Apr 1999 IM218: Information Management (Question 4)

(a)	What is the difference between charge-out and charge-back billing schemes?	[2]
	Charge-out Users are just mentioned that the services provided, worth this much. No cash flow. Charge-back Determine cost of resources and users are charged/billed according to the amount of usage of the resources cash flow occurs.
(b)	Briefly describe four desirable features of a billing scheme.	[4]
	Simplicity of charging algorithm The method/algorithm used for charging needs to be easily understandable by the users. They should not contain any complex calculations which the user finds it hard to understand. Productability Users should be able to produce the charges for the services they got from the department. This will help them use the resources efficiently. The wastage can be eliminated. Generate necessary revenue Should generate necessary revenue to department in order to carry out day to day experiences and for acquiring new equipment. Consistency charging algorithm Algorithm/method used for charging needs to be consistent and same for all users. It should not vary monthly.
(c)	The data processing department at XYZ Associates currently costs $25,000 per month to run, of which $9,000 are overheads. The department is considering the purchase of an expensive new printer, which will cost $1,000 per month for maintenance and depreciation plus $1 per page for consumables such as paper and ink.
	(i) Initial estimates indicate that 1,000 pages per month will be printed. What page charge should the department set, in order to cover the costs of the printer and consumables, and also the relevant proportion of running costs of the department itself? Show your working.	[4]
	(ii) In fact, the department underestimated the use of their new printer; it turns out that 1,500 pages per month are printed. What surplus does this generate for the department?	[1]
	(i) Percentage of a non overhead cost for printer = P P = ((1000 * 1 + 1000) / 16000) * 100 = 2/16 * 100 = 12.5% Cost of resources printer after including overhead = 12.5/100 * 25000 = $3,125 Charge per page = 3125/1000 * 1 = $3.10 (ii) The first 1,000 pages cover the cost of the printer and department, so any surplus comes from the remaining 500 pages. Each yields $3 income but costs $1 in consumables, so the surplus is 500 * $2 = $1,000.
(d)	Describe briefly the purchase, rental and operating lease methods for financing an acquisition. State how each method is recorded in the balance sheet, and for what kinds of situation each is the most appropriate method.	[9]
	Purchase Simple way of acquiring a product. Transfer of file immediately. It is inserted as an asset in balance sheet. Use of acquiring technologically stable products. Rental Short term way of acquiring / buying the products. Payments are made monthly. Cost more than actual value of the product. It is entered as an expense in balance sheet. therefore no depreciation, provides flexibility. Used for testing new technology, equipment, or when there is a cyclic need for equipment. Operating lease Users can use the product for a fixed period of time. At the end of the period ownership will not be transferred to user. Recorded as an expense in balance sheet. When user need the product for a specific amount of time.