Macro Hardware Limited manufactures two types of products, a laptop and an ipod and sells them in a very competitive market. Both products are funky light-weight products that are designed for the 15 to 25 year old age group market. Due to the popularity of their products, Macro Hardware Limited is Central to modern business considering expanding into different target markets during the next financial year that commences on 1 July 2019. However management wish to first evaluate the risk and expected profitability of the existing target market for 2020 before embarking on these new endeavours. Why is accounting so important? Management has requested that the financial accountant collect all the relevant financial information relating to the two products for the 2019 financial year, and prepare a budget for them for 2020. The financial accountant is not sure how to allocate some of the cost between the two products, but all the 3. How did the company obtain anu use other relevant budget information relating to the two products for the financial year ending 30 June 2019 is summarised in the table below (note that this is summarised on a per unit basis): lates and reports on financial info Financial information for the 30 June 2019 financial year Laptop iPod Selling price R15 000 2 000 Direct materials R4 500 R400 Direct labour (R160 per hour) R1 920 R320 Variable marketing and distribution costs R800 R200 Understanding statements of comprehensive income, financial position and cash flows: Fixed marketing and distribution costs R600 R100 Actual production and sales in units 900 2 700 Macro Hardware Limited adopted just-in-time method and does not keep inventory of laptops or iPods. Also, there is no opening or closing work-in-progress or raw materials for both products. Direct labourers used in the manufacturing of the products signed fixed-term contracts with the company so that they can be paid for both idle and production hours. Labourers were operating at nd profit can be monitored, planned and full capacity during the 30 June 2019 financial year - hence the possible expansion need. Fixed marketing and distribution costs have been allocated to units based on actual sales volume that were sold during the 2019 financial year. The laptop and iPod prices are dictated by the market and Macro Hardware Limited does not have much room to increase the selling prices. The expected production and sales in units for the 30 June 2020 financial year is as follows: Budget information for the 30 June 2020 financial year Laptop iPod Expected production and sales in units 800 2 400 O The total fixed manufacturing overheads costs for the 2019 financial year was R7 650 000 and it is expected to remain the same in the 2020 financial year. Fixed manufacturing overhead costs are currently allocated to production based on the number of direct labour hours. REQUIRED Marks (a) Determine the margin of safety units for Macro Hardware Limited in the financial year ending 30 June 2020 assuming the expected sales mix remains constant. 11 Prepare a performance budget for the laptops and iPods manufactured by Macro Hardware Limited and for the business as a whole for the financial year (b) ending 30 June 2020 using the absorption costing method. The budget should 10 have the following headings: Laptop iPods Total ( C ) Comment on the budgeted profitability of Macro Hardware Limited for the 18 financial year ending 30 June 2020 and make recommendations that will improve the profitability of the business. (d) Critically evaluate the allocation of fixed manufacturing overheads between the two products (i.e. laptops and iPods) and make recommendation for improvement 9 (if any) for Macro Hardware Ltd.Macro Hardware Limited manufactures two types of products, a laptop and an ipod and sells them in a very competitive market. Both products are funky light-weight products that are designed for the 15 to 25 year old age group market. Due to the popularity of their products, Macro Hardware Limited is Central to modern business considering expanding into different target markets during the next financial year that commences on 1 July 2019. However management wish to first evaluate the risk and expected profitability of the existing target market for 2020 before embarking on these new endeavours. Why is accounting so important? Management has requested that the financial accountant collect all the relevant financial information relating to the two products for the 2019 financial year, and prepare a budget for them for 2020. The financial accountant is not sure how to allocate some of the cost between the two products, but all the 3. How did the company obtain anu use other relevant budget information relating to the two products for the financial year ending 30 June 2019 is summarised in the table below (note that this is summarised on a per unit basis): lates and reports on financial info Financial information for the 30 June 2019 financial year Laptop iPod Selling price R15 000 2 000 Direct materials R4 500 R400 Direct labour (R160 per hour) R1 920 R320 Variable marketing and distribution costs R800 R200 Understanding statements of comprehensive income, financial