The Company < < Green Stream Inc. - located in Saint Tropez-France-sells golf equipments: clubs,...

  
 
 
 

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The Company < < Green Stream » Inc. - located in Saint Tropez-France-sells golf equipments: clubs, bags. shoes, accessories... Sales are made on the national market and in Europe. Last year, its Managing Director- Mr. Wood -decided to launch a new range of products: golf trolleys. A trolley can help a golf player to carry his heavy bag (10 to 12 kg.) all along the 6km golf course. The company assembles and sells 2 models of trolleys: The "Classic" model: in high strength aluminum - light weight. This model is foldable with removable wheels for an easier storage and transportation. The "Electric model": with an electric engine and with arrangements providing a higher comfort and a very modern and nice design. According to a recent market survey, the classic trolley market segment is threatened by the competition of specialist chains stores. The market segment is likely to be stagnating. On the contrary, the electric trolley market segment is supposed to increase by 20% per year. Hence, Mr. Wood wants to increase his electric trolleys production. He plans to re-allocate a part of the today's assembling area of "classic trolleys" for making more "electric trolleys" and to launch a big advertising campaign. You are the new controller of "Green Stream "Company, and Mr. Wood relies on your analysis prior to make his final decision. He asked you to carry out two studies. • Questions: 1-First Analysis: Current product costing Basing your analysis on the current cost structure of the Trolley Department of Green Stream Company (exhibit 1): 1-1. Please calculate the manufacturing cost, the full product costing and the margin of each trolley model per unit. Exhibit 2: New Indirect costs allocation COST CENTER Activity Supplying = € 11 716,60 Commercial Negotiation Order Management Components management Assembling = € 62 748 Manual Assembly Automatic Assembly Quality control Distribution = € 15 299,6 Sales Administration Delivery Mr Wood proposed the following cost drivers list: Activity Cost € 5 850 € 2929,15 € 2 937,45 € 12 549,6 € 31 374 € 18 824,4 €9179,3 € 6120,3 TOTAL nbr of Nbr. of cost drivers for CLASSIC model cost drivers 2 6 € 23 433,20 To be calculated 10 Nbr. of cost drivers for CLASSIC model 0,5 hour per trolley hour 1 control per trolley Nbr. of cost drivers for CLASSIC model To be calculated 5 kg Supplying costs Activity//cost driver Commercial Negotiation// management// nbr of suppliers Order purchasing costs Components management// nbr. of supplies category Assembling costs Activity// cost driver Manual assembly// nbr of direct labour hours Automatic assembly// nbr of machine hours Quality Control// nbr. of trolleys controlled Distribution costs Activity// cost driver TOTAL Sales administration// To be calculated production cost of each product Delivery// Weight of each 6 640 kg delivered product TOTAL 664 hours 1 328 hours 1 328 0,75 trolley Nbr. of cost drivers for ELECTRIC model 4 To be calculated 6 Nbr. of cost drivers ELECTRIC for model 1,5 hour per trolley hour 1 control per trolley with a 3 times longer control Nbr. of cost drivers ELECTRIC for model To be calculated 15 kg per 4,27 trolley per 2-Second Analysis: Activity Based Costing approach Mr. Wood would like you to study a new calculation of his trolleys costing. He thinks that indirect costs could be better allocated and he proposes you new keys for allocating activities cost (see. Exhibit 2) 2-1. Using new activities costs allocation, how much is the product costing of each model (Classic and Electric)? Classic Model Electric Model Direct manufacturing cost per unit Manufacturing cost per unit Full costing Margin 7/11 Margin in % Detailed calculations on indirect costs with ABC method: You must use the template proposed in Exhibit 3 and insert your calculations table. You may also use the excel table provided and send it back 2-2. Why is this costing different from the previous one (calculated in the first part)? 