ACC202 MANAGEMENT ACCOUNTING GROUP ASSIGNMENT Worth 20% Due Week 10 This is a group assignment and must be done in a group. Individual assignments will not be accepted. The Aussie Medical Company manufactures medical instruments .It supplies penlights,thermometers,blood pressure monitors,stethoscopes and other small medical instruments to hospitals and clinics . Currently the company sells thermometers and a variety of other products to hospitals using a network of casual sales agents located in various centres throughout Australia . The sales agents are currently paid an 18% commission on sales and the commission rate was used when you prepared the budgeted Income Statement for the upcoming year Aussie Medical Company Budgeted Income Statement Sales $30,000,000 Cost of goods sold Variable 17,400,000 Fixed 2,800,000 20,200,000 Gross Profit 9,800,000 Selling and administrative expenses Commissions 5,400,000 Fixed advertising expense 800,000 Fixed administrative expense 3,200,000 9,400,000 Operating Income 400,000 Since the above statement the Aussie Medical Company management has learned that the independent sales agents require an increase in the commission rate to 20% of sales for the upcoming year . Due to the increasing cost from commissions the management of the Aussie Medical Company is considering changing the way it sells its products from using external sales agents to using its own full time employees. The proposal to change to using full time employees will mean that full times sales salaries will total $700,000 per year.These staff will also be paid commissions of 10% of sales . There will also be a sales manager and other full time support staff and their total salaries will be $200,000 per year. Travel expenses are expected to total $400,000 per year . Fixed advertising expenses will increase by $500,000 per year . Also the Aussie Medical Company management has asked you to examine the situation regarding their blood pressure monitors .They currently sell the machine BM110 but have developed a new blood pressure monitor BM210 and are asking for advice on when the new machine should be introduced . The introduction of the new machine BM210 will lead to the older BM110 being virtually unsaleable as the BM210 is a far superior machine and so the management want advice about when the new machine BM210 should be released to the market.Based on the current production schedule the new machine BM210 can be sold to customers from September 1 st ,2016 . Currently the company has a stockpile of 150 of the old blood pressure machine BM110 which they would expect to sell in three months and they could then sell the new machine BM210 after these three months ,from December 1 st 2016 .The development cost and marketing and administrative costs are fixed costs which are allocated to the products on a unit basis. Comparative income statements for the old and new blood pressure monitors show the following: BM110 BM210 Selling price 160 195 Variable cost per unit 25 30 Development cost per unit 70 100 Marketing and administrative cost per unit 35 40 Total cost per unit 130 170 Operating Income per unit 30 25 The company has also had a request for a one off special order from government hospitals for 5,000 of their penlights . The offer states that they are prepared to pay all manufacturing costs plus a fixed fee of $1500 .The company has asked that the one off special order be considered and evaluated. If the one off special order is accepted it would mean that sales to other customers would need to be reduced by the amount of the special order because currently the company is producing and selling at its maximum capacity of 20,000 units. Currently the company sells its penlights for $6 each.Details of the unit costs are as follows Manufacturing Direct materials $1.00 Direct labour 1.20 Variable overhead 0.80 Fixed overhead 0.50 Marketing costuld bie Variable 1.50 Fixed 0.90 Also the company is considering what is the minimum price it would require if it was to outsource the manufacturing of its penlights. If it was to outsource the production of its penlights it would reduce its variable marketing costs by 20% but its fixed marketing costs would continue.The fixed overhead would at 50% of its current levels. Required: a. Prepare Budgeted Income Statements for the two alternatives –using casual sales agents assuming they will be paid 20% commission as against having full time employees and assuming that the sales value remains unchanged from the Budgeted figures. b.Recommend which of the two alternatives should be chosen assuming that the revenue is the same as budgeted. c.Determine when the new blood pressure monitor BM201 should be introduced based on financial considerations. d.What factors other than the financial factors should the company consider when deciding when to introduce the blood pressure machine ? e.Should the company accept the one off special order.Show workings and conclusion . f. What is the maximum price an outsourcer should charge the company for the penlights ?Show workings.