Euro Engineering Ltd manufactures three types of ceramic coffee percolator; the Metal, pink and the Zinc...

  

 

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Euro Engineering Ltd manufactures three types of ceramic coffee percolator; the Metal, pink and the Zinc models. The maximum market demand and resource requirements of each of these products are shown below. - The percolators are made from an advanced heat-resistant material that gives the firm a competitive advantage. An email from the purchasing manager has informed you that, because of a problem with the supplier, it should be assumed that the half year's supply of this special material is limited to 80,000kg. Euro Engineering Ltd operates on a just-in-time production (JIT) method so that opening and closing inventory levels are zero. The sales director has already accepted an order for 5,000 Metal percolators that, if not fulfilled, would incur a financial penalty of £12,000. This order is included in the Gold's maximum market demand figure. Continental's directors need to know whether they should go ahead and satisfy the contract and then prioritise production in the normal way or whether it should consider breaching the contract and incurring the penalty. The selling prices, raw material costs, labour costs and other variable overheads rates per unit for 2023 financial year will be the same as those in 2022. Budgeted data for the first year ended 2023 Maximum demand Heat resistant material per unit Actual results for August 2022 Sales (units) Sales revenue (£) Raw materials (£) Direct labour (£) Semi-Variable Overheads Total Costs Profit (Loss) (£) Actual results for August 2021 Sales (units) Sales revenue (£) Raw materials (£) Direct labour (£) Semi-Variable Overheads (£) Total Costs Profit (Loss) (£) Metal 8,000 3 Kg Metal 7,500 190,000 66,000 26,400 67,200 159,600 30,400 Metal 8,000 202,667 65,000 28,000 70,000 163,000 39,667 Pink 8,000 5 Kg Pink 5,000 160,000 76,000 29,000 48,000 153,000 7,000 Pink 6,000 192,000 76,000 23,500 49,000 148,500 43,500 Zinc 9,000 4 Kg Zinc 4,300 450,000 134,000 110,000 90,000 334,000 116,000 Zinc 6,700 701,163 222,000 190,000 130,000 542,000 159,163 Total 16,800 800,000 276,000 165,400 205,200 646,600 153,400 Total 20,700 1,095,829 363,000 241,500 249,000 853,500 242,329 Required: Use management accounting techniques for example High-Low Method where applicable. 3.1 Applying marginal costing techniques, rank the products 3.2 Prepare a budgeted production schedule and a marginal cost income statement (analyzed by product including the total) for the year ending 31 August 2023 assuming that the Metal contract honored) 3.3 Prepare a budgeted production schedule and a marginal cost income statement (analyzed by product including the total) for the year ending 31 August 2023 assuming that the Metal contract IS NOT honored 3.4 Considering calculations above and other qualitative issues, advise Euro Engineering Ltd directors whether to honor or dishonor the Metal Percolator Contract 3.5 Budgeting serves various purposes including planning, control, motivation and communication. You have been requested by Clara Ores the Finance Director to explain to Euro Engineering Ltd directors the importance of budgeting in light of the purposes above Euro Engineering Ltd manufactures three types of ceramic coffee percolator; the Metal, pink and the Zinc models. The maximum market demand and resource requirements of each of these products are shown below. - The percolators are made from an advanced heat-resistant material that gives the firm a competitive advantage. An email from the purchasing manager has informed you that, because of a problem with the supplier, it should be assumed that the half year's supply of this special material is limited to 80,000kg. Euro Engineering Ltd operates on a just-in-time production (JIT) method so that opening and closing inventory levels are zero. The sales director has already accepted an order for 5,000 Metal percolators that, if not fulfilled, would incur a financial penalty of £12,000. This order is included in the Gold's maximum market demand figure. Continental's directors need to know whether they should go ahead and satisfy the contract and then prioritise production in the normal way or whether it should consider breaching the contract and incurring the penalty. The selling prices, raw material costs, labour costs and other variable overheads rates per unit for 2023 financial year will be the same as those in 2022. Budgeted data for the first year ended 2023 Maximum demand Heat resistant material per unit Actual results for August 2022 Sales (units) Sales revenue (£) Raw materials (£) Direct labour (£) Semi-Variable Overheads Total Costs Profit (Loss) (£) Actual results for August 2021 Sales (units) Sales revenue (£) Raw materials (£) Direct labour (£) Semi-Variable Overheads (£) Total Costs Profit (Loss) (£) Metal 8,000 3 Kg Metal 7,500 190,000 66,000 26,400 67,200 159,600 30,400 Metal 8,000 202,667 65,000 28,000 70,000 163,000 39,667 Pink 8,000 5 Kg Pink 5,000 160,000 76,000 29,000 48,000 153,000 7,000 Pink 6,000 192,000 76,000 23,500 49,000 148,500 43,500 Zinc 9,000 4 Kg Zinc 4,300 450,000 134,000 110,000 90,000 334,000 116,000 Zinc 6,700 701,163 222,000 190,000 130,000 542,000 159,163 Total 16,800 800,000 276,000 165,400 205,200 646,600 153,400 Total 20,700 1,095,829 363,000 241,500 249,000 853,500 242,329 Required: Use management accounting techniques for example High-Low Method where applicable. 3.1 Applying marginal costing techniques, rank the products 3.2 Prepare a budgeted production schedule and a marginal cost income statement (analyzed by product including the total) for the year ending 31 August 2023 assuming that the Metal contract honored) 3.3 Prepare a budgeted production schedule and a marginal cost income statement (analyzed by product including the total) for the year ending 31 August 2023 assuming that the Metal contract IS NOT honored 3.4 Considering calculations above and other qualitative issues, advise Euro Engineering Ltd directors whether to honor or dishonor the Metal Percolator Contract 3.5 Budgeting serves various purposes including planning, control, motivation and communication. You have been requested by Clara Ores the Finance Director to explain to Euro Engineering Ltd directors the importance of budgeting in light of the purposes above

Answer rating: 100% (QA)

31 Applying marginal costing techniques rank the products To rank the products using marginal costing we need to calculate the contribution margin per unit for each product The contribution margin rep... View the full answer