Ahmed owns Ahmed Manufacturing LLC based in Muscat. In deciding on several important business-related decisions, he...
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Ahmed owns Ahmed Manufacturing LLC based in Muscat. In deciding on several important business-related decisions, he has to deal with the following independent scenarios/statements: (i) All future costs are relevant in decision making (ii) A sunk cost is a cost that is yet to be incurred but that can be avoided at least in part depending on the action a manager takes. (ii) A cost that will be incurred regardless of Ahmed's action is relevant to his decision. (iv) In a decision to drop a segment, the opportunity cost of the space occupied by the segment would be zero. (v) Common fixed overhead that will continue if the special offer is not accepted is relevant to Ahmed's decision. For each of the scenario/statement (i) to (v) above, STATE your agreement OR disagreement and (10 Marks) provide appropriate EXPLANATION(S) / JUSTIFICATION(S). Ahmed Manufacturing LLC manufactures Product Q. In the previous month of September 2020, the company budgeted to manufacture and sell 3,300 Product Q at a variable cost of OMR74 per unit and total fixed costs of OMR45,000. The budgeted selling price per unit was OMR110. Actual results in that month were 2,600 units manufactured and sold at a selling price per unit of OMR112. The actual total variable costs were OMR229,600 and the actual total fixed costs incurred were OMR50,000. (a) Prepare a budgeted income statement based on the above information by clearly showing (for (10 Marks) each item in the income statement) the: Actual Results: Static Budget amount; (1) (ii) (ii) (iv) (v) (vi) Flexible Budget amount; Static Budget variance; Flexible Budget variance; Sales Volume variance; Ahmed Manufacturing LLC manufactures Product Q. The following data are available. DM [Standard/unit: 10 lb. at OMR4.50/lb.] OMR45 10,000 Budgeted finished units Actual DM used 98,055 lb. 9,000 5.50 OMR154,350 DL [Standard/unit: 0.5 hour at OMR30/hour] Budgeted units actually produced Actual DL hours used Machine Hours (Budgeted) Variable Overhead per MH (Budgeted) Cost of DM purchased (Qty: 100,000 lb.) Machine Hours (MHs) (Actual) Variable Overhead per MH (Actual) Total Actual DL costs Note: DM: Direct Materials and DL: Direct Labor (b) (1) Compute the price and efficiency variances for both items of DM and DL. (ii) Compute the Variable Overhead Spending and Efficiency Variance Unrelated to the question above, compute the Fixed Overhead Spending and Production Volume Variance assuming that the yearly data for the total actual fixed overhead cost is OMR20,000 higher than the budgeted amount of OMR700,000 and budgeted production is 24,000 units lower than the actual production of 504,000. (c) (i) Discuss the possible reasons for an unfavorable direct manufacturing labor efficiency variance. (ii) Explain how Variance analysis could form the basis of continuous operational improvement in Ahmed Manufacturing LLC. Are the Variable Cost Efficiency Variance and Variable Overhead Efficiency Variance the same or different? Explain. OMR15 9,580 4,950 9,800 5.25 456,000 (15 Marks) (3 Marks) (3 Marks) (4 Marks) Ahmed owns Ahmed Manufacturing LLC based in Muscat. In deciding on several important business-related decisions, he has to deal with the following independent scenarios/statements: (i) All future costs are relevant in decision making (ii) A sunk cost is a cost that is yet to be incurred but that can be avoided at least in part depending on the action a manager takes. (ii) A cost that will be incurred regardless of Ahmed's action is relevant to his decision. (iv) In a decision to drop a segment, the opportunity cost of the space occupied by the segment would be zero. (v) Common fixed overhead that will continue if the special offer is not accepted is relevant to Ahmed's decision. For each of the scenario/statement (i) to (v) above, STATE your agreement OR disagreement and (10 Marks) provide appropriate EXPLANATION(S) / JUSTIFICATION(S). Ahmed Manufacturing LLC manufactures Product Q. In the previous month of September 2020, the company budgeted to manufacture and sell 3,300 Product Q at a variable cost of OMR74 per unit and total fixed costs of OMR45,000. The budgeted selling price per unit was OMR110. Actual results in that month were 2,600 units manufactured and sold at a selling price per unit of OMR112. The actual total variable costs were OMR229,600 and the actual total fixed costs incurred were OMR50,000. (a) Prepare a budgeted income statement based on the above information by clearly showing (for (10 Marks) each item in the income statement) the: Actual Results: Static Budget amount; (1) (ii) (ii) (iv) (v) (vi) Flexible Budget amount; Static Budget variance; Flexible Budget variance; Sales Volume variance; Ahmed Manufacturing LLC manufactures Product Q. The following data are available. DM [Standard/unit: 10 lb. at OMR4.50/lb.] OMR45 10,000 Budgeted finished units Actual DM used 98,055 lb. 9,000 5.50 OMR154,350 DL [Standard/unit: 0.5 hour at OMR30/hour] Budgeted units actually produced Actual DL hours used Machine Hours (Budgeted) Variable Overhead per MH (Budgeted) Cost of DM purchased (Qty: 100,000 lb.) Machine Hours (MHs) (Actual) Variable Overhead per MH (Actual) Total Actual DL costs Note: DM: Direct Materials and DL: Direct Labor (b) (1) Compute the price and efficiency variances for both items of DM and DL. (ii) Compute the Variable Overhead Spending and Efficiency Variance Unrelated to the question above, compute the Fixed Overhead Spending and Production Volume Variance assuming that the yearly data for the total actual fixed overhead cost is OMR20,000 higher than the budgeted amount of OMR700,000 and budgeted production is 24,000 units lower than the actual production of 504,000. (c) (i) Discuss the possible reasons for an unfavorable direct manufacturing labor efficiency variance. (ii) Explain how Variance analysis could form the basis of continuous operational improvement in Ahmed Manufacturing LLC. Are the Variable Cost Efficiency Variance and Variable Overhead Efficiency Variance the same or different? Explain. OMR15 9,580 4,950 9,800 5.25 456,000 (15 Marks) (3 Marks) (3 Marks) (4 Marks)
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For each of the scenariostatement i to v above STATE your agreement OR disagreement and 10 Marks provide appropriate EXPLANATIONS JUSTIFICATIONS i Agree All costs that will be incurred regardless of A... View the full answer
Related Book For
Accounting
ISBN: 978-0324662962
23rd Edition
Authors: Jonathan E. Duchac, James M. Reeve, Carl S. Warren
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