Question 1 Anytime Best Coffee (ABC) manufactures and sells packets of coffee capsules for use in coffee
Question:
Question 1
Anytime Best Coffee (ABC) manufactures and sells packets of coffee capsules for use in coffee machines through their website. Management is concerned about a projected drop in the number of units sold and wishes to determine the impact of ABC's cost structure on the profits going forward. The following is the previous month's (May 2021) operating income statement.
Revenue (17 500 packets sold) $175,000
Cost of Goods sold
-Variable manufacturing costs $90,000
-Fixed manufacturing costs 30,000
Operating costs
-Variable marketing costs 15,000
-Fixed marketing and administration cost 25,000
Required
a)From the case above, calculate the Contribution margin, Breakeven point, and Margin of safety in both units and dollars and explain how these techniques complement systems for costing, revenue management, cost management, strategy, and management control.
b)If management projects the number of packets sold in June to be 12 500, calculate the projected profit and comment on the results against the techniques applied in a) above.
c)Calculate the number of units to be sold to reach an after-tax profit in June of $1,500. Assume a tax rate of 30%. How do you propose management reach the targeted sales bearing in mind the projected results in b) above? What will the impact be on the margin of safety?
Question 2
Best Dressed (Pty) Ltd (BD) uses a 'normal' costing system to allocate production overhead to job orders. The budgeted rate is on a machine hour basis for the machining department and on a budgeted direct labour hour basis for the finishing department. The entity estimated the following for the current year:
Machining Finishing
Production overhead cost $11,750000 $9,500,000
Machine hours 225000 31000
Direct labour hours 32000 165000
Direct labour cost $1,600,000 $5,775,000
During May 2021, the cost record for job order no. 777 shows the following:
Machining Finishing
Direct materials requisitioned $18,000 $2,500
Direct labour cost $1,500 $2,000
Direct labour hour 25 50
Machine hour 135 15
Required
a)Explain in your own words the 'normal' system of allocating direct costs and allocating production overhead. Apply the 'normal' costing system to calculate the estimated overhead rate that should be used in the:
i)machining department, and
ii)finishing department.
b)Apply the estimated overhead rate in a) above and determine the production overhead costs that should be allocated to job 777.
c)If job 777 manufactured 450 units of product, what is the unit cost per product of job 777?
d)Provide reasons why BD uses two different overhead application bases. Also discuss why they might use labour costs in the finishing department to allocate overhead costs. Show calculations to justify your answer.
Question 3
Whateva Ltd uses a flexible budget and standard costs to aid planning and control of its machining manufacturing operations. The costing system for manufacturing has two direct cost categories (direct materials and direct manufacturing labour, both variable). At the 24 000 budgeted direct manufacturing labour-hour level for August, budgeted direct manufacturing labour is $480,000, budgeted variable manufacturing overhead is $288,000 and budgeted fixed manufacturing overhead is $340,000.
The following are actual results for August:
Direct materials purchase160 000kg
Direct materials usage 96 000kg
Direct manufacturing labour25 500hrs
The standard cost per kilogram of direct materials is $11 .50. The standard allowance is 3 kilograms of direct materials for each unit of product. During August 30 000 units of product were produced. There was no beginning inventory of direct materials. There was no beginning or ending work in process. In August, the direct materials price variance was $1.10 per kilogram.
In July, labour unrest took place as a result of cheaper, inferior direct materials purchased by the company. The inferior products were considered dangerous by the workers resulting in a major slowdown in the pace of production. This caused an unfavourable direct manufacturing labour efficiency variance of $45,000. There was no direct manufacturing labour price variance. Labour unrest persisted into August. Some workers resigned due to the dangerous work environment. Their replacements were hired at higher wage rates, which had to be extended to all workers. The actual average wage rate in August exceeded the standard average wage rate by $0.50 per hour.
Larry Laidback, the junior cost accountant reported the direct material and direct manufacturing labour variances to the production manager Andy Anxious. Andy is concerned that the variances reported to him may reflect badly on him due to the large volume of poor-quality material purchased. He is also concerned that the report will affect staff bonuses (including his and Larry's) and asks Larry to calculate the labour variances by changing the actual hours to the 'budgeted' or 'standard' hours.
Required
a) Research the events in the case study above, and apply flexible budget variance techniques to calculate the variances of Whateva Ltd for direct materials and direct manufacturing labour in August using the actual 25 500 labour hours.
b) Interpret the variances, and report to Andy how the purchase of the poor-quality direct materials in the production process impacted the direct material and direct manufacturing labour variances. In reporting to management (Andy), explain what you think will happen in September. Write a maximum of half a page.
c) If Larry agrees to Andy's request, critique his behaviour against the CIMA Code of Ethics for Professional Accountants? Advise Larry what he should do. Write a maximum of half a page.
