FOR PROFESSOR JIM — Assignment 3: Management Accounting Case: West Island Products

Hello —


I have attached the course guide. Please review pages 20-23 for specific requirements for Assignment 3. 







Item #1:

A. Upload two files for your assignment:
 I)  An Excel spreadsheet that you created or PDF of neat handwritten papers showing all calculations necessary to answer the question.  Show all your work!  Add simple comments to explain what you are doing (this allows the Professors to understand your approach and potentially give partial credit if the logic is sound but your math is incorrect).   Recognize that this portionn (Question #1) is worth 50% of the assignment grade.  
HINT: The goal of Question #1 is to determine whether or not it would be cost effective to in-source just the “seat cushion”; the chair’s frame and other components the company currently manufactures are not needed for this potential new product. 
II)  A Word document or typed paper (double space, 12 font, etc.) that provides clear, paragraph form responses to the 3 questions.  Make sure to include your rationale and follow the normal professional writing rules (no first person, no contractions, etc.).  There is no need for an Abstract or Title Page; simply place your name in the upper left side of the paper before you begin your paragraphs.  Include a summary section and references. 
B.  Keep in mind that for Question #2 (rubic), you must provide pros and cons for BOTH Insourcing and Outsourcing.  As such, you may find it best to prepare separate sections.  Begin each section’s first paragraph by stating what you are about to discuss. EX: The pros of insourcing are…..  The cons of insourcing are….  The pros of outsourcing are….  The cons of outsourcing are….
C.  Within your proposed policy in Question #3 (rubic), you should briefly discuss both the advantages and the disadvantages.  EX:  The company’s new policy for determining insourcing versus outsourcing should allow for….. under these circumstances……   Under this policy, the potential advantages for the company include….. The potential disadvantages include….


Item 2:


Remember…. It actually does not matter how the 300,000 direct labor hours are currently split between the production of Deluxe and Economy stools for the purposes of this exercise.  Her request will alter any previously set production schedules. 


Do not waste your time trying to prepare a new annual schedule!  He is at full capacity, so all the hours will be utilized in some combination or another.  You are only worried about this one moment in time and whether or not he should change his current plans to accommodate your request to in-source the seat cushion.


Here is one way to view the situation:


Think of the 3 labor parts (half hour each) as being done by 3 different people. 


She is asking him to make 100 seat cushions, so the person who does this task will be pulled off the Deluxe assembly to make her cushions.


This leaves the other two workers unable to make a Deluxe…. but, their combined efforts are exactly what it takes to make 1 Economy!


So, instead of making 1 Deluxe stool, he will have his 3 workers make 1 Economy for him + 1 seat cushion for her.


Your task it to examine this new scenario and determine if the price he quoted is real or if there is some other price that is more accurate.


The big question is whether or not he can deliver the seat to her at a transfer price less than the $19.00 each quoted by an outside vendor.




More Information for item 1a.



As the assignment’s “conversation” states in the Course Guide, he wants a transfer price to contain all the cost components. She is asking that he revisit his price and consider a Variable Cost approach.  

Your spreadsheet or hand-written notes should show whether or not a transfer price can be set that maintains his overall profitability (under the new production plans) and beats the price quoted by an outside vendor.

We could not provide a template without giving away too much of the answer/process to this assignment. 

I expect to have a kaltura video from my professor that provides more details on 8/12. 


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