SCM 500 Finance and Accounting for SCM
Final Exam – Part 1
Summer 2018: 2024 – Write My Essay For Me | Essay Writing Service For Your Papers Online
PREFACE: This exam consists of 3 problems on 5 pages (excluding this cover page).
NOTES and INSTRUCTIONS:
1. This exam is open book, open notes—but it is individual, not group work. You may not communicate
with any other individual—except the instructor or the TA—about material related to this course
once you have opened and/or downloaded the exam. Even after you have turned your exam in, you
may not discuss it with anyone until the exam deadline has passed.
2. Point values are provided at the beginning of each part.
3. FORMATTING: Clearly label your answers to each of the questions. There is no need to include the
questions with your submitted answers. There are no limits in terms of number of pages.
4. If possible, please submit your work on one pdf or word file. This will facilitate the grading process.
Provide numerical support for your answers whenever possible. Please be organized in your
response. Partial credit will not be awarded if your work cannot be interpreted.
5. Note that submitting a supporting excel spreadsheet will not be helpful. Graders will not be looking
at excel formulas and will rely on whatever is presented on the face of your submitted exam.
6. In answering an essay question, you may outline your answer (e.g., using bullets).
7. Please turn in your exam by submitting online via Canvas, with the file containing your exam
responses as an attachment. The deadline is 11:59 pm on Saturday, August 18, 2018: 2024 – Write My Essay For Me | Essay Writing Service For Your Papers Online.
8. Submission of your exam implies adherence to the following honor code statement: “I have neither
given nor received inappropriate aid on this work. Nor have I observed any academic misconduct
on the part of others pertaining to this work.”
9. Failure to follow instructions will result in point deduction penalties.
1
PROBLEM I. (25 points) Ollivander is a wholesale distributor supplying a wide range of magical equipment and
knick-knacks to large chain stores. The company has a Games and Sports (G&S) Department that is currently
manufacturing fancy broomsticks used in the age-old game of Quidditch. Ollivander is able to produce and sell
8,000 broomsticks annually at $86 each, making full use of its direct-labor capacity at available work stations.
The unit costs (at this level of production and sales) associated with Ollivander’s broomsticks are as follows:
Materials $ 25.00
Direct labor ($15.00 per hour) 18.75
Manufacturing overhead 12.50
Selling and administrative costs 9.00
In the G&S Department, Ollivander uses direct-labor hours as the application base for manufacturing overhead.
Included in the manufacturing overhead for the current year is $50,000 of factorywide, fixed manufacturing
overhead. In addition, the selling and administration costs are fixed expenses allocated equally to each product.
1. What is the inventoriable cost per unit of each broomstick that Ollivander will record on its balance sheet?
2. Determine Ollivander’s margin of safety at its current sales level.
3. Production manager Gil Grindenwald recently received a proposal from Dolly Umbridge, a representative
from an outside vendor of a new broomstick-making machine that has just been recently developed. The
machine can be leased for $180,000 per year, and will significantly reduce the labor needed to manufacture
each broomstick. After looking through the production costs of Ollivander, Umbridge estimates that labor
and variable overhead can be reduced by 80 percent if the machine were used to manufacture broomsticks.
No other costs are expected to change. Would you recommend that Gil lease the new machine? Support
your answer with both quantitative (i.e., compute the net benefit or cost of leasing the machine) and
qualitative considerations.
Refer to the original data, and assume from this point on that Grindenwald declines Umbridge’s offer and
decides to stick to Ollivander’s original manufacturing process. Because Ollivander’s sales manager believes the
firm could sell a maximum of 9,000 broomsticks if it had sufficient manufacturing capacity, the company has
looked into the possibility of purchasing the broomsticks for distribution. Gregorovitch Goods, a steady supplier
of quality products, would be able to provide up to 9,000 broomsticks per year at a cost of $60 per broomstick.
Gregorovitch will only accept an all-or-nothing contract (i.e., they will agree to provide Ollivander 9,000 units or
none at all). The manufacturing overhead can be reduced by 40% if the facilities in the G&S Department were no
longer used to manufacture broomsticks; selling and administrative costs will, on the other hand, be unaffected.
Gregorovitch will deliver the broomsticks to Ollivander’s facility.
4. What is the maximum unit price Ollivander would be willing to pay Gregorovitch for each broomstick, again
assuming that Gregorovitch will only accept an all-or-nothing contract?
5. If, on the other hand, Gregorovitch will be willing to produce any number of broomsticks for Ollivander, how
many broomsticks should Ollivander produce and how many should it purchase to maximize profit?
Determine total profit based on your recommendation.
