Question
i need help on questions, 3, 4 and 5 plz Trading (production and sales) : You should assume that today is Monday 23 rd November
i need help on questions, 3, 4 and 5 plz
Trading (production and sales):
You should assume that today is Monday 23rd November 2020.
Sales:
The company has the following sales orders to be delivered during December 2020.
Order / product:
Order 1101
'Sky'
Order 1102
'Sun'
Order 1103
'Moon'
Quantity to be delivered (sales in units)
650
950
1,150
Selling price (per unit)
90
35
55
Production:
The production schedule for December 2020 (product quantities and production resources requirement) is shown below.
Order / product:
Order 1101
'Sky'
Order 1102
'Sun'
Order 1103
'Moon'
Finished goods:
Quantity to be produced
790
1,000
1,320
Note:
At 1st December 2020 there will be no opening inventory of finished goods.
Resources requirement for production:
Direct costs (variable costs):
Order / product:
Order 1101
'Sky'
Order 1102
'Sun'
Order 1103
'Moon'
Machining department:
Totals
Incremental materials cost
1,440
720
1,150
3,310
Direct labour hours (total)
102
144
72
318 hours
Machine hours (total)
186
221
144
551 hours
Painting department:
Incremental materials cost
864
1,740
288
2,892
Direct labour hours (total)
144
114
90
348 hours
Machine hours (total)
114
60
30
204 hours
Assembly department:
Incremental materials cost
1,150
1,150
720
3,020
Direct labour hours (total)
216
258
204
678 hours
Machine hours (total)
60
72
102
234 hours
Fabien Ltd - continued:
Fixed indirect production overheads:
Indirect production overheads are fixed (unaffected by production activity levels) at 41,500 per month. This value has been allocated and apportioned to the 3 production departments as follows:
Production department:
Machining
Painting
Assembly
Total
Fixed costs (allocation / apportionment)
19,400
8,600
13,500
41,500
Bases for absorption:
- Machining department = Machine hours
- Painting department = Direct labour hours
- Assembly department = Direct labour hours
Note:
The quantity for absorption basis (for each production department) should be established using the total departmental resources requirement shown in the tables above.
Required:
Task 2:
Prepare (for each product and in total) the following planned values for December 2020:
a.Prime costs
11 Marks
b.Total (full) costs of production
14 Marks
c.Finished goods closing inventories / cost of sales
7 Marks
d.Gross profits (and gross profit margins)
3 Marks
Note to task 2:
The requirement of task 2 should be established using an absorption costing system
(as described in the production process flowchart)
The total task 2 mark above, includes marks allocated to short descriptive notes to workings
(
These notes should be 'short explanatory notes' that will serve to define the terminology used and explain the workings (and results / outcomes) to a colleague who does not work in the finance office
Fabien Ltd - continued:
Required
Task 3:
Prepare the following planned values:
a.Contribution and contribution / sales ratio (for each product and in total) and the gross profit
(in total only - see note)
7 Marks
b.Prepare a reconciliation to explain the difference between the total gross profits established using an absorption costing system (task 2 d.) and a marginal costing system (task 3 a.)
7 Marks
Note to task 3 a. & b.:
The requirement of task 3 should be established using a marginal costing system where:
All direct costs are classified as variable
All indirect production overheads are classified as fixed
The total task 3 mark above, includes marks allocated to short descriptive notes to workings
(
These notes should be 'short explanatory notes' that will serve to define the terminology used and explain the workings (and results) to a colleague who does not work in the finance office.
Catherine Smith, the company sales manager has commented that product 'Sun' (Order 1102) is not performing well and the company profits would increase if this product was removed from the range.
Task 4:
a.Re - calculate the gross profit (and gross profit margin) if product 'Sun' is removed from the production and sales schedule.
Note:
It has been established that, if product 'Sun' was removed from the catalogue, specific fixed cost savings of 12,800 would be made.
4 Marks
b.Draft a memo to Catherine Smith in reply to his comment (with clear explanatory supporting reasons to a non-accountant).
7 Marks
Note:
Your memo should be prepared in a good style and show effective skills in written communication and 'quality of information' aspects
Fabien Ltd - continued:
The finance office (cost and management accounts) recently performed an 'activity - based' production systems analysis for the fixed production overheads. The result is the table below:
Cost
Cost driver
Total cost driver quantity per period
Indirect production overhead recovery rate
Set up costs
10,000
Set ups
140
71.43
Production scheduling
3,200
Set ups
140
22.86
Quality control
17,300
Inspections
2,500
6.92
Depreciation
9,200
Machine hours
1,000
9.20
Raw materials storage
1,800
Materials movements
1,800
1.00
Total:
41,500
A further analysis has produced the following indirect production overhead resource required for each product:
Activity - Based Resource (Cost driver quantity) Requirement (by product)
Order / product:
Order 1101
'Sky'
Order 1102
'Sun'
Order 1103
'Moon'
Total
Set ups
45
45
15
105
Inspections
1,000
800
1,190
2,990
Machine hours
320
420
250
990
Materials movements
900
400
500
1,800
Task 5:
- Explain 'Activity - Based Costing (ABC)' as an alternative to full absorption costing and discuss the potential benefits that ABC might bring to production and information systems of Fabien Ltd
Note:
Your written explanations should be effectively communicated and should include notes on:
The reasons for the development of ABC
The 'Activity - Based' concept
The process of an ABC system development
The potential benefits (if any) you feel could be achieved by the introduction of an ABC system for Fabien Ltd
10 Marks
- Recalculate the gross profits (by product an in total) after allocating fixed production overheads to products using an activity - based system
10 Marks
The task 5 b. mark include marks allocated to short descriptive notes to workings These should be 'short explanatory notes' that will serve to identify (observe) the effects on each product (and in total) profit caused by the ABC system allocations.
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Managerial Accounting
Authors: Carl Warren
14th Edition
1337516147, 978-1337270595
