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If you leave early please respect your fellow

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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” Photocopying Advisor’s time: 2 hours @ $50 Computer simulation fee Direct costs Overhead (100% of direct costs) Total $ 37.00 5.00 100.00 15.00 $157.00 157.00 $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. Direct costs Variable part of overhead ($157 × 40% Total relevant cost ) $157.00 62.80 $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...
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