Question 1.
"Sustainability" is often thought to be a concept related solely to environmental issues. Do you agree with this statement? In your answer, you should describe the dimensions of sustainability you have studied. Briefly discuss the role management accountants can play in sustainability.
Question 2.
The Preston Opera Company is putting on a production of "the Mikado". The production will run for 12 performances. The performers and production staff do this on an amateur basis and are not paid for their work.
The production will be held in the Darebin Arts Centre, and the cost of hiring the venue is $250 per performance plus $2.50 for each ticket sold. Royalties are payable to the copyright owner at a cost of $7.50 per ticket sold. In addition, the sets and costumes will be hired at a cost of $1000 per performance or a total of $12,000 for 12 performances. Other miscellaneous production costs will be about $2,000.
After considering your advice, the Preston Opera Company tells you it can sell only 700 tickets. To reduce costs, the Company considers having only 10 performances.
Required
1) At a selling price of $30 per ticket, how many tickets will need to be sold for the production to break even if there are 12 performances?
2) Calculate the new number of ticket to be sold to reach break-even point for 10 performances.
3) Can Preston Opera Company put on the production of the Mikado without making a loss?
Question 3
Hullabaloo produces plastic chairs in its Preston plant, which currently sell for $15 per chair. Hullabaloo has two sales staff, who are paid only on sales commission. They earn 10% of the sales they generate. Fixed costs at the Preston plant are $180,000 and variable costs (manufacturing and administrative together) amount to $9 per unit.
Profits have been down, and the CEO proposes to spend $15,000 to advertise the chairs, which should increase sales to a total of 60,000 units. The sales price will be increased to $18 to cover the cost of advertising.
Zizzy Furniture approaches Hullabaloo's CEO and offers to purchase 10,000 chairs at a reduced price. The factory has enough spare capacity to produce these chairs without affecting normal sales. As sales staff do not make the sale, there will be no sales commission on the extra 10,000 chairs.
Required
1) Calculate the profit if the advertising is increased. Ignore the proposed Zizzy sale.
2) Calculate the minimum price Hullabaloo will need to charge for the special order sales to Zizzy to generate a profit of $30,000 on the sale
3) What other factors would Hullabaloo need to take into account before making the special sale?
Question 4
The Government Schools Board is inviting tenders for a contract to provide IT services to schools. A panel of senior managers from the Schools Board will assess the tenders and recommend a preferred tenderer to the Head of the Education Department.
Part a)
Suppose there are two tenders received with the following data:
Tender 1 (Whatis) Tender 2 (Hacker)
Costs Year 1 $250,000 $350,000
Costs year 2 $250,000 $250,000
Costs year 3 $250,000 $150,000
Government departments use a cost of capital of 7%
Required
1) What methods could be used to assess the tenders? Which method would you recommend?
2) Which tender would you accept? Why? (Remember, this is a contract for the total amount the schools board needs to pay to the successful company)
Part b)
The Hacker Company submits tender 2 to the Schools Board. In order to gain the special knowledge needed to run this contract, Hacker's CEO offers a job to one of the managers from the Schools Board. The job will commence if Hacker wins the tender. If Hacker does not win the tender the job offer will not go ahead. The salary to be paid for this job is around double what the manager is currently earning. The manager does not tell the other panel managers from the Schools Board about his job offer.
Required: Discuss the ethical issues for Hacker and for the School's Board manager who will get a new highly paid job if Hacker wins the tender.