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MASTER IN MARITIME OPERATION

FINANCIAL BUSINESS ADMINISTRATION AND COST

ACCOUNTING

PORTFOLIO A

OMID TAJAMIRI ROSTAMI

MATRICULATION NUMBER: 7024338

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Q 1) Welding Seam Testing Services for Ship owners

A)
The project cost inspected welding seam is calculated by this formula:
The projected cost per inspected welding seam = Total operation cost / Number of inspected
welding seams
1,140,000.00 / 42,000.00 = $ 27.14

B)
To obtain the projected cost per hour of a mobile device, we use this formula:
The project cost per hour of operating a mobile device = Total operating cost / Number of
operating hours
1,140,000.00 / 2,800.00 = $ 407.14

C)
To obtain the cost of providing the testing service to the U.S Navy, we have to use the below
formula:
Cost of providing the testing service to the U.S Navy = Number of welding seams to be
inspected * Projected cost per inspected welding seams
2,108 * 27.14 = $ 57,211.12

D)
Cost of providing the testing service to the U.S Navy, if WSTSFS calculates the testing costs
based on the cost per hour of operating a portable device:
Number of welding seams to be inspected * Projected cost per inspected welding seam
2,108 * 27.14 = $ 57,211.12

E)
WSTSFS should calculate the cost of testing services for the U.S. Navy based on the cost per
hour of operating a portable device. This is because the U.S. Navy has specified the number of
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operating hours required for the inspection, which is 124 hours. Using the cost per hour of
operating a portable device, WSTSFS can accurately calculate the price based on the actual time
spent on the inspection. This ensures that the reimbursement aligns with the resources and effort
expended by WSTSFS.

Q 2) Viking Insurance Advisory Group

A)
The profit of each office after recalculation is as follows:
Numbers are in Million NOK.
Haugesund Stord Bergen Total
6.3 1 13 20.3

B)
The Bergen manager’s proposal does result in a fairer allocation scheme than the current one.
Under the current system, offices generating more revenues are penalized by receiving more
allocated costs. The proposal ensures a more equitable distribution of costs by allocating central
services based on the number of insurance advisors/brokers in each office. Each office is
allocated a fair share of central services, regardless of its revenue generation.

C)
The Bergen manager is concerned about fairness because the current system penalizes offices to
generate more revenues by allocating higher costs. This reduces their overall profits and profit
shares. By proposing an allocation based on the number of insurance advisors/brokers, the
manager aims to eliminate this unfair penalty. The manager's proposal will influence his profit
share as he will receive 9 percent of the regional office profits instead of the current 3 percent.
Bergen’s profit before and after the proposal will be as below:
Before After
KR 1,077,800.00 KR 1,373,000.00

The difference is KR 295,200.00

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D)
A fair solution could be allocating central services based on office revenues and the number of
insurance advisors/brokers. This approach would consider both revenue generation and the
workload of each office. A weighted allocation scheme could be devised, where a certain
percentage of the central services is allocated based on revenues, and the remaining portion is
allocated based on the number of advisors/brokers. This hybrid allocation method would strike a
balance between revenue-based and workload-based allocation, leading to a fairer distribution of
costs.

Q 3) Frieda & Freddie lawnmowers

A)
To allocate the corporate overhead, we need to calculate the allocation rate per direct labor,
which is as below:
Allocation rate = Corporate overhead / Total direct labor

We need to determine the allocation basis for each division for calculating divisional operating
income by use of this formula:
Corporate overhead / Total direct labor * Direct labor of each product

B)
We need to recalculate the operating income for the Electrical Lawnmower Division and the
corporation without considering the revenue and costs associated with WCP.

C)
Elektra Vavra King, the manager of the Electrical Lawnmower Division, may be better off
without product WCP, depending on how the discontinuation impacts the division's overall
profitability. By dropping WCP, the division’s operating income remains the same. In contrast,
discontinuing WCP could negatively impact the division’s profitability if the product's revenue
exceeded its direct costs.
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D)
Without WCP, the company income falls from the original total income.

With WPC Without WPC

€ €
Freddie & Frieda Lawnmower company 1,410,000.00 1,118,000.00

The difference is € 292,000.00

E)
1. Evaluating divisional managers solely based on active income may lead to suboptimal
decision-making. Managers may focus on short-term profitability at the expense of long-
term growth or product innovation.
2. The current system only allocates the fixed corporate overhead based on direct labor
euros. It does not consider other indirect expenses such as marketing, research,
development, or administrative overhead. Ignoring these costs may result in inaccurate
divisional operating income calculations and misaligned incentives.
3. Operating income alone may not provide a comprehensive view of a division's
performance. Incorporating additional metrics such as return on investment (ROI),
market share, customer satisfaction, or product quality may be beneficial to evaluate
divisional performance better.

