since the
Small part manager made a loss, whereas the Large part are gaining profit

c) motivating management effort - Since the Small part made a loss, there is no
motivation

d) preserving division autonomy – there is no autonomy, since it is rule based

Support your answer with appropriate calculations. (14 marks)

Internal Supplier
SP LP Company
Revenue $14,000 $18,000
Less VC $11,500 $1,000
Transfer Price $14,000

CM $2,500 $3,000 $5,500

Less FC $2,500 $1,000 $3,500
Profit/Loss 0 $2,000 $2,000
a. Goal congruence – By purchasing from internal supplier, the company achieve a goal
congruence, since they have gained a profit.

b. evaluating division performance – As for the performance, although the company gained a
profit by purchasing from internal supplier, SP still loss. Therefore, the performance is
poor.

c. motivating management effort – There is no motivation due to loss in SP

d. preserving division autonomy – there is no autonomy, since it is rule based.

(14 marks)

Final Assessment - Semester 2 Page 3 of 7

2020
Swinburne University of ACC20014
Technology Faculty of Business & Management Decision Making
Law

2. Should top management intervene? Why or why not. Briefly discuss. (4 marks)
- Looking at the two tables above, the decision to purchase components from external suppliers
would bring the Large part profitability and Small part division to have unfavorable profitability.
Whereas the decision to purchase from internal suppliers resulting in the company making a
profit; however, Small part divisions are still at a loss, while Large Part still making a
profitability outcome. Since the company is a decentralized structure where the rights and
responsibility for decision making lie in each department's managers, the top managers should
not intervene with this decision since it will be against the company policy.

(14 + 4 = 18 marks)

Final Assessment - Semester 2 Page 4 of 7

2020
Swinburne University of ACC20014
Technology Faculty of Business & Management Decision Making
Law

Question 2
Queensland Window Washers (QWW) provides window washing services to commercial
clients. QWW owner, Peter Dutter, makes sales calls himself and quotes on jobs based on square
footage of window surface. QWW charges customers $0.12 per square foot. Peter estimates
that his company will work a total of 2,000 jobs during the following financial year 2021/22.
Each job averages 2,000 square feet of window surface and requires 5 direct labour hours and
12.5 km of travel. Peter pays his window washers $19 per hour. Other labour benefits equal
20% of wages. Wages and benefits are considered direct labour costs. The following data relates
to the overhead costs based on 2000 jobs performed and 10,000 direct labour hours (DLH):
Variable overhead costs:
Suppliers ($4.40 per DLH) $ 44,000
Fuel ($7.50 per job) $ 15,000

Fixed costs (to support capacity of 2,400 jobs and 12,000 direct labor hours)

Indirect labor $ 20,000

Depreciation 75,000
Other 28,000
Total budgeted overhead costs $123,000

Required
1. Prepare a direct labor budget in hours and dollars for the financial year
2021/22. (2 marks)

Queensland Windows Washer

Direct Labor Budget
Jobs to be produced 2,000 Jobs
Direct Labor hours per production 5 Direct labor hours
Total labor budget (hours) 10,000 hours
Direct labor hourly rate $19
Direct labor cost (dollar) $190,000

Final Assessment - Semester 2 Page 3 of 7

2020
Swinburne University of ACC20014
Technology Faculty of Business & Management Decision Making
Law 2. Calculate the budgeted total cost of all jobs for the financial year
2021/22. (3 marks)
Queensland Windows Washer
Total Cost Budget
Direct Labor Costs $288,000

Variable Overhead
Cost
Supplies $44,000
Fuel $15,000
Indirect Labor $20,000
Depreciation $25,000
Other $28,000
Total Budgeted Cost $410,000

3. Prepare a revenue budget for the financial year 2021/22. (1 mark)

Queensland Windows Washer

Sales Budget
Sales 2,000 Jobs
Total sales 2,000 Jobs X 2,000 square foot =
4,000,000
Price per unit $0.12

Total Revenue/Sales $480,000

4. Peter believes that spending $18,000 in additional advertising will lead to a

5% increase in the number of jobs.
o Increase in the number of Jobs by 5%
o 2,000 Jobs X 5% = 100
o 2,000 + 100 = 2,100 Jobs

a) Prepare a new direct labor budget in hours and dollars for the financial year
2021/22. (1 mark)

Queensland Windows Washer

Direct Labor Budget
Jobs to be produced 2,100 Jobs
Direct Labor hours per production 5 Direct labor hours
Total labor budget (hours) 10,500 hours
Direct labor hourly rate $19
Direct labor cost (dollar) $190,500

Final Assessment - Semester 2 Page 4 of 7

2020
Swinburne University of ACC20014
Technology Faculty of Business & Management Decision Making
Law b) Calculate the budgeted total cost of all jobs for the financial year
2021/22 assuming this change is made. (5 marks)
Queensland Windows Washer
Total Cost Budget
Direct Labor Costs $239,000

