Question 1: Kim Daley is examining customer service costs in the southern region of Capital Products. Capital Products has more than 200 separate electrical products that are sold with a six-month guarantee of full repair or replacement with a new product. When a product is returned by a customer, a service report is prepared. This service report includes details of the problem and the time and cost of resolving the problem. Weekly data for the most recent 8-week period are:

Required:

a) Plot the relationship between customer service costs and number of service reports. Is the relationship economically plausible?

b) Use the high-low method to calculate the cost function, relating customer service costs to the number of service reports.

c) What variables, in addition to number of service reports, might be cost drivers of weekly customer service costs of Capital Products?

Question 2: Universal Industries operates a division in Zimbabwe, a country with very high inflation rates. Traditionally, the company has used the same costing techniques in all countries to facilitate reporting to corporate headquarters. However, the financial accounting reports from Zimbabwe never seem to match the actual unit results of the division. Management has studied the problem and it appears that beginning inventories may be the cause of the unmatched information. The reason for this is that the inventories have a different financial base because of the severe inflation.

Required: How can process costing assist in addressing the problem facing Universal Industries?

Question 3: Jack Halpern is the owner and CEO of Aerospace Comfort, a firm specialising in the manufacture of seats for aeroplanes. He has just received a copy of a letter written to the general audit section of the RAAF. He believes it is from an ex-employee of Aerospace Comfort.

Dear Sir,

Aerospace Comfort manufactured 100 X7 seats for the RAAF in 2014. The following may be of interest.

1- Direct materials costs billed for the 100 X7 seats were $25000.

2- Direct manufacturing labour costs billed for 100 X7 seats were $6000. These costs include 16 hours of set-up labour at $25 per hour, an amount included in the manufacturing overhead cost pool as well. The $6000 also includes 12 hours of design time at $50 an hour. Design time was explicitly identified as a cost the RAAF would not reimburse.

3- Manufacturing overhead costs billed for 100 X7 seats were $9000 (150% of direct manufacturing labour costs). This amount includes the 16 hours of set-up labour at $25 per hour that is incorrectly included as part of direct manufacturing labour costs.

You may also want to know that over 40% of the direct materials is purchased from Frontier Technology, a company that is 51% owned by Jack Halpern's brother. For obvious reasons, this letter will not be signed.

cc: The Australian, Jack Halpern, CEO of Aerospace Comfort

Aerospace Comfort's contract states that the RAAF reimburses Aerospace Comfort at 130% of total manufacturing costs. Assume that the facts in the letter are correct as you answer the following questions.

Required:

a- What is the cost amount per X7 seat that Aerospace Comfort billed the RAAF? Assume that the actual direct materials costs were $25 000.

b- What is the amount per X7 seat that Aerospace Comfort should have billed the RAAF? Assume that the actual direct materials costs were $25000.

c- What should the RAAF do to tighten its procurement procedures to reduce the likelihood of such situations recurring in the future?