position and cash flows: Fixed marketing and distribution costs R600 R100 Actual production and sales in units 900 2 700 Macro Hardware Limited adopted just-in-time method and does not keep inventory of laptops or iPods. Also, there is no opening or closing work-in-progress or raw materials for both products. Direct labourers used in the manufacturing of the products signed fixed-term contracts with the company so that they can be paid for both idle and production hours. Labourers were operating at nd profit can be monitored, planned and full capacity during the 30 June 2019 financial year - hence the possible expansion need. Fixed marketing and distribution costs have been allocated to units based on actual sales volume that were sold during the 2019 financial year. The laptop and iPod prices are dictated by the market and Macro Hardware Limited does not have much room to increase the selling prices. The expected production and sales in units for the 30 June 2020 financial year is as follows: Budget information for the 30 June 2020 financial year Laptop iPod Expected production and sales in units 800 2 400 O The total fixed manufacturing overheads costs for the 2019 financial year was R7 650 000 and it is expected to remain the same in the 2020 financial year. Fixed manufacturing overhead costs are currently allocated to production based on the number of direct labour hours. REQUIRED Marks (a) Determine the margin of safety units for Macro Hardware Limited in the financial year ending 30 June 2020 assuming the expected sales mix remains constant. 11 Prepare a performance budget for the laptops and iPods manufactured by Macro Hardware Limited and for the business as a whole for the financial year (b) ending 30 June 2020 using the absorption costing method. The budget should 10 have the following headings: Laptop iPods Total ( C ) Comment on the budgeted profitability of Macro Hardware Limited for the 18 financial year ending 30 June 2020 and make recommendations that will improve the profitability of the business. (d) Critically evaluate the allocation of fixed manufacturing overheads between the two products (i.e. laptops and iPods) and make recommendation for improvement 9 (if any) for Macro Hardware Ltd.Macro Hardware Limited manufactures two types of products, a laptop and an ipod and sells them in a very competitive market. Both products are funky light-weight products that are designed for the 15 to 25 year old age group market. Due to the popularity of their products, Macro Hardware Limited is Central to modern business considering expanding into different target markets during the next financial year that commences on 1 July 2019. However management wish to first evaluate the risk and expected profitability of the existing target market for 2020 before embarking on these new endeavours. Why is accounting so important? Management has requested that the financial accountant collect all the relevant financial information relating to the two products for the 2019 financial year, and prepare a budget for them for 2020. The financial accountant is not sure how to allocate some of the cost between the two products, but all the 3. How did the company obtain anu use other relevant budget information relating to the two products for the financial year ending 30 June 2019 is summarised in the table below (note that this is summarised on a per unit basis): lates and reports on financial info Financial information for the 30 June 2019 financial year Laptop iPod Selling price R15 000 2 000 Direct materials R4 500 R400 Direct labour (R160 per hour) R1 920 R320 Variable marketing and distribution costs R800 R200 Understanding statements of comprehensive income, financial position and cash flows: Fixed marketing and distribution costs R600 R100 Actual production and sales in units 900 2 700 Macro Hardware Limited adopted just-in-time method and does not keep inventory of laptops or iPods. Also, there is no opening or closing work-in-progress or raw materials for both products. Direct labourers used in the manufacturing of the products signed fixed-term contracts with the company so that they can be paid for both idle and production hours. Labourers were operating at nd profit can be monitored, planned and full capacity during the 30 June 2019 financial year - hence the possible expansion need. Fixed marketing and distribution costs have been allocated to units based on actual sales volume that were sold during the 2019 financial year. The laptop and iPod prices are dictated by the market and Macro Hardware Limited does not have much room to increase the selling prices. The expected production and sales in units for the 30 June 2020 financial year is as follows: Budget information for the 30 June 2020 financial year Laptop iPod Expected production and sales in units 800 2 400 O The total fixed manufacturing overheads costs for the 2019 financial year was R7 650 000 and it is expected to remain the same in the 2020 financial year. Fixed manufacturing overhead costs are currently allocated to production based on the number of direct labour hours. REQUIRED Marks (a) Determine the margin of safety units for Macro Hardware Limited in the financial year ending 30 June 2020 assuming the expected sales mix remains constant. 