Managerial Accounting (ACCT71260)
Please look at all the following pictures required and then answer the questions on pg 4 (picture) clearly with a step by step solution as soon as possible!
Problem: (Marks - 40) Mr. Roy is an engineer. He completed his graduation five years before and started working with different manufacturing company. After getting some practical experience in manufacturing industries, he decided to start a business of his own and established a private company two years before and named it Kitchener Manufacturing Company. It was established to make two basic products X-1 and X-2. After first year of its operation, he realized that he should learn basic techniques of running a business. He heard about "The Centre for Entrepreneurship Development" of Conestoga College. This centre provides training to entrepreneurs on managerial, financial and technical aspects of establishing and running an enterprise. Mr. Roy took a course on financial planning during summer and learned about the importance of budgeting for financial planning and control. He learned that budget is the quantitative tool for planning and control. It provides pre- determined estimate of cost or price for a certain level of activity. It helps to forecast the cash requirements in advance. He is interested in making an arrangement with the bank a line of credit in advance and getting a lower rate of interest for his loan. He believes in participative budgeting system and gathered information about the operating levels and estimates of costs and revenues for 2018. He also gave the actual data which are different from the budgeted.Data (both budgeted and actual) that have been assembled by the managers for 2018 follow: Requirements for finished units: X - 1 X - 2 Raw materials - 1 10 kg 8 kg Raw materials - 2 4 kg Raw materials - 3 2 units 1 Unit Direct labour 5 hours 8 hours Sales price $100 $150 Sales units 12,000 9,000 Estimated beginning inventory (Units) 400 150 Desired ending inventory (Units) 300 200 The standard cost of raw materials and the inventory policy of the company are given below: Raw Materials Types of Raw Materials 1 2 3 Cost $2 per kg $2.5 per kg $0.50 per unit Estimated beginning inventory 3,000 1,500 1,000 Desired ending inventory 4,000 1,000 1,500 The budgeted direct labour wage rate is $ 4.00 per hour. Overhead is applied on the basis of direct labour hours. The tax rate is 40%. The budgeted sales level is divided into quarters. The company estimated that 20% of the annual sales will be in the first quarter, 30% in the second, and 25% in the third and fourth quarters. The beginning inventory of finished products has the same cost per unit as the ending inventory. The work-in-process inventory is negligible. The sales forecast of the company is shown below: Quarters X-1 X-2 Total Units Units $ $ First quarter 2,400 240,000 1,800 270,000 510,000 Second 3,600 360,000 2,700 405,000 765,000 quarter Third Quarter 3,000 300,000 2,250 337,500 637,500 Fourth 3,000 300,000 2,250 337,500 637,500 Quarter Total 12,000 1,200,000 9,000 1,350,000 2,550,000 2The Manufacturing overhead costs of the company (actual and projected) are as follows: Elements of overhead costs Actual Projected for 131,900 Indirect materials - Variable Labour Hour Misc. supplies and tools - Variable $10,500 $10,000 5,000 Indirect labour - Variable 5,000 41,000 Supervision -Fixed 40,000 20,000 20,000 Payroll taxes and fringe benefit - Variable 76,000 75,000 Maintenance costs-fixed 20,500 20,000 Maintenance costs-variable 10,000 10,000 Depreciation-Fixed 70,000 70,000 Heat, light and power-Fixed 8,750 8,710 Heat, light and power-Variable 5,250 5,090 Total 267,000 $263,800 The actual and budgeted selling and administrative costs are as follows: Advertising $60,000 Sales salaries 200,000 Travel and entertainment 60,000 Depreciation-warehouse 5,000 Office salaries 20,000 Executive salaries 250,000 Supplies 4,000 Depreciation-Office 6,000 Total $605,000 The actual data for products X-1 and X-2 are given below: Products X-1 X-2 Total Actual production units 12,000 units 10,000 Units 22,000 Units Actual labour hours 60,000 75,000 135,000 Labour rate per hour 4.50 4.00 Total actual labour costs 270,000 300,000 570,000Required: Assume the role of Management Account of Kitchener Manufacturing Company and prepare Cash Budget and forecast the cash position of the company for 2018. (6) The beginning cash balance of the company was $15,000. The minimum cash balance requirement of the company was decided as $ 10,000. . All sales and purchases are made in cash. All expenses are paid immediately as they incur. You are also asked to prepare the following functional budgets for 2018 for presenting budgeted income statement: 1. Production budget. (3) 2. Direct materials purchase budget. (6) 3. Direct labour budget. (3) 4. Budgeted unit costs of X-1 and X-2. (4) 5. Cost of goods sold budget.(4) 6. Budgeted income statement. (4) Mr. Roy is also interested to know the variances of actual performance from budgeted. Identify the areas of variances and calculate the following variances. You are also required to explain the probable causes of such variances and steps that Mr. Roy can take to prevent them in future. 1. Calculate labour variances for product X-1 and X-2. (6) 2. Calculate manufacturing overhead (variable) variances. (4) 4
