The Jolly Fish Company Ltd (JFC) is a large, multinational fish company.It started a new division in
Question:
The Jolly Fish Company Ltd (JFC) is a large, multinational fish company.It started a new division in a rural area outside a major city at the start of 2018. This was very good news for the area, as at the time, a number of other unrelated factories had closed in the area and unemployment was above the national average. The plant employs 2,000 people and it has a shift pattern to allow it to operate from 6.00am until 11.30pm Monday to Saturday. It chose this location as it is close to a port. At the time there was some opposition to a large factory setting up in a rural environment, but the promise of so many new jobs meant that the local feeling was mostly positive to the factory.
JFC has a board meeting in one week.
In its new plant the Jolly Fish Company Ltd (JFC) manufactures speciality fish pies, which it sells in bulk to delicatessen shops. The only variable cost is raw material, which consists mainly of three types of raw fish as well as other lower value ingredients. The standard cost of the raw fish used in the manufacture of each 100 kgs of speciality fish pie is as follows:
Raw material KILOGRAM . Standard price per kg
A 25 2
B 60 3
C 40 4
Total input 125
Normal loss 20% of input (25)
Output 100
In preparing its budget for 2018, JFC assumed that there would be a market in its home country for 125,000 kilograms of fish pie, and that JFC's product would have a 40% share of its market. The budget also assumed a selling price of 6 per kilogram for JFC's product.
However, during 2018, JFC and its competitors were adversely affected by diminishing consumer confidence in fish products after a rumour about high levels of mercury making seafood unsafe. The actual total market size was only 110,000 kilograms of fish pie and JFC sold only 33,000 kilograms of its product.
JFC's managing director recently explained how his company attempted to respond to the difficulties it faced in 2018: 'First, we reduced our selling price from 6 to 5.90 per kg; this was a modest price reduction in comparison with those of our smaller competitors. Second, we took advantage of falling market prices for some of the types of fish we use as a raw material for our product. With benefit of hindsight, we should perhaps have done more to increase consumers' confidence in the safety of fish products in general and our own product in particular.'
The actual raw materials used by JFC in 2018 were as follows:
Raw material KILOGRAM . Standard price per kg
A 8800 1.7
B 19200 3
C 12000 4
Total 40,000
JFC never keeps any opening or closing inventory of its raw materials or finished products.
(a)
(i)Raw materials price
(ii)Raw materials mix
(iii)Raw materials yield
(iv)Sales price
(v)Sales volume
(b) Break down the sales volume variance into market share and market size variances.
(c)Critically evaluate the performance of the JFC company in 2018, supporting answer by reference to the variances have calculated.
Fundamentals of Cost Accounting
ISBN: 978-0077398194
3rd Edition
Authors: William Lanen, Shannon Anderson, Michael Maher