11 Prepare a performance budget for the laptops and iPods manufactured by Macro Hardware Limited and for the business as a whole for the financial year (b) ending 30 June 2020 using the absorption costing method. The budget should 10 have the following headings: Laptop iPods Total ( C ) Comment on the budgeted profitability of Macro Hardware Limited for the 18 financial year ending 30 June 2020 and make recommendations that will improve the profitability of the business. (d) Critically evaluate the allocation of fixed manufacturing overheads between the two products (i.e. laptops and iPods) and make recommendation for improvement 9 (if any) for Macro Hardware Ltd.1: Finan Question 2 (a) Margin of Safety = Expected Sales Units - Break Even Sales Units 2020 Expected Sales Units . Laptop = 800 . IPod = 2400 Break Even Sales Units (1 item) = Total Fixed Manufacturing Overhead Costs + Contribution Margin Per Unit Total Fixed Manufacturing Overhead Cost = 7,650,000 Contribution Margin Per Unit = Selling Price per unit - Variable Costs per unit Component Laptop IPod Selling Price per unit 15,000 2,000 Direct Material per unit (4,500 (400) Direct Labour per unit (1,920 (320 Contribution Margin per unit 8,580 1,280 9700 1500 Weighted Average Contribution Margin per unit (based on expected sales mix) Sales Mix . Total expected sales = 800 (laptops) +2400 (IPods) = 3200 Laptops Mix = 800 + 3200 = 25% Ipods Mix = 2400 + 3200 = 75% Weighted Average Contribution Margin Item Calculation Answer Laptop 8,580 x 25% 2,145 Ipod 1,280 x 75% 960 Weighted Average Contribution Margin 3, 105 Break Even Units (more than 1 items) = Total Fixed Manufacturing Overhead Costs : Weighted Average Contribution Margin = 7,650,000 + 3,105 = 2464 units1: Finan Question 2 (a) Margin of Safety = Expected Sales Units - Break Even Sales Units 2020 Expected Sales Units . Laptop = 800 . IPod = 2400 Break Even Sales Units (1 item) = Total Fixed Manufacturing Overhead Costs + Contribution Margin Per Unit Total Fixed Manufacturing Overhead Cost = 7,650,000 Contribution Margin Per Unit = Selling Price per unit - Variable Costs per unit Component Laptop IPod Selling Price per unit 15,000 2,000 Direct Material per unit (4,500 (400) Direct Labour per unit (1,920 (320 Contribution Margin per unit 8,580 1,280 9700 1500 Weighted Average Contribution Margin per unit (based on expected sales mix) Sales Mix . Total expected sales = 800 (laptops) +2400 (IPods) = 3200 Laptops Mix = 800 + 3200 = 25% Ipods Mix = 2400 + 3200 = 75% Weighted Average Contribution Margin Item Calculation Answer Laptop 8,580 x 25% 2,145 Ipod 1,280 x 75% 960 Weighted Average Contribution Margin 3, 105 Break Even Units (more than 1 items) = Total Fixed Manufacturing Overhead Costs : Weighted Average Contribution Margin = 7,650,000 + 3,105 = 2464 units1: Finan Question 2 (a) Margin of Safety = Expected Sales Units - Break Even Sales Units 2020 Expected Sales Units . Laptop = 800 . IPod = 2400 Break Even Sales Units (1 item) = Total Fixed Manufacturing Overhead Costs + Contribution Margin Per Unit Total Fixed Manufacturing Overhead Cost = 7,650,000 Contribution Margin Per Unit = Selling Price per unit - Variable Costs per unit Component Laptop IPod Selling Price per unit 15,000 2,000 Direct Material per unit (4,500 (400) Direct Labour per unit (1,920 (320 Contribution Margin per unit 8,580 1,280 9700 1500 Weighted Average Contribution Margin per unit (based on expected sales mix) Sales Mix . Total expected sales = 800 (laptops) +2400 (IPods) = 3200 Laptops Mix = 800 + 3200 = 25% Ipods Mix = 2400 + 3200 = 75% Weighted Average Contribution Margin Item Calculation Answer Laptop 8,580 x 25% 2,145 Ipod 1,280 x 75% 960 Weighted Average Contribution Margin 3, 105 Break Even Units (more than 1 items) = Total Fixed Manufacturing Overhead Costs : Weighted Average Contribution Margin = 7,650,000 + 3,105 = 2464 unitsRecommendations Management may consider discontinuing the production and sale of the ipods due to them seeming not being profitable . This may be further supported by the fact that technological advancements will continue making devices like ipod undesirable as othe devices like cell phone are able to perform Ipod related tasks (storing music) and more. The market is likely to decrease the selling price of ipods due to looming technological advancements. This will continue to eat into the profitability of the Ipods. \\ . Discontinuing the production and sale of Ipods will allow the company to benefit from costs save from no longer producing and selling the Ipods. Managements must consider an alternative (more accurate) approach for allocating the overheads costs to ensure all item are costed accurately. Management may look into locating alternative suppliers who may offer the material at more reasonable rates. Managements should consider training stuff more frequently to improve/reduce the times each labourer takes to manufacture the laptops and ipod to reduce labour costs, Management should consider introducing machinery equipment to improve production efficiencies and reduce direct labour costs