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Help with (a): Develop a standard costing system for the company.

You just joined the management team of Kenny Corporation business management degree. after earning your Kenny Corporation is a small, family owned company located in Charlotte, N The company president is Dr. Kenny: Mr. Kenny's wife, Jane, handles the administrative functions of the company such as human resources and bookkeeping. Dr. Kenny spent the last 20 years as a medical doctor in the United States Navy. Dr. Smith spends most and providing customer service to his existing customers. NC. of his time meeting with potential customers Kenny Corporation performs urine tests for doctors and hospitals in the area. Over the last 4 years the company has grown as shown below: 2017 2014 $200,000 2016 Revenue Expenses Net Profit $300,000 $800,000 $2,200,000 40,000 . S60.000 | S180,000 $850,0002,400,000 $120,000!650,000) Lus200,000) ! Amount List of expenses $350,000 350,000 $80,000 $120,000 $60,000 $400,000 700,000 210,000 $130,000 Dr. Jones Dr. Peters Salary Sal Office Staff (4 people Urine processing staff (10 people)Salary Rent Salary i abeneat%000 General and Administrative (all other) Processing fees Sales manag Chemicals used to process each sample Processing costs (Each sample needs its own set of chemicals The 4 person office staff is made up of I bookkeeper, 2 people that process all the Other Other Commission/ Salary paperwork for the samples, and a receptionist. **The sales manager makes a commission of 4% on sales to his clients. His clients are indicated in the table below by the SM notation. The rest of his payroll is salary ***all 10 urine processing staff members, all 4 office staff members, and Dr. Jones and Dr. Peters salaries are based on them working 40 hours a week for 52 weeks for a total of 2,080 hours per year. Dr. Kenny has no idea what to charge customers or what his costs are. Information about key customers from last year has been provided to you. Type Dollar volume Negotiated price of of business charged per urine Customer Name Dr. Smith R Hospital J Hospital Dr. Robbins S Hospital XHospital client SM SM SM sample $40.00 $80.00 $90.00 $40.00 $70.00 $650,000$100.00 $20,000 $700,000 $600,000 $30,000 $200,000 SM You have been brought on to help the company become more profitable by instituting some cost control policies and procedures The procedures for processing a urine sample is as follows: Process urine sample by recording customer name, patient name, and required tests. (You estimate that this takes 3 minutes per sample) This function is performed by one of the 10 urine processing staff members) Process sample to allow for scientific test by staff Dr. Peters or Dr. Jones. Note the law requires that every sample has to be reviewed by one of the staff doctors. (you determined that this takes approximately 5 minute per sample Package sample to go to processing center. (You estimate that this takes minutes per sample Process sample paperwork (you estimate that the paperwork for each sample takes 6 minutes to process) (This function is performed by one of the 10 urine processing staff members Receive sample back from processing center.(Time not measurable) Staff doctor reviews sample testing results. Approximately 3 minute per sample) Unless there is a problem. You determined that the average time to resolve a problem additional time to resolve issues. with a sample is 15 minutes. Approximately 5% of the samples require Dispose of sample.(time not measurable) Bill client.(all billing is prepared by the bookkeeper) (a) Design a standard cost system for the company. (b) Determine what the company can do to become profitable. Provide reasoned explanations for all your suggestions. Note the company must be profitable for you to earn points on this seetion) (c) Prepare a projected income statement based on the changes you suggested. (d) Prepare a budget projection based on an estimate that every customer listed in the customer table will increase the number of samples that we process for them by 10%

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