In a company meeting, Grindelwald proposed to add a new product line. He has come to the conclusion that the
company could make better use of its G&S Department by manufacturing molded magic wands, which has been
increasing in popularity. Grindelwald has a market study that indicates an expanding market for wands and a
need for additional suppliers. Grindelwald believes that Ollivander could easily sell 16,000 wands annually at a
price of $45.00 per wand. At this expected volume, he estimates the unit costs for producing each wand in the
G&S Department with the same facilities used for producing and distributing broomsticks below.
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Materials $17.00
Direct labor ($15.00 per hour) 7.50
Manufacturing overhead 5.00
Selling and administrative cost 4.50
6. How many wands and broomsticks should be manufactured? How many broomsticks should be purchased?
Support your answer and calculate the net incremental benefit of your recommendation over the status quo
of selling 8,000 broomsticks. (Assume in this case that Gregorovitch agrees to manufacture however many
broomsticks Ollivander would be willing to purchase.)
7. Luna Lovegood, a cost accountant, has prepared a detailed analysis of the selling and administrative (S&A)
costs, and has found that these costs are not necessarily all fixed. Using monthly data on broomsticks, she
ran a regression of S&A costs on number of units sold. Results are shown below.
How will this new information change your answers to (8) above?
8. What qualitative factors should the management of Ollivander consider in the decisions to use current
facilities to produce wands?
Regression Statistics
R Square 0.72
Standard Error 451.21
Observations 24
Coefficients Std Error t Stat P-value Lower 95% Upper 95%
Intercept 2,459.80 487.92 5.04 0.00 1,447.91 3,471.68
Units sold 5.34 0.72 7.44 0.00 3.85 6.84
3
PROBLEM II. (25 points) Robert (Bertie) Botts was worried. His company, Botts Bottling, showed declining profits
over the past several years despite an increase in revenues. With profits declining and revenues increasing, Botts
suspected there must be a problem with costs.
Information about the company’s current products follows below.
Diet Regular Mint Almond Total
Direct materials $25,000 $20,000 $4,680 $550 $50,230
Direct labor and fringe benefits $14,000 $11,200 $2,520 $280 $28,000
Volume 50,000 40,000 9,000 1,000 100,000
Unit price $ 1.50 $ 1.50 $ 1.55 $ 1.65
Botts sent an e-mail to his executive team under the subject heading, “How do we get Botts Bottling back on
track?” Meeting in Bertie’s spacious office, the team began brainstorming solutions to the declining profits
problem. Some members of the team wanted to add products. (These were marketing people.) Some wanted to
fire the least efficient workers. (These were finance people.) Some wanted to empower the workers. (These
people worked in the Human Resources Department.) And some people wanted to install a new computer
system. (It should be obvious who these people were.) Botts listened patiently. When all participants had made
their cases, Botts said, “We made money when we were a smaller, simpler company. We have grown, added
new product lines, and added new products to old product lines. Now we are going downhill. What’s wrong with
this picture? What should we be doing?” The room was silent for a moment, then everybody started talking at
once. Nobody could see any actionable problems based on the data in the report, but all made suggestions to
Botts ranging from “add another cola product” to “cut costs across the board” to “we need a new computer
system so that managers can get this information more quickly.” A not-so-patient Botts stopped the discussion
abruptly and adjourned the meeting.
He then turned to Helga Hufflepuff, the accountant, and said, “I am suspicious of these cost data, Helga. Here
we are assigning indirect costs to these products using a rate calculated on the basis of direct labor costs. I really
wonder whether that rate is accurate for all products. I want you to dig into the indirect cost data, figure out
what drives those costs, and see whether you can give me more accurate cost numbers for these products.” An
investigation of the accounting records yielded the following breakdown of indirect costs.
Indirect labor and fringe benefits $ 28,000
Information technology 10,000
Machinery-related costs 12,000
Energy 2,000
Total $ 52,000
Helga then began a series of interviews with department heads to see how to assign these costs to cost pools.
She found that one-half of indirect labor was for scheduling or for handling production runs, including
purchasing, preparing the production run, releasing materials for the production run, and performing a first-time
inspection of the run. Another 40 percent of indirect labor was used to set up machinery to produce a particular
product. The time to set up the products varied. The remaining 10 percent of indirect labor was spent
maintaining records for each of the four products, monitoring the supply of raw materials required for each
product, and improving the production processes for each product. Interviews with people in the Information
Technology Department indicated that eighty percent of the information technology cost was for scheduling
production runs. Twenty percent of the cost was for record-keeping for each of the four products. The rest of
the overhead was used to supply machine capacity of 10,000 hours of productive time. Helga found the
following cost driver volumes from interviews with production personnel.
▪ Setups: 560 person hours doing setups
▪ Production runs: 110 production runs
▪ Machine-hour capacity: 10,000 hours
▪ Record-keeping costs are estimated to be roughly equivalent for each of the four products.
