This document contains 6 study guide problems without answers for a quiz. Problem 1 involves developing a balanced scorecard and strategy map for Trinidad Drilling Ltd. Problem 2 involves performing a 5-year financial analysis to determine whether to close a plant for Ajax Auto Upholstery Ltd. Problem 3 involves calculating unit costs for kayaks using direct labor hours and activity-based costing. Problem 4 involves analyzing customer profitability and creating a whale curve. Problem 5 involves calculating quality costs ratios and determining if further reductions are possible. Problem 6 involves determining which product components are candidates for cost reduction.

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Problem 1 (30 marks)
Review enough information about Trinidad Drilling Ltd. to
propose a vision and strategic objectives for the company.
Develop a balanced scorecard that will help the company
achieve this vision and monitor how well it is accomplishing its
strategic objectives. Include a strategy map in table format that
shows objectives and performance measures, with arrows
illustrating hypothesized cause-and -effect relationships.
Provide rationale for your strategy map. The body of your
report should not exceed 1,000 words. Cite material you used to
prepare the response and provide references in an appendix.
Problem 2 (20 marks)
Ajax Auto Upholstery Ltd. manufactures upholstered products
for automobiles, vans, and trucks.
Among the various Ajax plants around Canada is the Owlseye
plant located in rural Alberta.
The chief financial officer has just received a report indicating
that Ajax could purchase the entire annual output of the
Owlseye plant from a foreign supplier for $37 million per year.
The budgeted operating costs (in thousands) for the Owlseye
plant’s for the coming year is as follows:
Materials
$15,000
Labor

2. Direct
$12,000
Supervision
4,000
Indirect plant
5,000
19,000
Overhead
Depreciation – plant
6,000
Utilities, property tax, maintenance
2,000
Pension expense
4,500

3. Plant manager and staff
2,500
Corporate headquarters overhead allocation
3,000
18,000
Total budgeted costs
$52,000
If material purchase orders are cancelled as a consequence of
the plant closing, termination charges would amount to 10
percent of the annual cost of direct materials in the first year
(zero thereafter).
A clause in the Ajax union contract requires the company to
provide employment assistance to its former employees for 12
months after a plant closes. The estimated cost to administer
this service if the Owlseye plant closes would be $2 million.
$3.6 million of next year’s pension expense would continue
indefinitely whether or not the plant remains open. About
$900,000 of labour would still be required in the first year after
closure to decommission the plant. After that, the plant would
be sold for an estimated $1 million. Utilities, property taxes,
and maintenance costs would remain unchanged in the first year
after closure, but disappear when the plant is sold.
The plant manager and her staff would be somewhat affected by
the closing of the Owlseye plant.

4. Some managers would still be responsible for managing three
other plants. As a result, total management salaries would be
about 50% of the current level, starting at closure and remaining
into the future.
Required:
Assume you are the company’s chief financial officer. Perform
a five-year financial analysis and make a recommendation
whether to close the Owlseye plant on this basis.
Provide support for and cautions about your recommendation
with organized, clearly-labeled data. Use bullet points where
appropriate.
Problem 3 (16 marks)
Braithwaite Company manufactures two types of kayaks, the
Intrepid and Explorer. Previously, the company has allocated
manufacturing support costs using a plant-wide rate based on
direct labour hours. It has been suggested that the company
consider assigning support costs to the equipment using
activity-based costing. The following data has been collected:
Item
Intrepid
Explorer
Units produced and sold
50,000
20,000
Direct labour hours used
25,000
20,000
Direct labour cost
$75,000
$60,000
Number of times each unit is handled
3

5. 5
Number of cuts per unit
2
6
Number of design changes (total)
5
10
Number of product setups (total)
30
40
The actual manufacturing support costs incurred were as
follows:
Cost Pool
Related Costs
Handling
$
500,000
Cutting
1,500,000
Design changes
600,000
Setups
20,000
Total
$2,620,000
The direct material cost for the Intrepid model is $500 per unit,
and for the Explorer model, $700 per unit.
Required:
1.
Determine the unit cost of each product using direct labour
hours to allocate all manufacturing support costs.
2.
Determine the unit cost of each product using activity-based