Question 4
Eye Spy (ES) produces home security cameras that can be connected to personal devices through Wi-Fi and 5G. The company is worried because one of its competitors has recently come under public scrutiny owing to data breaches. ES's only problem with its security camera is the electronic switch which, when faulty, allows for remote access by unauthorised users. The problem can usually be detected and repaired during an internal inspection. The cost of the inspection is $4.50 per device and the repair cost is $2.50. All 500 000 security cameras produced during the previous year were inspected of which 7% were found to have problems with the electronic switch. Another 2.5% of the 500 000 cameras had problems with the electronic switch but were not detected during internal inspection. When ES has sold and shipped defective cameras to customers, customers return them, and ES pays $5.50 for shipping costs and repairs the units at a cost of $2.50 per camera. However, the shipping and repair costs are not the only costs resulting from the defects that remained undetected by the internal inspection. Management estimates that negative publicity and social media commentary will result in a loss of $250 for each defect discovered by customers. Data privacy issues are of increasing concern to governments worldwide.
Required
a)Evaluate and calculate each cost-of-quality category, and the total costs of the system quality assurance for ES.
b)ES is concerned about the high up-front cost of inspecting all 500 000 units. It is considering an alternative internal inspection plan that will cost only $3.50 per camera. During the internal inspection, this alternative technique will detect only 5.5% of the 500 000 cameras that have electronic switch problems. The other 2.5% will be detected after the cameras are sold and shipped. Critique this technique by calculating the total costs of quality of following this process.
c)Which inspection techniques should ES adopt? Assess social responsibility and sustainability factors, evaluate against the context above, and offer a critique of how this may impact of management's decision.
Question 5
Cool Runnings Ltd (CR), is an organiser staging events on behalf of clients across Tasmania. Before the onset of COVID-19, beginning 2020, CR's stated strategic objective is to: 'provide advice and access to resources in the creation, staging, promotion and operation of events.'
It then communicated this objective externally, through a variety of advertising and promotional materials during early 2020.The company defined a client strategy as follows:
1.CR focuses on growing revenue and profits through increased support to its existing clients
2.Customer loyalty: 'We want the customers to visit us throughout the year and come to CR for the complete range of their event organising needs.'
3.To create this loyalty:
Our Brand must satisfy the customer's aspirations and goals, and
Our advice and support must promote customer loyalty.
4.We must do a superb job of defining our customers' needs.
The engagement with clients was considered extremely important.Key attributes were availability of consultants in the offices in Hobart, Launceston, Devonport, and Burnie on short notice. Professional on-site visits are considered essential.High quality, in-office engagement was captured by an explicit vision of the five elements of the 'perfect engagement':
1.Great looking offices with professional impact
2.Clients welcomed by knowledgeable, friendly consultants
3.Clear communication of agendas, minutes of meetings, and action lists
4.Event organisers with good event organising knowledge
5.A sincere thanks and diarising of the next meeting
As a result of the COVID-19 pandemic, CR experienced a massive decline in the number of clients visiting their offices, with some events being cancelled. CR did not qualify for the Job keeper grant and have decided to reduce their number of offices, and to embark on a voluntary employee redundancy program. In the later part of 2020, CR experienced a resurgence in customer interest in organising events. However, the nature of engagement with customers have changed to mostly zoom meetings, with several recurrent events now being staged online.
To be sustainable, the company determined that it would have to reinvent itself in offering services to their clients. The company also identified a clear need to be 'socially responsible' in arranging safe and secure events which are compliant with government directives on public gatherings. CR was reasonably successful in responding to the COVID-19 pandemic, resulting in servicing a few new customers which filled the void left by cancelled events to some extent.
The table below summarises the target and actual performance for 2020.
Objectives Measures Target performance Actual performance
Financial perspective
Increase shareholder value Operating profit changes from productivity improvements $0 $40,000
Operating profit changes from growth in existing customer services $500,000 $-200,000 Customer perspective
Increase growth of existing customer services market share
Market share in providing services to existing customer 90% 95%
Internal-business-process perspective
Improve professional impact of offices Number of stores 75% 100%
Communication of meeting agenda Days' notice 5 days 2 days
Learning and growth perspective
Develop professional office engagement skills
Percentage of employees trained in professional office engagement with clients 90% 30%
Enhance customer service
Percentage of employees trained in event organisation 85% 15% (1st quarter)
Required
a)Explain whether CR was successful in implementing its strategy in 2020. If not, offer possible reasons why not. Write half a page.
b)Evaluate CR's balanced score card and offer a critique of why the company did not reach its target market share in 2020? Explain what other measures you might want to add under the customer perspective and why. Write half a page.
c)Evaluate the learning-and-growth perspective. Do you think employee training and satisfaction are now less important for CR? In your answer consider the impact of COVID-19 and the redundancy program. Explain fully by considering CR's social responsibilities and sustainability strategies in the business context. Write half a page.
Quantitative Analysis for Management
ISBN: 978-0132149112
11th Edition
Authors: Barry render, Ralph m. stair, Michael e. Hanna