4
In addition, Helga learned that production people had difficulty getting the taste just right for the Mint and
Almond colas, so Mint and Almond colas required more time per setup than either Diet or Regular cola did. She
summarized her findings on cost driver volumes below.
Diet Regular Mint Almond Total
Setup hours 200 60 240 60 560
Production runs 40 30 30 10 110
Total machine hours 5,000 4,000 900 100 10,000
1. Compute cost unit costs for each product under the current system.
2. Compute unit costs for each product using the activity-based costing (ABC) data provided.
3. Prepare 2 critical recommendations to Bertie based on the information you have gathered. Justify the
recommendations, and state why these are critical in your opinion.
4. Assume that all facts in still hold except that the practical capacity of the machinery was 20,000 hours
instead of 10,000 hours.
a. What would be the effect on unit costs if costs were computed on the basis of practical capacity instead
of expected production? Answer qualitatively—no calculations required.
b. Calculate the cost of unused capacity.
c. Discuss the pros and cons of using practical capacity to allocate costs.
5. Continue to assume that practical capacity is 20,000 machine hours. Botts has been approached by
Aberforth Dumbledore, the owner of the Leaky Cauldron (a popular and innovative bar), regarding a onetime
order of Butterbeer cola, which Dumbledore had developed himself. Based on his market research,
Dumbledore expects that Butterbeer cola would be in high demand in Botts Bottling’s market, and he
projects sales of anywhere between 30,000 to 50,000 bottles in the coming year. He describes the process
of producing Butterbeer, and based on his description, Botts estimates that it would take 0.10 hours to
produce each unit of Butterbeer. (Recall that the machine capacity in this case is 20,000 hours, while Diet,
Regular, Mint, and Almond consume only 10,000 hours.) Botts also estimates that Butterbeer cola’s per-unit
costs would be identical to those of Diet cola except for the machine usage costs. Dumbledore is unsure of
the potential of Butterbeer to sell beyond the coming year, because of the novelty of the product.
a. What would be minimum unit price that Botts would be willing to accept from Dumbledore to produce
Butterbeer?
b. What other factors must Botts consider in deciding whether to accept this special order?
5
PROBLEM III. (15 points) Griffyndor Products is an independently owned do-it-yourself (DIY) retail store. Rapid
expansion has created the need for careful planning of cash requirements to ensure that the store is able to
replenish stock adequately and meet payment schedules to creditors. Harry Potter, founder of the store, has
established a banking relationship with Gringotts Regional Bank that provides a $200,000 line of credit to
Griffyndor. The bank requires that a minimum balance of $10,000 be kept in the store’s checking account at the
end of each month. When the balance goes below $10,000, the bank automatically extends the line of credit in
multiples of $1,000 so that the checking account balance is at least $10,000 at month-end.
Griffyndor attempts to borrow as little as possible and repays the loans quickly in multiples of $1,000 plus 1
percent monthly interest on any outstanding loan balance. Borrowings are assumed to take place at the
beginning of the month that the borrowing is needed. Any interest payments and principal payments are
assumed to be paid at the end of each month. The store currently has no outstanding loans.
The following cash receipts and disbursements data apply to the fourth quarter of the current year:
Estimated beginning cash balance: $10,100
Estimated cash sales:
October $14,000
November 29,000
December 44,000
Sales on account:
July (actual) $130,000
August (actual) 104,000
September (actual) 128,000
October (estimated) 135,000
November (estimated) 142,000
December (estimated) 188,000
Projected cash collection of sales on account is estimated to be 70 percent in the month of the sale, 20 percent
in the month following the month of sale, and 6 percent in the second month following the sale. The 4 percent
beyond the second month following the sale is determined to be uncollectible. In addition, the store is
scheduled to receive $13,000 cash on a note receivable in October.
All inventory purchases are made on account as the store has excellent credit with all vendors because of a
strong payment history. The following information regarding inventory purchases is available:
Inventory Purchases (at cost):
September (actual) $120,000
October (estimated) 112,000
November (estimated) 128,000
December (estimated) 105,000
All cash disbursements for inventory are made in the month after the purchase is made. For instance, purchases
in January are paid for in February. Monthly cash disbursements for operating expenses during October,
November, and December are estimated to be $38,000, $51,000, and $66,000, respectively. Depreciation
expense is estimated to be $7,000 per month.
1. Prepare Griffyndor’s cash budget for the months of October, November, and December, showing all receipts,
disbursements, and financing activity, where applicable.
2. Assume that Griffyndor expects large net cash outflows for the first quarter of the next year. What alternatives
are available to Griffyndor’s managers, apart from the credit line mentioned above, that could alleviate any
problems accompanying this expected outcome?

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