This preview shows page 1. Sign up to view the full content.
Unformatted text preview: ple (non-programmable) calculator.
• Three hours are allowed to complete the 5 questions (total of 100 marks) of part 1 and part 2 of the exam.
• If you leave early, please respect your fellow students by leaving quietly.
• Place photo identification on your desk during the examination to facilitate verification. Question 3 / 15 marks (20 minutes) Question 4 / 20 marks (30 minutes) Question 5 / 20 marks (30 minutes) Total marks Part 2 / 55 marks (80 minutes) Total marks of the exam:
Part 1 and Part 2 / 100 marks (150 minutes) Question 3 (15 marks – estimated time required: 20 minutes)
Federal Financial provides financial advice to its clients on investment, retirement
planning, and tax management. Federal has calculated the cost of providing retirement
planning at $314 per client, as follows:
Ho & Robinson’s “Personal Financial Planning”
Advisor’s time: 2 hours @ $50
Computer simulation fee
Overhead (100% of direct costs)
Total $ 37.00
$314.00 The overhead is typical for this type of business and consists of 40% variable costs and
60% fixed costs. In 2008 Federal Financial advised 250 clients on retirement planning.
RP Inc., a spet retirement planning company, has offered to service all Federal
Financial’s retirement planning clients.
Required (5 marks each)
a) If the offer from RP Inc. is $200 per client, should the offer be accepted? Explain.
Variable part of overhead ($157 × 40%
Total relevant cost ) $157.00
$219.80 Clearly, we do not expect to eliminate any of the fixed costs. The offer from RP Inc.
is $200. If none of the existing costs are saved, that cannot be a good idea as it just
adds $200 to whatever the existing costs are. If all the variable costs ($219.80) are
eliminated, then the net benefit will be a cost saving of $19.80 ($219.89 – $200). That
would make the offer worthwhile to accept.
b) What price per client offered by RP Inc. will make Federal Financial between keeping
the activity inside the company and outsourcing it? Expl...
View Full Document
This note was uploaded on 02/11/2014 for the course ADMS 2510 taught by Professor Beavis during the Spring '08 term at York University.
- Spring '08