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Unformatted text preview: 3,248,000 In late 2010, an office-products research firm estimated the industry volume for residential
and office chairs of the type sold by the Chair company to be 2,400,000. Actual industry
volume for the year 2011 was 2,200,000 chairs.
a. Compute the sale-mix variance and the sales-quantity variance by type of chair, and in
total. (6 marks)
b. Compute the market-share variance and market-size variance. (6 marks)
c. What conclusions can be drawn from these variances? (3 marks) Question 4: Project Costing and Risk (20 marks) Sir John Elementary School plans to build a new playground in 2011. They received a
$100,000 government grant to be used for building the playground. They are hoping to
break ground in May 2011 and complete the project by the start of school in September.
Before they can start the project, however, they must dismantle the existing playground—
according to current safety standards, the existing playground is unsafe. A number of
residential properties in the community have tested positive for soil contamination, so the
school also plans to complete soil testing once the existing playground is dismantled. Due to
recent news articles, parents are very concerned about the potential for soil contamination
and are demanding a full test to ensure their kids are not playing on a contaminated
Mary Chan, the school principal, has compiled the following estimates for the new
Cost for dismantling existing equipment $15,000 Salvage value from the metal from existing equipment $4,000 Soil testing $15,000 New playground equipment $30,000 Cost of installation $15,000 Cost of resurfacing play area in rubber $45,000 Cost of landscaping (including $5,000 for gravel) $22,000 Cost of removing and replacing soil $53,000 The costs for installation, resurfacing, and landscaping are the costs quoted by professional
contractors. Mary was approached by the president of the student council, Gary Schwinger,
who has volunteered his own and three other parents’ time for installing and landscaping
the new playground. This will save the school approximately $18,000 in costs. Page 5 of 7 The school has two options in terms of dealing with the contaminated soil. The first option is
to not conduct the soil testing and to simply resurface the play area with a poured-rubber
matting that can cover the entire play surface. This will cost, as Mary indicated in her
estimates above, approximately $45,000—a large chunk of the playground budget. The
other option is to perform the soil testing. A municipal worker has estimated that there is a
45% chance that the soil is contaminated. If this is the case, the school will either need to
resurface the area for $45,000 or have the contaminated soil removed and replaced for a
hefty cost of $53,000 plus the cost of gravel. However, there is a 55% chance that the soil
will not be contaminated and the playground equipment can be installed on a gravel bed
and the remediation and/or resurfacing...
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This document was uploaded on 09/28/2013.
- Fall '13