can you provide solutions for Integrated Case Assignment 2 - - Dynamadics-Winter 2022

of 11 Automatic Zoom Actual Size Page Fit Page Width 50% 75% 100% 125% 150% 200% 300% 400% Acct 225 Integrative Case #2 Covering content from LO 6 - 9 Carefully review the case facts and the requirements. There are six requirements to be completed, be sure to work through the entire document so that you do not miss any requirements. You must show your work for all calculations to receive marks. Your response will be submitted to Integrative Case #2 dropbox in Brightspace by the deadline date established in the dropbox and posted on the Calendar. Prepare your response using Microsoft Excel. Leverage templates provided (either with this case or as used in each Learning Outcomes. Be sure your calculations/analysis is presented in a clear and easy to follow format. Be sure to present your formulas unless otherwise directed by your instructor.Acct225 Integrative Case #2 Page 2 of 11 You have worked for Dynamadics Inc. now for over a year and you have proven your value to the company as a Business Analyst. Throughout the year, you were able to leverage your understanding of management accounting and management practices to support decision making and organizational success. You have been promoted to a Senior Business Advisor working directly with managers of the various regions and operational divisions to analyze operations and support the managers in achieving the organizations objectives and goals. Company background information Dynamadics Inc. is a large, locally owned company operating in several regions within western Canada. Each region manufactures and sells apparel and accessories for both business and casual wear. The original product lines include shoes, boots, sandals, purses, backpacks and computer bags. Some regions have received approval from company owners to introduce new product lines for potential expansion in other regions. The company has an extensive distribution channel allowing for sales throughout the world. Operational information - Part 1 The Vancouver region of Dynamadics has operations in the city of Vancouver and the city of Victoria. This region has had great success marketing and selling its products, perhaps due to its accessibility to international customers. Sales volumes and revenues have been high, however the owners are concerned with the low level of operating income in relation to these sales levels. You have been asked to conduct analysis and work with the Vancouver regional managers to identify opportunities to improve profits. You have received the following operating results for 2020. Dynamadics Inc. Vancouver Region Income Statement For the Year Ended December 31, 2020 Sales $ 1,160,000 Cost of goods sold 670,000 Gross Margin 490,000 Selling and administrative expenses 313,000 Operating income $ 177,000 (note: there were no inventories at the beginning and end of the year).Acct225 Integrative Case #2 Page 3 of 11 This region sells all of the product lines, however the owners have asked for an analysis of two specific product lines: Backpacks and Computer Bags. The managers of the Vancouver and Victoria operations provided the following information respecting sales and costs of these products. Dynamadics Vancouver Region Backpacks Computer Bags Total Sales by City as % of national sales Vancouver 37% 25% 62% Victoria 30% 8% 38% Total national sales 67% 33% 100% Cost as % of product revenue Variable production costs 47% 47% Variable selling costs 13% 13% Fixed costs by product Traceable fixed cost $74,000 $74,000 $148,000 Common fixed cost Remainder of total costs The managers of these two operations identified Computer Bags as an area of concern for them specifically based on their experiences. They provided you with the following for the Computer Bag product line. Dynamadics Vancouver Region Computer-Bag Product Line Vancouver Victoria Total Sales Revenue $290,000 $92,800 $382,800 Costs as percentage of product sales Variable production costs 52% 31.38% Variable selling costs 12% 16% Traceable fixed cost $30,000 $44,000 $74,000 Requirement #1 (14 marks) 1. Prepare, in good form, an income statement segmented by product line for the regional operations, showing the corresponding company totals. (7 mark) 2. In the above income statement, report the segment margin % for each product and in total. (1 mark) 3. Prepare in good form, a segmented performance report for the computer-bag by city. (5 mark) 4. In the above income statement, report the segment margin % for each city and in total. (1 mark) For both requirements: Round your percentage answers to 2 decimal placed (i.e., 0.1234 should be recorded as 12.34%) Round your answers to nearest dollar amount. Check figure: Common fixed cost for requirement #1 is $139,000. Be sure to show your work to support this check figure in your response.Acct225 Integrative Case #2 Page 4 of 11 Operational information Part 2 The Penticton Region was so happy with the expertise that you provided to them last year that they have contacted you to assist them with their budgeting for the upcoming fiscal year. Below is the information that they have provided respecting their sales forecast for the upcoming fiscal year: 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Budgeted sales (units) 7,900 7,000 6,000 7,000 Budgeted sales revenue $474,000 $420,000 $360,000 $420,000 The region has $19,000 cash on hand at the beginning of the 1st quarter. A minimum cash balance of $10,000 is required. The region has an open line of credit to support operational needs. All borrowing is done at the beginning of a month, and all repayments are made at the end of a month, borrowings must be in multiples of $1,000. The annual interest rate is 12%. Interest is paid only at the time of repayment of principal. Accounts receivable at the beginning of the 1st quarter is $32,000 all of which is from sales the previous month. The entire amount will be received in the 1st quarter. Typically, sales are 40% for cash and 60% on credit. Seventy