2-3. What would you suggest to Mr. Wood prior to undertake his new strategy of development on the Electric Trolley market? The Company < < Green Stream » Inc. - located in Saint Tropez-France-sells golf equipments: clubs, bags. shoes, accessories... Sales are made on the national market and in Europe. Last year, its Managing Director- Mr. Wood -decided to launch a new range of products: golf trolleys. A trolley can help a golf player to carry his heavy bag (10 to 12 kg.) all along the 6km golf course. The company assembles and sells 2 models of trolleys: The "Classic" model: in high strength aluminum - light weight. This model is foldable with removable wheels for an easier storage and transportation. The "Electric model": with an electric engine and with arrangements providing a higher comfort and a very modern and nice design. According to a recent market survey, the classic trolley market segment is threatened by the competition of specialist chains stores. The market segment is likely to be stagnating. On the contrary, the electric trolley market segment is supposed to increase by 20% per year. Hence, Mr. Wood wants to increase his electric trolleys production. He plans to re-allocate a part of the today's assembling area of "classic trolleys" for making more "electric trolleys" and to launch a big advertising campaign. You are the new controller of "Green Stream "Company, and Mr. Wood relies on your analysis prior to make his final decision. He asked you to carry out two studies. • Questions: 1-First Analysis: Current product costing Basing your analysis on the current cost structure of the Trolley Department of Green Stream Company (exhibit 1): 1-1. Please calculate the manufacturing cost, the full product costing and the margin of each trolley model per unit. Exhibit 2: New Indirect costs allocation COST CENTER Activity Supplying = € 11 716,60 Commercial Negotiation Order Management Components management Assembling = € 62 748 Manual Assembly Automatic Assembly Quality control Distribution = € 15 299,6 Sales Administration Delivery Mr Wood proposed the following cost drivers list: Activity Cost € 5 850 € 2929,15 € 2 937,45 € 12 549,6 € 31 374 € 18 824,4 €9179,3 € 6120,3 TOTAL nbr of Nbr. of cost drivers for CLASSIC model cost drivers 2 6 € 23 433,20 To be calculated 10 Nbr. of cost drivers for CLASSIC model 0,5 hour per trolley hour 1 control per trolley Nbr. of cost drivers for CLASSIC model To be calculated 5 kg Supplying costs Activity//cost driver Commercial Negotiation// management// nbr of suppliers Order purchasing costs Components management// nbr. of supplies category Assembling costs Activity// cost driver Manual assembly// nbr of direct labour hours Automatic assembly// nbr of machine hours Quality Control// nbr. of trolleys controlled Distribution costs Activity// cost driver TOTAL Sales administration// To be calculated production cost of each product Delivery// Weight of each 6 640 kg delivered product TOTAL 664 hours 1 328 hours 1 328 0,75 trolley Nbr. of cost drivers for ELECTRIC model 4 To be calculated 6 Nbr. of cost drivers ELECTRIC for model 1,5 hour per trolley hour 1 control per trolley with a 3 times longer control Nbr. of cost drivers ELECTRIC for model To be calculated 15 kg per 4,27 trolley per 2-Second Analysis: Activity Based Costing approach Mr. Wood would like you to study a new calculation of his trolleys costing. He thinks that indirect costs could be better allocated and he proposes you new keys for allocating activities cost (see. Exhibit 2) 2-1. Using new activities costs allocation, how much is the product costing of each model (Classic and Electric)? Classic Model Electric Model Direct manufacturing cost per unit Manufacturing cost per unit Full costing Margin 7/11 Margin in % Detailed calculations on indirect costs with ABC method: You must use the template proposed in Exhibit 3 and insert your calculations table. You may also use the excel table provided and send it back 2-2. Why is this costing different from the previous one (calculated in the first part)? 2-3. What would you suggest to Mr. Wood prior to undertake his new strategy of development on the Electric Trolley market?

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Answer First Analysis Current Product Costing 11 Calculation of Manufacturing Cost Full Product Costing and Margin of Each Trolley Model per Unit Clas... View the full answer