ACCT10003- Midterm Exam Guide - Comprehensive Notes for the exam ( 175 pages long!)
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The executive education (EE) unit at the Business School ofCentral State University offers both open-enrollment (anyone cansign up) and custom (designed for a specific client) executiveeducation programs. CSU has just received an inquiry from aprospective client about its prices for leadership seminars. Theprospective client wants bids for three alternative activitylevels: (1) one seminar with 20 participants, (2) four seminarswith 20 participants each (80 participants total), or (3) eightseminars with 140 participants in total. EEĆ¢ĀĀs cost analyst hasprovided the following differential cost estimates:
Setup costs for theentire job | $ | 530 |
Materials costs per participant(brochures, handouts, coffee, lunch, etc.) | 120 | |
Differential direct laborcosts: | ||
One seminar | $ | 1,100 |
Four seminars | 4,500 | |
Eight seminars | 8,100 | |
In addition to the preceding differential costs, EE allocatesfixed costs to jobs on a direct-labor-cost basis, at a rate of 80percent of direct labor costs (excluding setup costs). For example,if direct labor costs are $100, EE would also charge the job $80for fixed costs. EE charges clients for its costs plus 20 percent.For the purpose of charging customers, costs equal the setup costsplus materials costs plus differential labor costs plus allocatedfixed costs. EE has enough excess capacity to handle this job withease.
Required:
a. Assume EE's bid equals the total cost,including fixed costs allocated to the job, plus the 20 percentmarkup on cost. What should EE bid for each of the three levels ofactivity?
b. Compute the differential cost (includingsetup costs) and the contribution to profit for each of the threelevels of activity. Note that fixed costs are not differentialcosts.
c. Assume the prospective client gives threeoptions. It is willing to accept either of EE's bids for theone-seminar or four-seminar activity levels, but the prospectiveclient will pay only 90 percent of the bid price for theeight-seminar package. EE's director responds, "We can't make moneyin this business by shaving our bids! Let's take the four-seminaroption because we make the most profit on it."
c-1. What would be the contribution to profitfor each of the three options?
c-2. Do you agree with the EE's director?
Disagree | |
Agree |