Variable Overhead
Cost
Supplies $44,000
Fuel $15,000
Indirect Labor $20,000
Depreciation $75,000
Other $28,000
Advertising $18,000
Total Budgeted Cost $439,400

c) Prepare a revenue budget for the financial year 2021/22 assuming this change
is made. (1 mark)

Queensland Windows Washer

Sales Budget
Sales 2,100 Jobs
Total sales 2,000 Jobs X 2,000 square foot =
4,200,000
Price per unit $0.12

Total Revenue/Sales $504,000

d) Based on the change in budgeted operating income, would you recommend

the investment in advertising? Briefly discuss. Support your answer with
appropriate calculations. (2 marks)

 From the calculation above, Peter should not invest in advertising as it is measured to be a
loss for the Queensland Windows Washer. After calculating the additional advertisement, the
revenue increase by $24,000. On the contrary, the total cost in jobs increasing by $29,400.
Nonetheless, the company's net loss will be $5,400 if Peter incurred an additional investment
in Advertising.

(2 + 3 + 1 + 1 + 5 + 1 + 2 = 15 Marks)

Final Assessment - Semester 2 Page 5 of 7

2020
Question 3
Star Manufacturing makes a component called V2. Its customers are manufacturing firms. It offers
a volume discount to some customers and currently, its salespeople decide whether an order is
large enough to qualify for the discount. If the component needs to be exchanged or repaired,
customers can come back within 10 days for free exchange or repair.
Information about Star’s four biggest customers follows:

Customer A B C D

$ $ $ $
Revenues 931,500 621,000 550,000 207,000

Discount 27,945 140,000 15,000 45,000

Cost of goods sold 605,475 403,650 357,500 134,550

Gross Profit 298,080 77,350 177,500 27,450

Customer-related costs

Order taking 2,880 3,000 7,000 3,000

Product handling 6,064 10,000 14,000 10,000

Rush order processing 560 1,000 10,000 7,000

Exchange and repair 700 700 10,000 10,000

Profit 287,876 62,650 136,500 (2,550)

Please note:
Order taking costs may include: receipts of inquiries, preparing quotations and
processing orders. Product handling costs may include: stock maintenance,
warehousing, and orders dispatch.

Required:
1. What is the profitability profile of each customer? (2 marks)

 Customer A – High profitability – low level of demand and services

 Customer B – Low profitability – price sensitive but low maintenance

 Customer C – High profitability – heavy demand on resource

 Customer D – Low profitability – heavy drain on resource

2. Based on your customer profitability profiles, should Star make any changes to
the ways they allow customers A, B and C use their resources. If yes, what
changes should Star implement, if not why not? (8 marks)
 Yes, Star should make changes. Star manufacturing should focus on the resource
and demand based on the profit each customer makes. Given the information above,
the highest percentage generating in profits is customer A, followed by customer C
and lastly customer B

3. Should Star discontinue supplying to customer D? Why or why not? (4 marks)

 Since the customer D is showing a loss, favorably Star should discontinue supplying to
customer D
4. Is Star’s discount policy appropriate? Why or why not? (3 marks)

 Looking at the table above, comparing to customer A and D; customer A should receive a
higher discount since it is most likely for this case, customer A is bulk buying rather than
customer D. Therefore, it is fair to say to decrease the discount for customer D.

Hence, the discount policy from Star company is not appropriate since the superior
method would be providing a discount in proportion to volume sales. 

(2+8+4+3 = 17 marks)
Question 4

The Batteries division of Dexter Cars sells car batteries. Dexter is considering how it should
compensate Jeremy Clark, the general manager of the Batteries division.

Proposal 1 calls for paying Jeremy Clark a fixed salary.

Proposal 2 calls for paying Jeremy Clark no salary and compensating him only with a
commission on the basis of the division’s ROI, calculated based on operating income before any
commission payment.

Proposal 3 calls for paying Jeremy Clark some salary and some bonus based on ROI.

Assume that Jeremy Clark does not like bearing risk.

Sourced from Horngren et al. 2018

Required:
Discuss the advantages and disadvantages of each proposal for Jeremy and the company and
consider which proposal would be the most beneficial for Jeremy Clark and which for the
company and why. Apart from discussing the return on investment as a measure of
performance, you are expected to consider the agency theory and Herzberg’s two-factor
theory in your discussion. (30 marks)

 Proposal 1 – Jeremy Advantage – a fixed salary; Disadvantage – less motivation and

misaligned goals. Company Advantage – the company knowing the salary expense as
fixed; Disadvantage – not motivating its employees to work effectively and efficiently
given there is no rewards system.

A fixed salary means Jeremy will receive an agreed salary that is not aligned with his
performance at work. This situation could lead to low motivation and desire to do his
jobs, knowing for a fact that it won’t affect his salary. Therefore, this situation could end
up company with a high agency cost.
  Proposal 2 - Jeremy Disadvantage – includes a variable income that is dependable on
achieving targets. Company Advantage – the company pay Jeremy if he reaches the
targets.

