Please read carefully, all necessary information is attached, need to show work let me know if there is something missing. Microsoft word can be used thanks.

You are Cindy, completing the analysis and developing a final report to Alan, president of BBCC. The report should analyze BBCC's current cost allocations and give advice for the future. It should be formatted as a memo and include the following: 1. Revised 20X7 income statement (7 marks) a) Manufacturing overhead allocation (2 marks) BBCC has adopted a normal costing approach with manufacturing overhead costs allocated based on direct labour hours. However, the actual cost of product manufactured report in Exhibit 3 in the Project Details document appears to have included an allocation of actual manufacturing overhead based on a percentage of sales. Revise this report so the normal costing approach adopted by the company is properly reflected. b) Income statement results (5 marks) Prepare a revised 20X7 actual income statement (Exhibit 2) using the cost of goods manufactured in part (a) and adjusting for over- or underapplied overhead. It is the company's policy to write off any total over- or underapplied overhead to the total cost of goods sold rather than individual products during the period in which it is incurred. Comment on the change in gross margin overall, and for each product individually, as a result of the changes applied. The finished product beginning and ending inventory for all three products is as follows: The-Bar Alamonde Salt-Lick Beginning inventory $17,561 $10,702 $0 Ending inventory 18,292 10,497 2. Overview of 20X7 results (6 marks) Prepare an overview of the 20x7 results. Discuss any significant differences between the 20x7 budget and the actual figures (Exhibits 2 to 4). Base the analysis on the revised figures from requirement 1. Your analysis should include a discussion of the following: difference between actual and budgeted sales quantities for each product changes in unit selling price and effect on sales . . . change in gross margin overall unit cost changes in direct ingredients changes in direct labour in relation to sales dollars A full variance analysis is not expected or required. Brief numerical summaries are encouraged to highlight changes. 3. Manufacturing overhead costs analysis (13 marks) a) Plant utilities cost analysis (3 marks) Prepare an analysis of utilities costs using the data provided in Exhibit 5. Using the high-low method, determine how much of the monthly utilities costs for the year are fixed versus variable. Your answer should consist of a cost formula. Determine the accuracy of this formula by applying it to the total machine hours in the 20X7 data from Exhibit 5 and comparing the result to the actual utilities cost. Consider that a discrepancy of 3% on this cost estimation is acceptable to management. (Note: Round the final fixed cost answer to the nearest dollar; however, do not round the variable cost figure when calculating total costs.) b) Capacity analysis i) (4 marks) Prepare an analysis that highlights idle capacity costs by analyzing 20x7 total manufacturing overhead costs (Exhibit 4), similar to the approach in Topic 2.3-10. Practical capacity is 12,000 direct labour hours (Note: Round the manufacturing overhead costs to the nearest dollar; however, do not round the MPH rate calculated when calculating the total costs.) ii) (4 marks) Explain the purpose of this analysis to management and the information it provides in relation to capacity utilization. c) Based on the results of requirements 1, 2, and 3 above, briefly comment on the manufacturing costs. (2 marks) 4. Dashboard presentation of break-even options and analysis. (6 marks) Prepare a presentation and analysis of the relationship between selling price and break-even units for The-Bar based on information provided in Exhibit 9. The purpose of the presentation is to assist the management team with cost and selling price planning for 20X8. The presentation will consist of a Power BI dashboard. The appendix at the end of this project provides instructions on how to find the data and create the dashboard using Power BI. The analysis should address the following: a) Using the 20X8 budget data provided, create a Power BI dashboard similar to the one in the appendix to this project. Based on the dashboard created, prepare an analysis that addresses the following questions: i) What is the break-even in batches? ii) Compare this to actual 20X7 sales of The-Bar. Your answer should include a brief discussion on the risk of loss including addressing the margin of safety. b) Consider that the current selling price of The-Bar ($1.50 per bar) can increase by 10% before sales will begin to drop off. What effect will this increase in price have on break-even sales? Discuss any significant differences. NOTE: The dashboard is interactive. Step 7 in the Appendix creates a slider that will allow you to change the total sales dollars per case. Move the slider to a point where the total selling price of a case $1.65 (or $1.50 plus 10%) displays and answer the above question. c) In reference to part a), assume BBCC has decided to only use product costs for their breakeven analysis. Use the interactivity of the dashboard as explained in Task 4 in the Appendix to display only product costs. NOTE: Clicking on the Product Costs section of either of the pie charts will make the following changes: All period costs on the bar chart become shaded. The break-even point in units will be recalculated without the period costs. This interactivity will help you answer this question. d) Identify any concerns you have with the quality of the data being used in this analysis. . NOTE: Insert into your project a screenshot of the completed dashboard, illustrating the break-even point in units at a selling price of $6,000 ($1.50 per bar). Additionally, use screenshots of the dashboard to reinforce your discussion. While the dashboard must consist of all elements displayed, your placement of the visualizations can be arranged differently. 