This assignment is to be completed in groups of three and carries 25 per-cent of the marks in this unit.

The following considerations will be applied when evaluating the submission:

Parts A (seven marks), B (seven marks) and C (five marks) of this assignment MUST be completed on an Excel Spreadsheet.

The use of an accurate Excel (for Windows) model: 1. The setting and presentation. 2. Accuracy of calculations and Analysis. Part D (six marks) The due date for submission is by the end of week ten. Assessment of the assignment is based on the adequacy and accuracy of the submitted assignment. 1. All written work must conform with the Federation University General Guide for the Presentation of Academic Work. 2. For all written work students must ensure that they submit their own original work. Any act of plagiarism will be severely penalised. Plagiarism is presenting someone else work as your own and is a serious offence with serious consequences. As set out in the University Regulation 6.1.1, students who are caught plagiarising will, for a first offence, be given a zero mark for that task. A second offence will result in a failing grade for the course(s) involved and any subsequent offence will be referred to the Student Discipline Committee. Student must be aware of the University Regulation 6.1.1 Student Plagiarism. Students must: • fully reference the source(s) of all material, even if you have re-expressed the ideas, facts or descriptions; • acknowledge all direct quotations; and • not submit work that has been researched and written by another person.

Part A. Loose Tooth Inc is a non-profit centre based in Extractaville. Given increasing dentistry prices and a declining economic environment demand at the clinic has risen given it charges lower fees than its private practice competitors. Loose Tooth Inc’s manager Lotta Teethe is considering her operating plans for 2017 and has estimated expected visits to be around 3,800. To help with her calculations, the accountant, Modesty Measerly has advised that for allocation purposes the cost object is the centre and the number of patient visits would be the cost driver and has prepared the following historical data; a) Modesty believes there is a lot of variation in the cost of part-time dentists due to them being paid on an hourly basis when called in. Given most of their time is spent with clients it is considered a direct cost. Consequently, the amount of time spent with each client may well be a cost driver. Unfortunately, the accounting system does not record the timing of each visit. Records are only kept for the total number of visits. Therefore, she categorizes dentist fees as a variable cost and intends to use visits as the cost driver. Whilst dentist fees increase over time, it is expected they will remain constant at least for 2017. b) The receptionist/technician is employed on a full-time basis and perform various tasks. Consequently, Modesty believes this cost is indirect and fixed and is expecting that there would be in 2017 a 2.5% salary increase. c) Given the nature and usage of supplies Modesty believes these to be a mixed or variable cost and believes that number of visits has a cause-and-effect relationship for the variable portion. Very little changes in the cost of supplies has occurred over the past three years. (Hint: Use High Low Method) d) Given the rent is subject to a long-term lease Modesty considers this a fixed cost and for 2017 the rent should remain the same. e) On investigation Modesty discerns that administration is a mixed cost as it includes costs to set up files for new clients and office supplies related to the paperwork for each visit. The remainder pertains to telephone, general office supplies and salaries which are considered fixed costs. Consequently, visits are seen as the appropriate cost driver for the variable portion. After some analysis she determines the cost of these supplies as $8,000 in 2014, $9,600 in 2015, and $11,200 in 2016. f) It is expected that there will be little change in the types of services provided the average fees, or for the matching grant. Required A1: Calculate the Total Cost Function for each category A2: Calculate the Total Cost Function for Loose Tooth Inc A3: Calculate the Profit that Loose Tooth Inc expects to earn during 2017

