Analysis and Recommendation on Split off of Bonalide and Outsourcing Decision of Vacuum Cleaners from India

Answer to Question 1:
1. The revenue budget for Resort Island University for the upcoming academic year is
presented as under:
Revenue Budget
Details Amount
Current No. of Students 15,000
Add: Forecasted Growth (5%) 5%
Projected No. of Students for upcoming year 15,750
Less: Students awarded scholarships 150
Revenue generating students 15,600
No. of subjects undertaken (4 subjects for 2 semesters each) 8
Total subjects studied (No. of students * Subjects/student) 1,24,800
Fees Per subject $3,500
Total projected revenue (No. of subjects * Fees/subject) $43,68,00,000
The total projected revenue for the university is $436,800,000.
2. The number of staff needed to cover classes for the upcoming academic year is
presented as under:
Number of Staff Needs
Particulars Numbe
r
Total no. of students (a) 15,600
Students per class (b) 80
Total No. of classes (a*b) 195
No. of subjects undertaken (4 subjects for 2 semesters each) 8
Total subjects each class (Classes * subject) 1,560
Subjects covered by each academic staff 3
Thus, total staff to cover all classes (Total subjects/Subjects/staff) 520
The total number of staff needed to cover classes is 520.
3. Five probable actions which the university might take to accommodate the growing
no. of students while facing shortage of academic staff can be:
a. The university can consider employing part-time instructors to reduce cost.
b. They can employ teaching assistants in form of graduate staff, online
instructors etc.
c. The no. of subjects per academic staff can be revised to accommodate more
subjects.

d. The number of students per class can be revised or the number of subjects
offered currently can be reduced.
e. The university can consider shifting courses to summer term, winter term etc.
4. Unfortunately the DVC of the university do not understand the linkages in the
budgeting processes. He should be informed that the key drivers for both revenue and
cost of the university are the number of students getting enrolled and not the number
of staff. All the requirements of the university starting from academic staff itself,
cafeteria, maintenance, library etc. are based on the number of students enrolled and
thus they are the key drivers for the university.

Answer to Question 2:
1. The total standard clerical hours allowed in the month of April is as below:
Computation of Standard Clerical Hours
Policies Standard
Hours/application
No. of
application
Total Standard
Hours
(A) (B) (A*B)
Health 1 375 375
Life 1.5 300 450
Automobile 2 150 300
Renter 2 600 1,200
Homeowner 5 300 1,500
Total Standard Hours 3,825
The total standard clerical hour allowed in the month of April is 3,825 hours.
2. A flexible budget is a budget that varies with the level of input or output for the firm
making it more realistic with the activity levels. Here, for Good Health Insurance
Company, the level of hours required for each of the 5 policies varies significantly;
indicating the efforts required for processing of each of the policies is different. A
flexible budget based on application will provide misleading result as it would assume
the number of hours required for each application to be same which is not the case
actually. Thus, the flexible budget should be based on hours applied in each of the
policy application.
3. The formula flexible overhead budget for the company is constructed as below:
Fixed overhead costs $6,000
Variable Overhead Rate / Application $10
Let H represent the clerical time in hours H
Total Budgeted monthly Overhead Cost = $10*H + $6,000
Based on this, the flexible budget for total overhead cost in April is as below:
Total Budgeted Clerical Hours 3,825
Thus, total Budgeted Overhead = $10*H + $6,000
Total Budgeted Overhead = $10*3,825 + $6,000
Total Budgeted Overhead $44,250

4. Memorandum to the management
To,
The Management
Good Health Insurance Company
Dear Sir,
In a view to strengthen the system of monitoring cost, it is recommended to implement and
use the system of standard costing that enables us compare the actual cost with the standard
cost of each activity, thus highlights the variances in cost that would enable us to monitor and
control the cost better.
The advantages of using standard costing are listed as below:
 Better monitoring of the costs by identifying the variances.
 Better control of the cost by taking remedial measures for cost having adverse
variances.
 Enables better decision-making by the company.
Standard costing envisages setting up standard costs for the product and then tracking the
actual against them to monitor the effectiveness and efficiency.
Regards.