Question - Jack Halpern is the owner and CEO of Aerospace Comfort, a firm specialising in the manufacture of seats for aeroplanes. He has just received a copy of a letter written to the general audit section of the RAAF. He believes it is from an ex-employee of Aerospace Comfort.
Aerospace Comfort manufactured 100 X7 seats for the RAAF in 2014. The following may be of interest.
1- Direct materials costs billed for the 100 X7 seats were $25000.
2- Direct manufacturing labour costs billed for 100 X7 seats were $6000. These costs include 16 hours of set-up labour at $25 per hour, an amount included in the manufacturing overhead cost pool as well. The $6000 also includes 12 hours of design time at $50 an hour. Design time was explicitly identified as a cost the RAAF would not reimburse.
3- Manufacturing overhead costs billed for 100 X7 seats were $9000 (150% of direct manufacturing labour costs). This amount includes the 16 hours of set-up labour at $25 per hour that is incorrectly included as part of direct manufacturing labour costs.
You may also want to know that over 40% of the direct materials is purchased from Frontier Technology, a company that is 51% owned by Jack Halpern's brother. For obvious reasons, this letter will not be signed.
The Australian, Jack Halpern, CEO of Aerospace Comfort
Aerospace Comfort's contract states that the RAAF reimburses Aerospace Comfort at 130% of total manufacturing costs. Assume that the facts in the letter are correct as you answer the following questions.
Required
a- What is the cost amount per X7 seat that Aerospace Comfort billed the RAAF? Assume that the actual direct materials costs were $25 000.
b- What is the amount per X7 seat that Aerospace Comfort should have billed the RAAF? Assume that the actual direct materials costs were $25000. 7 | Page Due Date: Monday the 16th of May 2016 at 23.59pm ACT202 Management Accounting Assignment one Semester one -2016
c- What should the RAAF do to tighten its procurement procedures to reduce the likelihood of such situations recurring in the future?