University of the South Pacific

School of Accounting, Finance and Economics

AF201 – Managerial Accounting
Group Assignment

Weighting: The total mark for this assignment is 40 and is worth 15% of your total assessment.
Due date: Week 13, Thursday 23rd June at 11:55pm. ALL ASSIGNMENTS HANDED IN
AFTER THIS TIME WILL BE REGARDED AS LATE ASSIGNMENTS.

Instructions:
1. Each group must consist of 5 members.
2. Only the group leader will upload the assignment after all the group members
agreed to it.
3. Each group must provide a logbook that shows the details of the meetings and the
allocation of work. This is important for awarding marks.
4. The assignment must be written in Microsoft Word. Handwritten assignments
will NOT be accepted.
5. DO NOT convert the word document in pdf format when uploading the
assignment.
6. Chapter Reference: Chapter 19 of the textbook
7. A penalty of 10% will be deducted each day or part thereof that the assignment is
late.
8. Plagiarized assignment will be awarded a Zero (0) mark.
9. Please refer to the attached rubric when attempting the assignment.
10. Ensure that the student details (full name and ID number) are stated clearly on the
cover page. Design your own cover page.
11. Your answers to the assignment questions (excluding the cover page and the
logbook) must be written in a maximum of two A4 size pages, using Times New
Roman with a 12-font size. Any answers beyond 2 pages won’t be marked.

Assignment Question
Palentir Ltd is an Australian company which produces household consumer durables. The Company
prides itself on its efficiency, and rightly so, as it is probably one of the lowest cost producers of
household consumer products in Oceania. It has a reputation for high quality, long lived products, and has
built up a sound business relationship with most department stores, the main outlet for such goods, in

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Australia. So good are their products that Orchrist Ltd, the leading department store in Australia refuse to
stock any other brand, preferring to associate their good name purely with Palentir products.
Their success has encouraged Palentir Ltd to expand their production capacity recently. Their very
success would appear to have caused the downfall of this venture however. Because of the high standing
of their products the company has already captured most of the domestic (Australian) market, and owing
to the durable nature of their products the replacement demand for goods is low.

At a recent board meeting it was decided that the Company should explore the opportunity of expanding
into the export market. Accordingly, enquiries were made to see if there were any opportunities to sell
their products in the South Pacific region. The result of these enquiries was disappointing. The only
positive response come from a group of businessmen in Tuvalu who were prepared to purchase 2,000
brush cutters but were not prepared to pay more than $880,000 for the entire order. This does not appear
to be a lucrative proposition to Palentir Ltd as the statement of unit standard costs and revenues for brush
cutters shown below indicates.

Costs $
Material A (2 kilos)4000kg 46
Material B (4 kilos)8000kg 60 $32
Material C (2 kilos)4000kg 72
Labour grade I (3 hours) 84$92.4
Labour grade II (6 hours) 96
Variable overheads 40
Fixed overheads 80
Total unit cost 478
10% mark up on cost for profit 48
526
10% mark up on selling price for goods and 53
services tax
Invoice price customer 579

While no sales tax would be charged on goods sold to the potential buyers in Tuvalu, they insist that the
$880,000 should include the $40,000 customs duties which would be charged on the goods. Furthermore,
owing to the difference in the type of spirit oil available to power brush cutters in Tuvalu compared to
that in Australia certain specifications changes in the design of the brush cutters would have to be made if
the order was accepted. These would cost $24 per unit.