Q 4) Sustainable Furniture GmbH & Co. KG

A)
Calculating each combination to obtain the lowest price.
Combination NO.6 has the lowest price, which is € 5,102.40

B)
After applying overhead cost to the combination, the lowest price belongs to combination NO.3
with the price of:
€ 6,838.20
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C)
Depending on the specific costs of the plastic and the allocated plant overhead, the answers to
part A&B could be the same or different. In a scenario where the plastic cost dominates the total
cost per batch, the combination with the lowest plastic cost would also have the lowest total cost.
The combination with the lowest plastic cost may not lead to the lowest total price if the plant’s
overhead plays a significant role.

D)
A plastic chair manufacturer's bonus should come from minimizing plastic costs and plant
overheads. A manager who considers only plastic costs may optimize plastic expenses but
overlook the impact of plant overhead on the overall cost per batch. Incentivize cost efficiency
and responsible decision-making; the bonus structure should align to minimize total charges,
including plastic costs and allocated plant overhead.

5) Johansen Batbyggeniene

A)

To allocate the three service departments' costs (HR, Accounting, and Maintenance & Repair) to
the two boatbuilding units (RIB and Hoovercraft) using the direct allocation method, we must
multiply the allocation bases by the respective cost rates for each department and allocate them
to the boatbuilding units.

Allocated cost
Department RIB Hoovercraft Total
Human resources KR 4,960,000.00 KR 7,440,000.00 KR 12,400,000.00
Accounting KR 5,040,000.00 KR 9,360,000.00 KR 14,400,000.00
Maintenance& repair KR 9,240,000.00 KR 21,560,000.00 KR 30,800,000.00
Total KR 19,240,000.00 KR 38,360,000.00 KR 57,600,000.00
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B)

To allocate the three service departments' costs (HR, Accounting, and Maintenance & Repair) to
the two boatbuilding units (RIB and Hoovercraft) using the step-down allocation method, we
allocate each department’s costs based on the utilization of each allocation base.

Step-down allocation method

Department HR Accounting Maintenance& Repair RIB H.craft Total
Human resources 1.89% 3.77% 37.74% 56.60% 100.00%
Accounting 2.44% 34.15% 63.41% 100.00%
Maintenance& repair 30.00% 70.00% 100.00%

Maintenance& Total allocated to

RIB
Accounting Repair Hoovercraft RIB&H.craft
KR
234,360.00 KR 467,480.00 KR 4,679,760.00 KR 7,018,400.00 KR 12,400,000.00
KR 351,360.00 KR 4,917,600.00 KR 9,131,040.00 KR 14,400,000.00
KR
KR 9,240,000.00 21,560,000.00 KR 30,800,000.00

C)
Step-down considers the sequential order of service department allocations, considering the costs
already allocated from previous departments. This approach results in a more accurate allocation
of costs, as it recognizes the interdependencies between departments.
The step-down method considers the actual utilization of each allocation base in each
department. By allocating costs based on specific resource usage, it provides a more realistic
reflection of the costs incurred by each boatbuilding unit.

6) Hanseatic Crude Oil Refinery

A)
We need to allocate the joint costs based on the relative weight of each product in each batch to
calculate the joint cost per ton of each oil product using the relative weight method.
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Joint cost per ton of each oil product using the relative weight method
Petroleum
Naphtha Heavy fuel oil Gasoline Total
Weight in tons per batch 296 148 1,036 1,480
Percentage of weight 20% 10% 70% 100%
€ € €
Joint cost of each oil product € 53,800.00 26,900.00 188,300.00 269,000.00
€ € €
Joint cost per ton of each oil product € 181.76 181.76 181.76 545.27

B)
We must allocate the joint costs based on each product's net realizable value (selling price minus
additional costs for transport and selling) to calculate each oil product’s joint cost per ton using
the net realizable value method.

Joint cost per ton of each oil product using the Net Realizable Value method before taxes
Petroleum
Naphtha Heavy fuel oil Gasoline Total
€ € €
Selling price per ton
1,045.00 720.00 970.00
Additional costs for transport&selling per € € €
ton 395.00 265.00 485.00
€ € €
NRV per ton
650.00 455.00 485.00
€ € € €
NRV per batch
192,400.00 67,340.00 502,460.00 762,200.00
Percentage of NRV 25.24% 8.83% 65.92% 100%
€ € € €
Joint cost of each oil product
67,902.9126 23,766.0194 177,331.0680 269,000.00
€ € € €
Joint cost per ton of each oil product
229.4017 160.5812 171.1690 561.15

C)
HCOR should use the net realizable value method to allocate the joint cost of 296,000 € if taxes
are not considered. This method provides a more accurate reflection of the economic value of
each product. It considers the selling price and the additional costs for transport and selling,
which are directly related to the market value of the products. By allocating costs based on net
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realizable value, HCOR can make informed decisions regarding the profitability and pricing of
each product.

D)
If taxes are considered, HCOR should still use the net realizable value method to allocate the
joint cost of 296,000 €. While taxes affect the overall profitability of the products, the net
realizable value method still provides a more accurate representation of the economic value of
each product. HCOR can allocate costs based on the expected revenue generated from each
product by considering the selling price and the additional costs for transport and selling. This
approach allows for better cost management and decision-making, considering the tax
implications of overall profitability.