South Hampton University is preparing its budget for the upcoming academic year. This is a specialised private university that charges fees for all degree courses. Currently, 30,000 students are enrolled on campus. However, the university is forecasting a 5 per cent growth in student numbers in the coming year, despite an increase in fees to $3,000 per subject. The following additional information has been gathered from an examination of university records and conversations with university managers:
- South Hampton is planning to award scholarships to 200 students, which will cover their fees.
- The average class has 80 students, and the typical student takes 4 subjects per semester. South Hampton operates 2 semesters per year.
- The average academic staff salary is $120,000 per annum including on-costs.
- South Hampton’s academic staff are evaluated on the basis of teaching, research, administration and professional/community service. Each of the academic staff teaches the equivalent of three subjects during the academic year.
- Prepare a revenue budget for the upcoming academic year.
- Determine the number of staff needed to cover classes.
- Assume there is a shortage of full-time academic staff. List at least five actions that South Hampton might take to accommodate the growing student numbers.
The accountant for Barry Ltd compares each month’s actual results with a monthly plan. The standard direct labour rates and the standard hours allowed, given the actual output in April, are shown in the following schedule:
|Standard direct labour rate per hour||Standard direct labour hours allowed, given April output|
|Labour class III||$26.00||1,000|
|Labour class II||$22.00||1,000|
|Labour class I||$12.00||1,000|
A new union contract negotiated in March resulted in actual wage rates that differed from the standard rates. The actual direct labour hours worked and the actual direct labour rates per hour for April were as follows.
|Actual direct labour rate per hour||Actual direct labour hours|
|Labour class III||$28.00||1,100|
|Labour class II||$23.00||1,300|
|Labour class I||$14.00||750|
Calculate the following variances for April, indicating whether each is favourable or unfavourable:
i direct labour rate variance for each labour class.
ii direct labour efficiency variance for each labour class.
Spark Ltd has two divisions, assembly and electrical. The assembly division transfers partially completed components to the electrical division at a predetermined transfer price. The assembly division’s standard variable production cost per unit is $550. This division has spare capacity, and it could sell all its components to outside buyers at $680 per unit in a perfectly competitive market.
- Determine a transfer price using the general rule.
- How would the transfer price change if the assembly division had no spare capacity?
- What transfer price would you recommend if there was no outside market for the transferred component and the assembly division had spare capacity?
- How negotiation between the supplying and buying units may be used to set transfer prices. How does this relate to the general transfer pricing rule?
Lucid Images Ltd manufactures premium high definition televisions. The firm’s fixed costs are $4,000,000 per year. The variable cost of each TV is $2,000, and the TVs are sold for $3,000 each. The company sold 5,000 TVs during the previous year. (In the following requirements, ignore income taxes)
Treat each of the requirements as independent situations:
- Calculate the break-even point in units.
- What will the new break-even point be if fixed costs increase by 10 per cent?
- What was the company’s net profit for the previous year?
- The sales manager believes that a reduction in the sales price to $2,500 will result in orders for 1,200 more TVs each year. What will the break-even point be if the price is changed?
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