percent (70%) of credit sales are collecting in the quarter that the sale occurs, 30% is collected in the following quarter. The beginning finished goods inventory for the first quarter is expected to be 1,580 units. Management desires an ending finished goods inventory in each quarter equal to 20% of the next quarter's budgeted sales. The desired ending finished goods inventory for the fourth quarter is 1,740 units. The beginning raw materials inventory for the first quarter is budgeted to be 3,520 kilograms. Each unit requires two kilograms of raw material that costs $8 per kilogram. Management desires to end each quarter with an inventory of raw materials equaling 20% of the following quarter's production needs. The desired ending inventory for the fourth quarter is 3,180 kilograms. Management plans to pay for 65% of raw material purchases in the quarter acquired and 35% in the following quarter. The beginning accounts payable related to raw material purchases of $15,220 will be paid in the first quarter. Each unit requires 1.2 direct labour-hours. The hourly rate budgeted is $22 per hour. Variable manufacturing overhead rate is $1.40 per direct labour-hour. Fixed manufacturing overhead is $170,000 per quarter which includes depreciation of $54,000 per quarter. Dynamadics expects to purchase and pay for new equipment in the 1st quarter at a price of $25,000. Management has also identified and plans to sell equipment that no longer supports operations in the 2nd quarter for a price of $50,000. There are no depreciation considerations for this equipment. Monthly operating expenses incurred include: o Salaries $12,000 o Due to timing of payroll for the first quarter, 2/3 of the 1st quarter salary costs will be paid in the first quarter, the remaining 1/3 will paid the next quarter. There is no payable for salaries outstanding at the beginning of the first quarter and there will not be any salary payables at the end of the 2nd quarter. o Rent $5,000 o Amortization of pre-paid insurance $1,200 o Depreciation office equipment $1,500Acct225 Integrative Case #2 Page 5 of 11 Requirement #2 (24 marks) Prepare the following budgets for the upcoming fiscal year. - production budget - direct material budget - schedule of cash disbursements for direct materials - labour budget - manufacturing overhead budget - cash budget for the 1st and 2nd quarter (round results to the nearest dollar). A template has been created in Excel for your use if desired. However some budget information is missing (coloured cells) be sure to input the missing information in the template. If you feel there is not enough or too many rows for your entries, adjust the template as necessary.Acct225 Integrative Case #2 Page 6 of 11 Operational information Part 3 - Variance At the beginning of the year, the Calgary Region expanded its product line to include a business suitcase on wheels with a laptop compartment. This product line may be expanded into other regions if the profitability supports such expansion. Your analysis will assist in decision making not just for the existing Calgary region operations but also for potential expansion into other regions. Based on research conducted, regional managers established the following standards for each suitcase. Standard Quantity or Hours Standard Price of Rate Standard Cost Direct materials 1.20 kilograms $5.00 per kilogram $6.00 Direct labour .80 hours $4.00 per hour 3.20 Variable manufacturing overhead 0.30 machine-hours $3.00 per machine hour .90 Total standard cost $10.10 Management made the commitment to prepare a flexible budget and conduct variance analysis to support decision making for future production and product line decisions. The December income statement presented represent the flexible budget at 14,800 suitcases. Additional information respecting this product line: Normal volume is 14,950 suitcases per year; fixed costs are allocated using machine-hours. Flexible Budget Actual Sales (14,800 suitcases) $444,000 $444,000 Less: Variable expenses: Variable cost of goods sold* 149,480 156,270 Variable selling expenses 19,700 19,700 Total variable expenses 169,180 175,970 Contribution Margin 274,820 268,030 Less: Fixed expenses Manufacturing overhead 128,000 128,000 Selling and administration 82,880 82,880 Total fixed expenses 210,880 210,880 Net income $63,940 $57,150 *Contains direct materials, direct labour, and variable manufacturing overhead. The managers have provided you the following additional information respecting operations and costs for the year: 1. 30,100 kilograms of materials were purchased at a cost of $3.70 per kilogram. 2. 24,200 kilograms of materials were used in production (finished goods and work-in-process inventories are insignificant and do not need to be examined). 3. 11,800 direct labour-hours were worked at a cost of $5 per hour. 4. Variable manufacturing overhead cost totaling $15,400 for the month was incurred. A total of 4,400 machine-hours was recorded. 5. All variances are closed to cost-of-goods sold at the end of the fiscal period.Acct225 Integrative Case #2 Page 7 of 11 Requirement #3 (15 marks) 1. Compute the following variances (be sure to clearly label the name of each variance presented): a. Direct materials variances b. Direct labour variances c. Variable overhead variances d. Fixed overhead variances. 