Analysis and Recommendation for Cool Pool's Ltd.

This document provides an analysis and recommendation for Cool Pool's Ltd. regarding the production of Bonalide and the purchasing of vacuum cleaners from India.

Answer 1: Resort Island University:
1. The revenue budget for the upcoming academic year is as below:
2. The total no. of staff needed for the upcoming academic year is 525 as
computed below:
3. Considering there is shortage of full time academic staff, five actions that
the university might take to tide over the shortage are:
 Accommodate more subjects per staff i.e. staff should take up more
than 3 subjects.
 Increase the no. of students per class from 80 currently.
 Spread the students across 4 semesters instead of 2 currently.

 Employ part-time instructors.
 Employ teaching assistants.
4. Budgeting process for a concern starts with the forecasted revenues and
then goes downwards for production, costs and other expense budget of
the same nature. The Deputy Vice Chancellor of the university is mistaken
when he assumes that the no. of staff is the key driver for the process as
actually it is the no. of students that drives the entire process. It is the
students that brings in revenues and is responsible for other costs like
staff, library, cafeteria etc.
Answer 2: Good Health Insurance Company:
1. Given the number of applications processed and the standard hours per
application, the total standard clerical hours for April is 3,825 hours.
2. Flexible budget as the name suggests is flexible and can be altered with
the operating level of the company. It is a more logical and presents a
realistic budget where every items of the budget is altered with the
activity level of the company. Good Health Insurance Company should
base their budget on the no. of hours required for processing the
application rather than on application as the effort for each application is
different. Basing the budget on application will provide misguiding results
as the efforts for each application is not same.

3. Excel formula for computing the total overhead is as under:
Based on the above, the budgeted overhead for April can be computed as under:
4. Memorandum to the management
From:
To, The Management, Good Health Insurance Company
13th May 2015
Subject: Advantages of Implementing Standard Costing
Dear Sir,
Standard costing is a branch of costing that firsts sets the standard for each of
the items of cost and then tracks the actual against the set target to help
identify the variances. With these variances in hand we can take effective
remedial action in time to minimize the variances and control overall cost of the
company.
Apart from above, the various advantages of using standard costing are:
 Helps in controlling the unfavourable costs
 Better monitoring of the costs by tracking actuals against standards.
 Helps in taking informed decision regarding product pricing by making
accurate costs available.
Standard costing will help us in minimizing the unfavourable costs as once they
are identified, we will be able to take timely remedial action.

Answer 3: Pix Photographic Supply Ltd.:
1. To compute the total overhead to be allocated, we will first see the cost
drivers as per data given in the question:
Based on the cost per unit of the activities, the total overhead to be assigned
for the development of chemical order is computed as under:
2. The overhead cost per box of chemical is $65.63 as below:
3. The plant wide predetermined overhead rate based on machine hours is
$46.88 per machine hour. Computation as under:

4. Under the approach as in 3, the total overhead to be assigned for the
development of chemical order is computed as under:
5. The main difference between using plant wide overhead rate and activity
rates is the allocation of the overhead to the production. The activity rates
method distributes the overhead to the production based on a single flat
rate and thus is an inaccurate measure of costs. The usage of the activity
cost on the other hand allocates cost on the basis of usage of each
identified activity rather than a flat rate thus giving more accurate
measure of the costs.
My recommendation to the company will be to adopt the Activity Based
Costing as it gives results that are more accurate, realistic and logical.
6. The unit cost of production order for 100 specially coated plates is as
below

Answer 4: Cool Pool’s Ltd.:
From:
To, The Managing Director, Cool Pool’s Ltd
13th May 2015
Subject: Analysis and recommendation production of Bonalide and purchasing
Vacuum Cleaners from India
Respected sir,
Currently, GSX is processed into 2 products which are Xenite and Banolide.
Xenolite is sold as is and Bonalide can be processed further to manufacture
Kitrocide or can be sold at Bonalide at this point only. Another point in discussion
is whether the company should make or purchase the vacuum cleaners from
India.
Analysis:
10,000 GSX processed into 3,000 litres of Banolide at a cost of $12,000 and can
be sold at $5,000. Thus my loss at split off point sales is $7,000 ($12,000 -
$5,000). This can be processed further for a cost of $26,200 and converted to
3,000 of Kitrocide. The revenue with kitrocide will be $20,000. Thus, for

incremental revenue of $15,000 ($20,000 - $5,000) my additional cost is
$26,200.
Outsourcing is a pivotal strategically importance decision for any company. This
must be done with adequate due diligence. Your proposal is to outsource the
production of the vacuum cleaners to a party in India and they buy them, badge
them as Cool Pool and sell.
Recommendation:
1. Since, the cost is more than the revenue; the product should not be
processed further and kept as it is as the same will only increase the loss.
2. Some of the key consideration while outsourcing the vacuum cleaners
manufacturing are:
a. Cost benefit Analysis
b. Credibility and Reputation of the partner
c. Cultural gap and ethical conduct of the partner.
d. Risks involved.
Regards.
Answer 5: SlumberWorld Pty ltd.:
1. A. Income Statement – Absorption Costing
(Please refer the attached excel for explanation)
B. Income Statement – Variable Costing

(Please refer the attached excel for explanation)
2. Absorption costing method shows a higher operating income. It shows a
higher operating income because of the allocation of fixed overheads in
the ending inventory, which reduces the cost of and thus increases the
profit.
3. The finished goods inventory as on 31, December is:
a. Under Absorption Costing: $29,100 (refer income statement of
absorption costing)
b. Under Variable Costing: $21,600 (1,500 units @ $14.40 per unit)
4. My recommendation would be to opt absorption costing method.
Absorption costing is a more logical and relevant approach as in includes
the fixed overhead in the period in which it is incurred instead of deferring
it till sales as in the case of variable costing. Thus, this leads to better
tracking and accurate kevel of profits for the company.

References
AccountingCoach.com. (2019). Activity Based Costing | Explanation | AccountingCoach.
Retrieved from https://www.accountingcoach.com/activity-based-costing/explanation on
14 Apr. 2019
Bragg, S. (2019). Job costing. [online] AccountingTools. Retrieved from
https://www.accountingtools.com/articles/2017/5/14/job-costing on 14 Apr. 2019
Bragg, S. (2019). Process costing | Process cost accounting. AccountingTools. Retrieved
from https://www.accountingtools.com/articles/2017/5/14/process-costing-process-cost-
accounting on 14 Apr. 2019
Business Jargons. (2019). What is Process Costing? definition and features - Business
Jargons. [online] retrieved from https://businessjargons.com/process-costing.html on 14
Apr. 2019
Copeland, R. (2000). Managerial accounting. Houston, TX: Dame.
dummies. (2019). Cost Accounting: The Weighted Average Costing Method - dummies.
Retrieved from https://www.dummies.com/business/accounting/cost-accounting-the-
weighted-average-costing-method/ on14 Apr. 2019].
Funnell, W. and Williams, R. (1996). Process costing. Sydney: Butterworths.
Garrison, R., Noreen, E. and Brewer, P. (n.d.). Managerial accounting.
Horngren, C., Datar, S., Rajan, M., Maguire, W. and Tan, R. (n.d.). Cost accounting.
Jiambalvo, J. (n.d.). Managerial accounting.
Lucey, T. (2009). Costing. Australia: South-Western Cengage Learning.
Turney, P. (1997). Activity based costing. London: Kogan Page.