Tommy Wilder had grown up in Dunedin, trained as a chef at the Otago Polytechnic and worked for several years in local eateries around the city. However the lure of overseas travel was too much and he soon shifted to Melbourne and later to Singapore where he worked for several years. Singapore exposed Tommy to a multitude of Asian recipes, dishes and gourmet treats. He loved the Asian food but after several years was starting to weary of working nights and city living. So after some soul searching Tommy packed up himself, his wife Lynne and two year old Charlie to return to Dunedin and start a food production company. Around the same time, Tommy and Lynne also decided to become vegans and so it was important that their food production company followed those same values. Acceptance of their products was difficult in their early years but lately veganism was becoming accepted and even popular. Tommy can hardly believe that their move back to Dunedin was 15 years ago and he and his wife now own a company in Kaikorai Valley Road with assets of $11 million on the balance sheet. Tommy and Lynne’s firm, Vasian (a contracted form of “Vegan Asian”) produces caterer packs (5kg units) of two types of vegan meals: Vegan Curry (satay sweet potato) and Vegan Spring Rolls. Vasian’s Curry and Spring Rolls are made from organically grown ingredients and promoted as organic products for selling purposes. The caterer packs are sold all over the South Island and the Vegan Curry has recently won a national award for its high quality. Although a number of other firms sell small packs of curry and spring rolls for domestic use, Vasian has only one other competitor in the caterer pack market. This competing firm, Bali Products, is based in the North Island but only rarely sells its products in the South Island. Its caterer packs are slightly cheaper than Vasian’s but are not produced from organic ingredients. Tommy has heard rumours that Bali Products is planning to launch an advertising campaign in the South Island in the near future. Tommy marks up the full cost of his two products by 25% in order to calculate the selling prices. With the future competition from Bali Products, he wants to be sure that he has competitive selling prices and so he wants to make sure that he has his costs “right”. The Curry and Spring Rolls are made in departments dedicated exclusively to them. No stocks of the products are held as they deteriorate rapidly. There are also three service departments, Stores, Maintenance and Administration. The direct variable costs of each department budgeted for the coming year, are shown in Exhibit 1.

  

  

 

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Exhibit 1 Direct Variable Costs of Departments Direct Variable Costs ($million) Administration Maintenance Stores Curry Spring (А) (M) (S) (C) Rolls (SR) Material 0.1 0.1 1.8 0.7 Other 0.2 0.2 0.1 0.8 0.5 variable General factory overheads, which are all fixed, are budgeted to amount to an annual cost of $3.6 million. They are allocated to all departments on the basis of floor space occupied. Floor space is displayed in Exhibit 2. Exhibit 2 Floor Space of Departments Floor Space of Departments (square metres) Spring Rolls (SR) Administration Maintenance Stores Curry (A) (M) (S) (C) 160 80 240 640 480 In order to calculate full product costs for Curry and Spring Rolls, the service department costs are next allocated to the manufacturing departments using the step- down method (in the order shown) based on the estimates of the usage of the service required. These usage estimates are displayed in Exhibit 3. They are expressed in percentages and are assumed to be reliable over the current capacity range. Exhibit 3 Departmental Usage (%) of Service Departments Departments Receiving Service Curry (C) Administration Maintenance Stores Spring (A) (М) (S) Rolls (SR) Departments Providing Service Administration 10 20 40 30 (A) Maintenance 25 50 25 (M) Stores (S) 60 40 Exhibit 1 Direct Variable Costs of Departments Direct Variable Costs ($million) Administration Maintenance Stores Curry Spring (А) (M) (S) (C) Rolls (SR) Material 0.1 0.1 1.8 0.7 Other 0.2 0.2 0.1 0.8 0.5 variable General factory overheads, which are all fixed, are budgeted to amount to an annual cost of $3.6 million. They are allocated to all departments on the basis of floor space occupied. Floor space is displayed in Exhibit 2. Exhibit 2 Floor Space of Departments Floor Space of Departments (square metres) Spring Rolls (SR) Administration Maintenance Stores Curry (A) (M) (S) (C) 160 80 240 640 480 In order to calculate full product costs for Curry and Spring Rolls, the service department costs are next allocated to the manufacturing departments using the step- down method (in the order shown) based on the estimates of the usage of the service required. These usage estimates are displayed in Exhibit 3. They are expressed in percentages and are assumed to be reliable over the current capacity range. Exhibit 3 Departmental Usage (%) of Service Departments Departments Receiving Service Curry (C) Administration Maintenance Stores Spring (A) (М) (S) Rolls (SR) Departments Providing Service Administration 10 20 40 30 (A) Maintenance 25 50 25 (M) Stores (S) 60 40

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Ans 4 For the following reasons Vasian Ltd should accept Wallys Ltds ... View the full answer