Required:
Assume the role of Henri Plamondon and prepare a report to Mr. Robert Parsons, President of BPS. The report should analyze BPS's current operations and provide advice for the future. It should include the following:
1. Provide a preliminary analysis of 2014 operations (including a variance analysis in as much detail as the data permit) to determine the causes of the loss based on Exhibits 1 and 2.
2. Using the documents provided by the consultant, prepare an analysis of each of the following 2014 costs (30 marks):
a) Sorting labour and overhead: Reallocate the total sorting labour and sorting overhead costs to each of the departments using the activity-based costing analysis in Exhibit 5.
b) Administration costs:
i. Service-department portion of administration costs: Prepare a comparison of cost allocations of the janitorial and maintenance departments to the production departments using all three costing methods (direct, step2 and reciprocal). Use the allocation bases provided in Exhibit 6. Your analysis should consist of a short discussion on which method provides the most reasonable estimate of service-department costs to production departments.
ii. Office administration costs: Review the summary printout of two Excel regression analyses (Exhibit 7); one that tests the correlation between employee hours and office administration costs and one that tests the correlation between documents used and office administration costs. Explain which activity driver is the best representation of cost behaviour and reallocate the office administration costs to the production departments using the 2014 activities provided in the exhibit. As a result, the office administration costs should be split into variable and fixed portions. Fixed costs should be allocated among the services using the original allocation base.
3. Prepare a revised operating statement for 2014 using the costing analyses from requirement 2. Provide a short analysis of the results.
4. Prepare a 2015 budgeted operating statement using the cost allocations developed in requirement 2 and the expected costs provided in the case. Assume the following:
a) The average size of parcels will continue to be 0.5 kg.
b) Activity-based unit costs will remain the same for 2015.
c) The number of bundles for activity-based costing will remain the same.
d) The percentage allocation of express-post parcels to each location (within province, within country, and so on) will remain the same.
5. Analyze the president's three options concerning the parcel business and comment on the strengths and weaknesses of each option and give a recommendation. When considering severance costs, determine the number of years of operating surplus it will take to pay back the severance costs. Your recommendation should include several steps that the organization should take to implement the plan. Also provide management with observations you have made during your research that can be considered for future analysis.