Case study MATRIX Part 1. Budget estimations The Morpheus company has an industrial activity. It manufactures in its workshops two types of finished products (red pills and blue pills) from two raw materials (Zion powder and gelatin). The red pill frees those who consume it from the enslaving control of the Matrix, and the blue pill allows it to remain in the fabricated reality of the Matrix. In September of year Y, Director Morpheus hires you as a management controller and asks you to build the budget for year Y + 1. It provides you with the following forecast information. A. Sales As, usually, consumers mostly choose blue pills, the sales goals (in quantities) for years Y, Y+1 and Y+2 are the following: Y Y+1 Y+2 Red pills 125 150 160 Blue pills 600 700 720 Unit sales prices, identical to those of year Y, are estimated at: Y+1 Red pills E 350 Blue pills E 210 Based on previous years, it can be assumed that at the end of year Y + 1, 10% of sales will not be collected given the payment period granted to customers. It should also be noted that in order to be able to deliver its customers quickly, the company always keeps a stock of finished products corresponding to 10% of the expected sales of the following year, for both red and blue pills of the period considered (here the year). The inventory valuation method used is the FIFO method. B. Production a. Direct production costs The production department estimated that for Y + 1 the quantities of raw materials necessary to produce pills would be: 2Y+1 Red pills Blue pills Zion powder 20 gram 0 gram Gelatin 30 gram 20 gram Since the blue pill has no effect, no Zion powder is required to make it. Forecasts for the unit purchase cost of raw materials are as follows: Y+1 Zion powder ( 3,000 per kg Gelatin E 1,500 per kg For the Y + 1 budget, concerning the Zion Powder bought from the supplier Oracle, it is estimated that 3 months (on average) of purchase, that is 25% of the amount of raw material purchases, will not yet be paid to the suppliers at the end of December, due to the payment terms granted by this supplier. For Gelatin, however, the supplier The Merovingian does not grant us any payment term. In addition, there are no stocks of raw materials (neither for Zion powder nor for gelatin), the Oracle and the Merovingian are on site and immediately deliver the necessary raw materials to us. Production labour is considered a direct variable cost of production. Indeed, the Morpheus company uses temporary workers (the inhabitants of Zion) to adjust the need for labour to fluctuations in production. According to the operating schedule, reviewed by the production manager, Neo, the manufacturing duration for each of the two products are as follows: Y+1 Red pills Blue pills Direct labour 6 hours 1.5 hours According to the director, the average hourly cost of production labour should be in year Y + 1 of E 17 (including social charges). Salaries are paid within the month; therefore, there are no payment delays on salaries. b. Manufacturing overhead costs The cost of machines used in production is considered an overhead (indirect) charge as the machines are used to produce the two finished products. In addition, this cost is considered fixed and corresponds to the depreciation expenses of the machines. The machines started to be operated on January 1 of year Y and their value is reported in the balance sheet. The depreciation of these machines is done on a straight-line basis over 8 years, with no residual value at the end of the depreciation period. The annual salary cost of the production manager, Mr. Neo, is also considered as an overhead fixed production charge and is estimated at 342,000 for the year Y + 1. These overhead fixed charges are used 80% for the production of blue pills and 20% for the production of red pills. Disbursable charges are paid within the month. There are also variable overhead production costs. They are generated by the use of machines. For Y + 1, the estimated time related to the use of machines per finished product are as follows: Y+1 Red pills Blue pills Machine time / finished 30 minutes 15 minutes product units produced These overhead variable production costs correspond to various maintenance products, lubrication and the energy required to operate the machines. In total, they are estimated at (10 per machine hour for year Y + 1. They are all paid during the month in which they are consumed. C. Non-manufacturing overhead costs A sales representative, Trinity, was hired by the company. His annual salary for Y + 1 is estimated at $ 70,000. In addition, two new ships, the Logos and the Hammer, will be purchased to defend Sion against the Sentinels for a total estimated amount of 200,000 euros. The purchase will be made and paid for on year Y+1, July 1. The machines will be amortized on a straight-line basis over 10 years. Your predecessor had already prepared an estimate of the balance sheet at year Y, December 31 (in Euros). There were also some elements on his way of building it. ASSETS Amounts LIABILITIES Amounts Cash at bank and in hand 5 000,00 Suppliers payable 1 875,00 Customer receivables 16 975,00 Stocks : Finished products 13 915,86 Total Current Liabilities 1 875,00 Stocks : Raw materials 0,00 Financial Debts 0,00 Total Current Assets 35 890,86 Stockholders' equity 150 000,00 Machines 200 000,00 Retained earnings 35 000,00 Accumulated depreciation 25 000,00 Result 24 015,86 Total Fixed Asset 175 000,00 Total LT Liabilities 209 015,86 TOTAL 210 890,86 TOTAL 210 890,86Part 2. Variance analyses In fact, fewer and fewer people want to see reality in the face, and free themselves from the grip of the Matrix. A year later, the Matrix company therefore recorded the following achievements for N + 1: Red pills Blue pills Actual quantity produced (units)* 100 720 * Please note that, to calculate the cost variances, it will therefore be necessary to consider the quantities (of finished products) to be produced from the production budget calculated in the Budget section , as well as the other budgetary data pertaining to raw materials and direct labour. In addition, the costs of raw materials and direct labour were in reality: Actual unit cost of Zion Powder 3,000 The cost is in line with what was (per kg) expected Actual unit cost of gelatin (per kg) | 1,700 A Sentinel attack during the year made the extraction of gelatin more difficult Actual cost per hour of direct 19 A social movement of the inhabitants of production labour Zion pushed Morpheus to agreed with a salary increase In addition, the quantities actually consumed of raw material and direct labor in the production of the pills were: Actual total quantities consumed | Red pills Blue pills Total Zion powder raw material 3,1 (kg) 0 Total gelatin raw material (kg) 4.2 13.5 Total direct production labour 800 (hours) 1000 In addition, the sales data actually realized for Y + 1 are as follows: Actual unit Actual quantities sold (units) sales price Red pills E 350 100 Blue pills E 230 720 These are to be compared to the sales budgetary data, as given in the first part of this test. Finally, the market size that had been anticipated was 1,000 units. In reality, the market size was for Y + 1 of 1,050 units.Questions Each question is scored on 2 points. All questions relate to year Y + 1. Each time, we recommend that you detail your calculations: a correct result without calculation details will be considered false. On the other hand, a false result due to a calculation error but with a correct reasoning can bring you partial points. Enter your answers directly following the questions below. You can choose to insert tables or rather detail the calculations without using a table, the main thing being to make the calculations and the reasoning clear. As a reminder, in the variance part, the interpretations are as important and count as much for the marking as the calculations carried out. Part 1: Estimating budgets (10 points) Q1. What amount of sales will be collected? Q2. What is the quantity to produce for the red pills and for the blue pills? Q3. What is the total cost of raw materials consumed for red pills and blue pills? Q4. What is the cost of finished product stocks for red pills? Q5. What is the total amount of disbursement of non-manufacturing costs? Part 2: Variance Analysis (10 points) Q6. For red pills, calculate the level 2 of cost variances (variances on flexible budget and on sales volume). Interpret the results obtained. Q7. For red pills, calculate the level 3 of cost variances (price and efficiency variance). Interpret the results obtained. Q8. For blue pills, calculate the level 3 cost variances (price and efficiency variances). Interpret the results obtained. Q9. For the blue and red pills, calculate the level 2 revenue variances (price and quantity variances). Interpret the results obtained. Q10. Calculate the level 4 of revenue variance (variance on market share and market size). Interpret the results obtained. 6