Part B: On receipt of the estimates prepared by Modesty, Lotta believes they are too high and requests further analysis be undertaken. Revised Analysis of the Treatment Supplies Cost Modesty had used the high-low method when estimating the cost function for supplies. With only three data points it may perhaps be better to consider using quarterly data which would provide more data points and perhaps enable the estimation of a better cost function. As visits are recorded manually at reception, Modesty was also concerned about the accuracy of the data collected, and that perhaps not all visits were recorded. This could be tracked through the bills issued which could be used as a surrogate estimate of visits however clients (such as parents) may bring their children yet receive only a single bill. She did however wonder if there was an alternative better cost driver available. Modesty was also aware that different supplies are used by the dentists depending upon the nature of the treatment. For instance, a child may require different dosage and treatment to that of an adult and also dependent upon the procedure being applied. Any allocation premised upon the number of visits assumes that supplies used are the same for each visit. Modesty is aware that the bill for each visit includes charges for supplies and consequently, revenue received per visit varies with the number and type of supplies used. It would be better if revenue was correlated with supplies than number of visits. She also believes that the data for revenue per visit are more accurate because they are recorded by the accounting system when bills are created. Quarterly Data Although believing that revenue may be better correlated with supplies cost than visits, Modesty decides to investigate both drivers to learn more about their behaviour. Appropriate data is as follows:

Required B1: Utilising Revenue as the cost driver use the Excel regression tool to calculate the following: • R Square and Standard Error, • Intercept coefficient, standard error, t-stat and p-value • Revenue coefficient, standard error, t-stat and p-value B1a: How confident can Modesty be that the actual fixed cost is greater than zero (i.e. – that there is a fixed cost component in the cost function?) B1b: How confident can Modesty be that the actual variable cost per unit of the cost driver is greater than zero. (i.e. that there is a variable component in the cost function?) B1c: Overall, how well does the cost driver explain the behaviour (i.e. the variation} in the cost. B2: Utilising Visits as the cost driver calculate the following: • R Square and Standard Error, • Intercept coefficient, standard error, and t-stat • Revenue coefficient, standard error and t-stat B2a: How confident can Modesty be that the actual fixed cost is greater than zero (i.e. – that there is a fixed cost component in the cost function?)) B2b: How confident can Modesty be that the actual variable cost per unit of the cost driver is greater than zero. (i.e. that there is a variable component in the cost function?) B2c: Overall, how well does the cost driver explain the behaviour (i.e. the variation} in the cost. B3: Calculate the Total Cost function that Modesty should use based on B1 and B2 calculated above.

Part C:

C1: Compute the linear cost function of both hours and overhead costs using the representative range of 7,700 and 3,300 hours. Plot the cost function. C2: Does the constant or intercept estimate of the cost function represent the fixed overhead costs? C3: Calculate the predicted total overhead using each hourly range C4: Compare the predicted total overhead with the actual overhead costs and comment on your findings

Part D:

Consider the following Yui was born in Utashinai and lived there until 10 years old when she migrated to Scotland and lived on her grandfather’s estate near Musselburgh where they bred both Shorthorn and Galloway cattle. She now lives in Pedesina with her husband Francesco Formasi whom she first met at McKirdy’s Steakhouse in Edinburgh. Yui prefers Chardonnay and Sauvignon Blanc rather than Pinot Noir or Zinfendel when enjoying her meal. When dining out, Yui prefers fish over chicken. Last night, she had a choice of fish and beef and decided on the fish again.

The night before, Yui had a choice of fish, chicken or pizza, and this time she had pizza. On waking up this morning she had developed swollen lips which had receded by lunch time. Then, today at lunch she chose beef over chicken. Tonight is her birthday and she is going out to the La Presef restaurant in Pedesina for the first time. She is not aware of what they offer but believes the choice should be either fish, chicken, beef or pizza. Francesco had discovered on their honeymoon to Japan several years earlier that he suffered anaphylaxis when exposed to certain foods and so Yui was very conscious when eating out to avoid such foods albeit she herself was rarely aware of any existing allergies but did ponder her reaction this morning. Over lunch, whilst at the local para-pharmacy Yui noticed a brochure expelling the virtues of white meat over red meat and pondered at the difference between fish and chicken until she was interrupted by her 38 year old female friend Sofia Ambrosini. In terms of Parts A, B and C above where it is possible to determine functions to estimate projections – is this possible to do in terms of Yui’s choice of what she will eat tonight.

## Σχόλια