A case analysis for understanding some concepts of Cost accounting

1. B Y -
S H R E S H T H M A L H O T R A
Y A T I N A N A N D
V A I B H A V A R O R A
A M R I T T A Y A L
R O O P A M J A I N
C H I R A G G U L A T I
Case Analysis on YSL
Marketing
Submitted to –
Dr. Suveera Gill

2. YSL Marketing - Introduction
 Small firm located in Seattle, Washington and
conducts group meetings, telephone and mail
opinion surveys for its clients.
 Total professional compensation Paid to Three
partners and Six Non Professional partners is
$16,00,000.
 Total Overhead (rent, utilities, depreciation of
building) estimated to be $4,96,000.

3.  Connie Bachmann (YSL Partner) was asked to
conduct a survey for SURENEX.
 Connie wanted to quote less fess for this company as
it is in growing stage and it is anticipated that this
company will in 3-5years become a big company with
premium billing opportunities.
 YSL’s fee is 1.5 times professional compensation.

4. Problem scenario ??
 Surenex has Cash – flow problems and it is unwilling
to pay YSL’s normal fee, so Connie want to quote a
low fee.
 YSL is in high demand and if it take Surenex Job at
low fee it would have to turn down another potential
clients.

5. Cost estimates that Surenex engagement will require -:
1. Connie 40 hours salary averaging $120 per hour
2. Ambrose Bundy (non professional partner), 100
hour salary of $40 per hour
3. Direct charges for travel, postal etc - $3000

6. JOB ORDER COSTING FOR SERVICES

7. Required Solutions from the case
1. To calculate the full cost of the
Surenex engagement, including an
allocation of overhead.

8. Methodology -:
1. To determine the perfect allocation base for the
problem.
2. To determine the overhead allocation rate for
services.
3. To calculate the overhead allocation for this
particular job (Providing service to Surenex)
4. And to finally determine the expected full cost by
adding up direct material cost, direct labour cost
and the overhead cost.

9. Direct Labour cost
Salary of Connie Bachmann for Surenex engagement = 40x
$120 = $4800
Salary of Ambrose Bundy = 100 x $40 = $4000
Direct Material Cost
All the Travel , mailing and postage charges = $3000

10. Overhead Applied to this Job
For this particular job we will take allocation base as
the total professional compensation.
Therefore, Overhead allocation rate = Overhead cost
Allocation Base
Hence, Overhead allocation Rate =
$496000/$1600000 = 0.31

11. This Particular job requires total professional
compensation of $4800 + $4000 = $8800
Hence, total overhead for Surenex engagement =
0.31X $8800 = $2728
So, Total expected full cost for this engagement
= $8800 + $3000 + $2728 = $14528

12. 2. Lowest amount that Connie can bill on this
engagement without hurting the Company
Profit

13. Methodology -:
1. To determine the actual fee YSL will demand as per
the criteria with which it demands from the other
engagements.
2. To compare the estimated full cost and the actual
fee of YSL.

14. As per the case YSL fees is 1.5 times the actual
professional compensation
So, in this job the actual professional compensation is
$8800
So, YSL Fee would be = $8,800 X 1.5 = $13,200
Also YSL is Reimbursed with all cost related to travel,
Paper and Postage Cost
Hence, Total fee YSL would charge =
$13,200+$3,000= $16,200

15. So The cost which we had estimated $14,528 is the no
profit no loss condition
And the Fee came out as per YSL Standards is $16,200
Hence, Connie can bill lowest amount of $16,200
without hurting Company’s Profit, with Estimated
Profit of $1672