As the first Management Accountant employed by Power Tools Ltd you have been asked by the Managing Director to supply him with a Profit and Loss Account by Product Line to assist him in Marketing and Pricing decisions.

The following Profit and Loss Account was produced for the Year Ended September 30^th 2019

000000

Sales1,200

Cost Of Goods Sold

Materials500

Labour300

Production Overheads150

Marketing Costs1001,050

Net Profit 105

Following a statistical analysis of the above numbers you determine that the following are the Variable Elements of the Costs.

Materials90%

Labour80%

Prod Overheads60%

Marketing Costs70%

Given below is the split of Sales and the Variable Elements of the Costs among the 5 Products Manufactured in Power Tools.

Prod A

Prod B

Prod C

Prod D

Prod E

Total

Sales

30%

15%

7%

28%

20%

100%

Materials

40%

20%

10%

20%

10%

100%

Labour

15%

25%

10%

25%

25%

100 %

Prod Exps

30%

10%

10%

30 %

20%

100%

Marketing

10%

30%

20%

30%

10 %

100%

Heavy Industry Ltd is a recently acquired subsidiary of Power Tools Ltd and you have also been asked to look into their Management Accounting practises and Job Costing procedures.

Following analysis you discover that Heavy Industry uses a machine hour rate of overhead recovery in its Machining Department and a Direct Labour Hour Rate of recovery in its Finishing Department. The budgeted overheads in the Machinery Department are 40,000 and 64,000 in the Finishing Department.

The Budgeted level of Activity in both Departments are as follows :

Machining Department

Finishing Department

Budgeted Machine Hours

10,000

11,000

Budgeted Direct Labour Hours

25,000

25,600

You have been asked by the Managing Director of Heavy Industry to cost a very important new contract called Job 12. The Production Manager of Heavy Industry has given you the following information in relation to Job 12.

Job 12 costs 400 in Direct Materials and 600 in Direct Labour . Job 12 requires 20 machine hours and 80 direct labour hours in the Machining Department and 40 Machine Hours and 200labour hours in the Finishing Department.

Requirements :

From the information given for Power Tools Ltd you are required to :

(A)Prepare a Statement showing Contribution by Product Line for the Year and Contribution as a % of Sales for each product and in total.(20 Marks)

(B)Calculate the Following

a.Total Fixed Costs( 4 Marks)

b.The Breakeven Level of Sales assuming sales mix does not change.(10 Marks)

c.The order of Sales Preference for Additional Orders to maximise Contribution as a % of Sales. Comment on your results.(6 Marks)

(C)Prepare a report to the Managing Director laying out the attributes, advantages and disadvantages of using a Marginal Cost System.(10 Marks)

With the information for Heavy Industries you are required to :

(D)Calculate the full Production Cost of Job 12 using the current basis of overhead absorption used by Heavy Industries .(12 Marks)

(E)Calculate the full Production Cost of Job 12 if the absorption rate in the Machining Department is changed to a Direct Labour Rate and to a Machine Hour Rate in the Finishing Department. (16 Marks)

(F)Calculate the selling price for Job 12 if the Managing Director requires a 25 % Gross Margin on Sales using the current absorption method. (10 Marks)

(G)If Heavy Industries are awarded the contract at that Sales Price and at the end of the periodactual overheads in the Machining Departmentare 50,000 and 60,000 in the Finishing Department and materials , labour , machine and labour hours are all in line with budget in both departments what will be the Actual Gross Margin % achieved on Job 12.

(12 Marks)