6. costing.
3.
Explain why the unit cost is different in requirements 1 and 2.
Problem 4 (10 marks)
Winn’s Winery Ltd. has assembled the following information
about its customer base:
Customer #
Revenue
Variable costs (% of rev.)
Fixed cost allocation
Net revenue (loss) per customer
1
$4,899,507
114%
$415,817
$(1,101,748)
2
379,952
86%
32,246
20,947
3
45,602
83%
3,870

7. 3,882
4
253,816
88%
21,541
8,917
5
2,489,972
71%
211,322
510,770
6
87,918
69%
7,462
19,793
7
779,558
82%
66,160
74,160
8
384,685
78%
32,648
51,983
9
598,100
87%
50,760

8. 26,993
10
999,845
101%
84,856
(94,854)
11
987,504
112%
83,809
(202,309)
12
158,972
76%
13,492
24,661
13
789,924
105%
67,040
(106,536)
14
528,489
84%
44,852
39,706
15
1,687,581
66%
143,223

9. 430,554
16
658,870
68%
55,918
154,921
17
78,650
81%
6,675
8,269
18
1,879,542
103%
159,515
(215,901)
19
5,798,227
70%
492,090
1,247,378
20
78,995
78%
6,704
10,675
Total
$23,565,709
$2,000,000

10. $
912,260
Winn’s annual fixed costs consist of marketing expenses of
$300,000 and administration costs of $1,700,000. These are
allocated to each customer based on relative revenue [e.g.,
customer 1 fixed costs = $2M x ($4,899,507/23,565,709) =
$415,817 (rounded)]
Required:
1.
Analyze the relative profitability of the company’s customers
and make recommendations for change.
2.
(5 bonus marks) Create an appropriately-labelled whale curve.
Problem 5 (12 marks)
Dallas Company had sales of $40,000,000 in 2010. In 2014,
sales had increased to $50,000,000. A quality improvement
program was implemented at the beginning of 2008. Overall
conformance (prevention and appraisal) quality was targeted for
improvement. The actual quality costs for 2010 and 2014
follow. Assume any reductions in costs are attributable to
improvements in quality.
2010
2014
Internal failure costs
$2,000,000
$1,300,000

11. External failure costs
4,000,000
150,000
Appraisal costs
1,200,000
300,000
Prevention costs
600,000
50,000
Total quality costs
$7,800,000
$1,800,000
Required
:
1.
Compute the quality costs-to-sales ratio for each year.
2.
Calculate and compare the relative distribution of costs by
category for 2010 and 2014. What conclusions do you draw
from this comparison? Are further reductions possible?
3.
The quality manager for Dallas indicated that the external
failure costs reported are only the measured costs. She argued
that the 2014 external costs were likely much higher than those
reported and that additional investment ought to be made to
prevention and appraisal costs. Discuss the validity of her
viewpoint.

12. Problem 6 (12 marks)
Whyte Trucks Inc. produces large, heavy duty trucks. It is
attempting to reduce manufacturing costs. It polled customers
with respect to product requirements and obtained the following
information:
Category
Importance
Driver comfort
30
Fuel efficiency
50
Safety
20
Whyte identified the following target costs for various truck
components:
Function
group
Target cost
Frame
$30,000
Engine
50,000
Body
40,000
Other
80,000
Whyte engineers produced the following quality function
deployment matrix:
Function group

13. Categories
Frame
Engine
Body
Other
Driver comfort
.2
.2
.6
Fuel efficiency
.6
.3
.1
Safety
.3
.1
.2
.4
Required
: Determine which function groups are candidates for cost
reduction.