2. Provide an explanation to managers of potential causes of the variance results (both positive and negative variances) for two of the variances from a, b, c or d above (including each specific variance for each). Include in your explanation any variances that have relationships with each other. (2 marks)Acct225 Integrative Case #2 Page 8 of 11 Operational information Part 4 - Add or drop a product The management team of the Calgary operations expressed concerns about a different segment of the business - the boots product line - not just for their own region, but for all of the operations in Alberta and Saskatchewan. Profits have been declining due to competition for designer boots. New innovations in processing and machinery along with price increases for the high-quality materials that the company depends on are potential problems that the managers feel they have limited control over. As a result, they have asked you to conduct analysis to determine if the boot line should be retained or eliminated. The managers of the Calgary team worked with managers from the other Alberta and Saskatchewan regions to compile and consolidate financial information for the boots line through-out these regions. Dynamadics Inc. Alberta and Saskatchewan Operations Income Statement - Boots product line For the year ended December 31, 2020 Sales $ 3,200,000 Less: Variable expenses: 1,504,000 Less: Fixed expenses: Wages/salaries expenses $1,152,000 Insurance on inventory 64,000 Advertising expense 704,000 $1,920,000 Net operating income (loss) $(224,000) If these regions determine that the boots line should be dropped, only one employee will be retained to support continued operations in other product lines. The employee currently earns an annual salary of $96,000. Requirement #4 (4 marks) Should the boot line be eliminated? Support your response with the required analysis.Acct225 Integrative Case #2 Page 9 of 11 Operational information Part 5 - Make or Buy Analysis Following your analysis of the Boots product line for the Alberta and Saskatchewan regions, the owners of the company began to consider if there were additional opportunities respecting the Boot product line. The owners considered that the problem with the Boot line was mainly respecting the innovative production and superior manufacturing equipment used by competitors. They were confident with the continued sales given their strong distribution channel. As such, the owners asked you to analyze the viability of the following options with respect to the most popular Boot produced and sold by the company. Option 1: Continue the production of the specific Boot in Vancouver with upgrades to the equipment to align with the equipment used by the company's competitors. Cost of the new equipment would be $567,000 with a five year useful life and no salvage value. Dynamadics uses straight-line depreciation for this type of equipment. Option 2: Purchase Boots from an outside supplier for $156 per pair of boots under a five year contract and leverage the existing distribution functions to continue sales to domestic and international customers. Note: for simplicity, all information is presented on the basis that a pair of boots is considered a unit. Following is information provided to support your analysis for the production of 42,000 units per year. Direct materials $40.70 Direct labour 32.00 Variable overhead 23.00 Fixed overhead (see note 1 below for breakdown) 70.30 Total cost per unit. $166.00 Note 1: Fixed overhead (FOH) is comprised of general overhead of $25.60, Depreciation $23.20 and supervision $21.50 per unit. The per unit FOH is based on a production level of 42,000 units per year. The new equipment would be more efficient than the current equipment, resulting in a reduction of direct labour and variable overhead costs by 30%. The old equipment has no resale value. With this change, supervision costs of $903,000 would not be impacted. The new equipment's capacity is 903,000 units per year. The company has no other use for the space being used to produce this line of boots. The company's total general company overhead would be unaffected by this decision. Requirement #5 (7 marks) 1. Calculate the total costs and costs per unit under the two alternatives. Assume that 42,000 units are expected to be produced for sale each year. Tip: depreciation per unit will need to be calculated considering the life of the asset and the number of units being produced. 2. Based on your analysis, provide a recommendation to the owners.Acct225 Integrative Case #2 Page 10 of 11 Operational information Part 6 - Utilizing a constrained resource Due to the world-wide pandemic (COVID19), Dynamadics has been struggling to secure a reliable source for the high-quality leather required to produce its designer women's shoes. Additionally, in some regional operations, employees have been unable to work due to illness or quarantine protocols. Thankfully, no employees have become critically ill as a result of COVID19. The selling price, variable costs and contribution margin for each of three specific types of shoes and additional operational information is presented below: Product Runway Princess Comfort Selling Price $152.00 $215.00 $210.00 Less: Variable costs Direct materials 28.00 111.00 83.00 Direct labour 16.20 16.20 16.20 Other variable overhead 76.20 37.00 70.50 Total variable costs 120.40 164.20 169.70 Contribution margin $31.60 $50.80 $40.30 The high quality leather that is in short supply is used to produce all three types of shoes. Dynamadics has only 12,000 kilograms of the leather on hand and is unable to secure any additional leather for a number of weeks. Direct labour costs are $26.00 per hour. Leather costs $4 per kilogram The owners have asked managers to determine which type of shoes to focus on to meet existing customer demands given the current operational constraints. To provide a response, to the owners, the managers have asked you to provide analysis as outlined below. Assume that the leather and direct labour constraints are independent of each other and analyze each constrained resource separately. Requirement #6 (10 marks) Considering the leather supply problem: 1. What is the contribution margin per kilogram of leather for each type of shoe? 2. Which shoe type should Dynamadics produce? Provide an explanation to the managers to support their understanding of your analysis and your recommendation. Considering the direct labour supply problem: 3. What is the contribution margin per direct labour hour for each type of shoe? 4. Which shoe type should Dynamadics produce? Provide an explanation to the managers to support their understanding of your analysis and your recommendation. Note: use 2 decimal places in presenting your results.