Jeremy has the chance to generate income and this suggestion indicates no financial
security. However, this can also affect Jeremy work-life.

 Proposal 3 – In this proposal, Jeremy benefited with a stability in financial and

motivates to push him to work harder and earned more money. The company will also
be benefited with this suggestion, where the company will see a higher income.

Word count: 550 - 650 words

Question 5

“Toyota lost its way…”

Toyota Motor Corporation, the Japanese car maker, has built its reputation on manufacturing
reliable cars. However, between November 2009 and January 2010, Toyota Motor Corporation
was forced to recall their cars due to “sticking” pedals causing unintended vehicle acceleration,
resulting in well-published road accidents. The market repercussions were severe with
significant loss of sales. More importantly, however, the brand’s core competency Toyota’s success
was built upon, its reputation for product’s reliability, was affected where it mattered the most to
its customers – their safety.

It appears though that Toyota did not learn from its mistakes. In 2016, Toyota Motor
Corporation announced that it would be recalling 1.7 million vehicles worldwide for potentially
faulty Takata airbag inflators as part of a multi-year industry recall campaign. Takata airbags
were outsourced to a Japanese auto supplier Takata. Some of its air bags had a tendency to
spray shrapnel when deployed.

In 2020, Toyota Motor Corporation again announced a recall of some of its most popular cars
due to faulty fuel pumps, which might suddenly stop operating.

Required

1. Identify four types of individual cost of quality activities (for example – testing) that you
would recommend for the management of Toyota to invest in and briefly discuss why
you would recommend these particular activities. (20 marks)

1) Inspection Costs – This refers to the company's inspection cost, where products
being inspected and checked before delivering to customers. This activity helps
Toyota identifying a defect within its product to ensure the defective products
are discovered early before being delivered to the final customer or market.

2) Quality Training Cost – It indicates the training to teach and learn the precise
testing technique to ensure the products are not defective. Proper Quality
training from the Toyota company manager will make a better quality in the
testing department; thus, the spray shrapnel accident can be avoided.
 3) Field Testing Cost – The manager utilizes them to test its products in the actual
context in which the products being used. It is recommended for managers in
Toyota Motor Corporation, where the cars and the internal parts can be tested or
checked for quality issues. Through cautious testing, the company can detect the
defects products (spray shrapnel in the airbags) and canceled in time.

4) Supervision and Maintaining Costs – Refers to the supervision in testing staff and
all other related to the production process and will help appraise the products'
quality. This recommendation activity will help Toyota ensure the proper staff,
process, and operation are fully utilized to produce, and there is no deficiency within
its products and the staff. Therefore, the defects products can be detected in the
early process; thus, the spray shrapnel's accident can be avoided in the future.

Word count – 450 – 550 words

Below are the key findings from the “Quality – 2020 Report: Automotive Industry’s View on the
Current State of Quality and a Strategic Path Forward”, which you might find useful in
answering the above questions:
Standardisation
“Standardisation is an important tool that can be used to drive quality improvements” - says Sig
Huber, director, purchasing, supplier relations for Fiat Chrysler Automobiles (FCA). “We have
found that parts which are reapplied to new applications have smoother launches than parts which
are newly developed. Standardization is also helpful in decreasing complexity and increasing
efficiency in the product development process”.

Product Development
Survey respondents agreed that assuring product compliance is the top reason why product
development is important.
“We strongly believe very close collaboration is needed between suppliers and their customers
to drive world class levels of quality” - says FCA’s Sig Huber. “Whether done through early
selection of suppliers and/or strict adherence to program milestones, it is important to provide
as much development time for the program as possible”.

Loss of Experience
Survey respondents indicated that a lack of skilled workers, compensation that does not meet
requirements, and little incentive for young people to select careers in automotive are long-
term concerns that may impact automotive quality.
Source:
https://www2.deloitte.com/content/dam/Deloitte/us/Documents/manufacturing/us-manufacturing-quality-
2020-report.pdf

Word of caution
Dear students,
You are asked to sit this final assessment remotely because of the current
regulations which do not permit having an invigilated exam at university’s chosen
venue. However, your final assessment must be your own work. Any area of your
work that will show a similarity score will not be assessed. This does not mean that
you cannot rely on other resources in answering the questions. You can, however,
you have to use your own words in writing your answers. Your answers could show
some similarity scores in relation to an individual sentence. However, this should
occur rather sporadically. You are also allowed to have similarity scores for the cover
sheet, headings and the numbers, especially in relation to the calculation question,
or if you copy the question or part of it to the document or in similar instances. A
reliance on citations should be limited to an absolute minimum. If in doubt, rephrase the
citation using your own words. Please check the Draft Checking Facility before
submitting your final answers.