COMMENT on efficiency and responsibility of the Sales Manager for not using scarce resources.
CASE STUDY: 'COLA' is a manufacturer, retailer, and installer of a Split AC for industrial buyers. It started business in 2001 and its market segment has been low to medium level groups. The Company produces three types of ACs - COLA, FANTA and SPRITE grade. Until recently, its business model has been based on selling high volumes of a standard AC, brand name 'HEAT', with a very limited degree of customer choice. at low prot margins. 'COLA"s current control system is focused exclusively on the efciency of its manufacturing process and it reports monthly on the following variances: material price, material usage and manufacturing labour efciency. 'COLA' uses standard costing for its manufacturing operations. In 2018. 'COLA' employed 20 teams, each of which is required to install one of its 'HEAT' AC per day for 350 days a year. The average revenue per 'HEAT' AC installed is Rs 36.000, 'COLA' would like to maintain this side of its business at the current level. The 'HEAT' installation teams are paid a basic wage, which is supplemented by a bonus for every Ac, they install over the yeany target of 350. The teams make their own arrangements for each installation and some teams work seven days a week, and up to 12 hours a day. to increase their earnings. 'COLA' usually receives one minor complaint each time a 'HEAT' AC is installed and a major complaint for 10% of the 'HEAT' Ac installations, In 2018, 'COLA' had launched the new AC, brand name 'HEAT-Cool'. This AC is aimed at high-level corporates and it offers a very large degree of choice for the customer and the use of the highest standards of materials, appliances. and installation. 'COLA' would like to grow this side of its business. A \"HEATCool AC retails for a minimum of Rs100,000 to a maximum of Rs 500.000. The retail price includes installation. In 2017 the average revenue for each 'HEAT-Oool' Ac installed was Rs 300.000. Currently. 'COLA' has 7 teams of 'HEAT-Cool' AC installers and they can install up to 240 AC a year per team. These teams are paid salaries without a bonus element. 'COLA' has never received a complaint about a \"HEATCool AC installation. 'COLA"s business is generated from repeat orders, recommendations. and local press advertising. It employs three sales executives who earn an annual salary of Rs 300.000 each. It offers a six-month money back guarantee and this has to be fullled for 1% of its installations. 'COLA' has always been in prots but was shocked to see that in its results in 2017 it only earned 0.2% net profit on its tumover. In 2018. the company wanted to improve its protability however, the furnace operation was a bottle-neck in the process. The company is running at 100 % of Ipacity. The variable conversion cost is R5100 per process hour. The xed cost is Rs 4,800,000. The furnace operation is part of the total process for each of these three products. Thus, furnace hours are the part of process hours. In addition, the Cost Accountant was able to determine the following information about the three products: FEAT FANTA SPRITE Budgeted Units Produced 6,000 6,000 6.000 Total process hours per unit 12 12 10 Furnace hours per unit 6 5 4 Unit Selling Price Rs3.600 1253.400 Rs3.000 Direct Materiel cost per unit R52, 100 R5190!) R51, 720 The company follows the standard cost system and manufactures its own Evaporator Coil for the ACs and the standard cost per unit is worked out as follows: Materials (10 Kgs. @ R54 per Kg) Labour (5 hours @ R58 per noun Variable overheads {8 hours @ R53 per hour) Fixed overheads (8 hours @ R53 per hour) Overheads are allocated based on direct labour hours. In the month of April 2019. there was no difference between the budgeted and actual selling price and there were no opening or closing stock during the period. There are no scarce inputs, The other details for the month of April 2019 are as under: 5W MI! Production and 2,000 Units 1,800 Units Sales Dimcl Marshals 20,000 Kgs. @ R54 20,000 Kgs.@ R54 Per *9 per K9 Direct Labour 16.000 Hrs. @ Rs 14,800 Hrs. 9 R58 per Hr. per Hr. Variable [348,000 Ila-44,400 Overheads Fixed Overheads 1648.000 its-48,000
