ABOUT THE CASE STUDY

This project is not comprehensive, but is designed to complement certain parts of the management accounting class. More than anything else, it is designed to present a realistic, but not real company, and ask you to think about how you would assist with the management accounting for it. What costs are fixed, and what costs are variable? How much should it charge customers? Should everyone pay the same price? What does a flexible budget say about its efficiency? Are there ways it could be more efficient?

Activities required within the case study cover chapters 14, 15, 18, and 21. Chapter 16, which deals with process costing, is not relevant to this case because we are considering individualized, expensive trips to the moon. In addition to Chapter 16, Chapters 17, 19, 20, and 22 through 24 have been left out. I am requiring four periodic Blackboard Homework type submissions every week or so. You will find them in Learning Units #2, 3, 4 & 8.

I have footnoted the costs Ive described in Part 1 in case you are interested in how I arrived at them. Many are actual figures from space vendors, but some are merely educated guesses.

Virgin Galactics Spaceport America in New Mexico, provided courtesy of the company.

THE CASE STUDY

Bill Conner, owner of Eastern Shore Milky Way Travel, has been building his business and is preparing to offer flights to the Moon where tourists will be able to spend a few nights in his orbiting space hotel. The entire trip lasts two weeks (approximately 3 nights in route each way, and 7 nights at the hotel).

I.Classify the following costs by behavior and traceability

Cost by Behavior Cost by Traceability

Product Costs Variable Fixed Direct Indirect

1. Purchase of ES C2000 Spaceship

$4,000,000,000 total (1)

2. Rental of Space Hotel

$1,350,000,000 annual (2)

3. Wages of Attendants/

Hotel Workers/ Astronauts (3)

$110,000 avg. per worker x 10

4. Food (4) $630 per person or

$157,500 total

5. Maintenance

$80,000,000 (40,000,000

Varies with production) (5)

6. Day Excursion 5 person

ES JR2000 Spaceship

$400,000,000 (6)

7. Climate control suits (7)

18 suits x $100,000 = $1,800,000

8. Electronic Devices (8)

(Computers / Entertainment)

$150,000

9. Furniture $10,000,000 (9)

10. All Insurances $500,000,000 (10)

B. Requirement #2 Due June 12^th. - 375 Points

II.Assume that the company decides to charge each customer $10,000,000 per trip. Using this price, examine these job cost records for travelers: Bill David, David Conner, and Conner Bill. Several of the Blackboard assignment #2 will prompt you about how to apply overhead. The essay at the end of the assignment will ask you to conclude about whether each traveler was charged an adequate price for the visit. Should everyone be charged the same price even though they use different services, or should some things be priced a la carte (Chapter 15)?

Type of Cost Bill David David Conner Conner Bill

Direct Labor $4,000 $5,000 $5,500

Day Excursions 320,000 200,000 550,000

Food 1,000 400 200

Climate Suit 7,200 100,000 9,500

Insurance Claim 0 0 225,000

Overhead _____ _______ _______

Total

Determine what price Eastern Shore Milky-Way Company should charge per visit per traveler. Should we use a different price than $10,000,000? Use cost volume profit analysis.

Complete the Flexible Budget Performance Report for Eastern Shore Milky-Way Travel Company by redoing it on an Excel spreadsheet.

?Correctly alligned? (Needing Variable, Fixed, & Direct Cost)