The following additional information is available which may or may not be relevant:

 Material A is in common use, its current replacement cost is $28 per kilo, its net realisable value
is $26 per kilo.
 Material B is being phased out of use to be replaced with a readily available plastic product.
12,000 kilos of material B are currently in inventory. It can be sold on the open market at $8 per

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 kilo but it will cost $12,000 in advertising to inform the market of its availability. The plastic
substitute required to produce one brush cutter will cost $32.
 Material C is obtained as a by-product of another product line. The standard cost of $36 per kilo
was designated as appropriate after consultation with a reputable firm of accountants who
charged the Company $20,000 for their advice. The material can be neither bought nor sold on
the open market. If not used the Company would have to dispose of the material at a cost of $0.40
per kilo. There are at present 5,000 kilos of material C in stock.
 Labour grade I are due to submit a wage claim. It is expected that they will demand 15% but will
probably settle for 10%. There is a slight chance that an offer of this sum will precipitate a strike.
 Labour grade II has recently accepted a 10% pay rise, but only after a two week strike. The new
pay rise has not been incorporated into the Company’s system of standards as yet.
 Standard variable overheads of $40 per unit of production can reasonably be expected and fixed
overheads of $80 per unit can be considered an equitable allocation of the fixed overhead burden.
 It will cost $120,000 to transport the brush cutters if the order is accepted.

The following letter has recently been received from Mr. Sartist, managing director of Orchrist Ltd.

Dear Sir,
I understand that you are considering accepting an order from a group of businessmen in Tuvalu for 2,000
brush cutters at an invoice price of $880,000. This sum compares very favourably with your current
invoice price of $572 per unit in Australia. If you are able to accommodate the Tuvaluan businessmen I
trust that you will be able to offer us, as valued customers, similar terms in the future. If you cannot see
your way clear to offering us such terms I shall feel obligated to advise my board to change its policy as
to the restocking of Palentir products to the exclusion of other brands of household consumer durables.
I look forward to your early reply.
Yours faithfully,

Mr. Sartist
Managing Director – Orchrist Ltd.

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REQUIRED
1. As a member of the board of Palentir Ltd present a report to the board members advising them
whether or not the special order from Tuvalu ought to be accepted. Your report should highlight
any relevant calculations you feel are appropriate to support your arguments.
(15 marks)

2. Before drafting a letter to the managing director of Orchrist Ltd, analyze whether accepting the
order in Tuvalu under special terms compromises the market in Australia. Although it is
impossible to ship back the grass cutters from Tuvalu to Australia, in your analysis, calculate the
relevant cost of the grass cutters if it were to be shipped back to Australia.
(10 marks)

3. Draft an appropriate letter to the managing director of Orchrist Ltd explaining why you will be, or
not intend, offering them revised terms for purchasing Palentir’s brush cutters. (Note: The length
of the letter should be like the letter that Mr. Sartist wrote).
(5 marks)

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 Marking rubric
Elements of Marking
Report to the board
Analysis of the special
order
Letter to Orchrist Ltd
Online submission
requirement
Teamwork
Total marks & Overall comments
Allocated marks Highly Satisfactory Pass
Complete, accurate, comprehensive
and insightful/innovative
15 The report highlighted all the relevant
costs to Palentir Ltd with appropriate
decision on the special order.
10 All the relevant information from the
case were highlighted and the
adjustments to the relevant costs are
all correct.
5 The letter is concise, professionally
written and clearly highlight the
decision.
5 The assignment was submitted on-
time submission with less than 20%
similarity index.
5 The logbook was submitted and
clearly states the meeting times and
the allocation of duties.
Satisfactory Pass
Complete but not fully accurate,
comprehensive or insightful
The report highlighted majority
of the relevant costs to Palentir
Ltd with appropriate decision on
the special order.
Some of relevant information
from the case were highlighted
and the adjustments to the
relevant costs are partially
correct.
The letter is concise,
professionally written but
vaguely highlight the decision.
The assignment was submitted on
time with a 20%-30% similarity
index.
The logbook was submitted but
with limited information on
meeting dates and allocation of
duties.
Below Standard/Unsatisfactory
Incomplete or inaccurate
The report highlighted few of the
relevant costs to Palentir Ltd and
with inappropriate decision on the
special order.
Few of the relevant information
from the case were highlighted and
the adjustments to the relevant
costs are all incorrect.
The letter is poorly written with
unclear decision.
The assignment was late with more
than 30% similarity index.
The logbook was not submitted.
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