5. Cocoa bean processing division options (8 marks) a) (4 marks) Based on the information provided by the cocoa bean processing division manager from Exhibit 7, assess the total gross profits and total gross margin percentage of each of the following options (include total joint costs in your calculation, but do not allocate the joint costs to individual products): i) Current sales of cocoa butter and cocoa cakes ii) Proposed sales of cocoa butter and canned, powdered baking cocoa iii) Proposed sales of chocolate liquor Comment on which of the three options is most desirable for the company to pursue and why (consider other non-financial concerns that should also be taken into consideration). b) (4 marks) Allocate joint costs using the following options and methods: i) Based on the current sales of cocoa butter and cocoa cakes, use the sales value at split-off method. ii) Based on the proposed sales of cocoa butter and canned, powdered baking cocoa, use the net realizable method. Note on rounding: Use unrounded numbers for all calculations and round the final answer to the nearest dollar. 7 PROJECT DETAILS Since the first candy bar was made in Great Britain by Joseph Fry in 1847, companies have continued to perfect the quality of this decadent treat. The Boston Bar Chocolate Company (BBCC) is no exception. BBCC began operations 10 years ago by two brothers, Alan and Calvin, who had a passion for chocolate and a vision for creating a treat that was both tasty and healthy. is vision. The company's slogan is "Raising THE-BAR on health," and for good reason. Customers keep coming back for more, not only because of The-Bar's great taste, but also because of the growing number of health reports stating that the flavanols in chocolate help to reduce blood pressure and increase memory retention. BBCC roasts its own cocoa beans to ensure maximum flavanol content. This gives BBCC a competitive advantage in the premium-quality chocolate market. The two brothers continue to own a majority of the shares and are actively involved in the company - Alan as president and Calvin as marketing manager. Divisions and processes BBCC's processing plant consists of two divisions: the cocoa bean division and the chocolate bar division. The cocoa bean division purchases the raw cocoa beans and ferments and roasts them. The products and byproducts that cannot be used in the chocolate bar division are packaged and sold to customers for a variety of other final products. The chocolate bar division produces the wrapped chocolate bars that are sold to retailers. All products follow the same mixing procedure and some products have an additional step of adding particulates such as almonds or salt granules. The mixture is then poured into moulds, cooled, separated into bars, and wrapped. While most of the resources in the two divisions are separate, the divisions operate on the same premises. Chocolate bar division The chocolate bar division currently produces 1.6 million chocolate bars per year. This represents around 80% of its practical capacity. Practical capacity is 12,000 direct labour hours or about 2 million bars per year. In addition to The-Bar, the chocolate bar division also produces a version of The-Bar with almonds called Alamonde and another with pieces of pink Himalayan salt called Salt-Lick. Most national grocery chains carry The-Bar and Alamonde. In addition, health-food stores carry Salt-Lick as a health booster because the Himalayan pink salt is said to detoxify the body by balancing pH. Because Salt-Lick is fairly new, it is produced as a special order and no inventory is kept on hand. It takes about the same amount of effort and resources to produce The-Bar as it does to produce Alamonde. As such, a process costing system is used. The batches are processed in a similar manner and receive the same amount of direct labour costs, basic ingredients, and manufacturing overhead costs. Therefore, these costs are averaged over all batches. The production process involves several operations in which conversion costs and ingredients are added to manufacture the product. Ingredients are added at the beginning of each operation. Direct labour costs and overhead are added evenly throughout the process based on direct labour hours. While the Salt-Lick bar is also processed in batches, it is special ordered, and production runs are scheduled based on demand. As a result, costs are assigned to a distinct batch using a job costing system. Current situation Alan has not been complacent about the success of the company. He continually monitors progress and scrutinizes costs. While candy bar consumption has fallen, the overall consumption of chocolate per capita in the market is stable, and the company has been able to maintain its market share due to continued consumer demand for healthy chocolate products. However, Alan would like to ensure that the company is adequately controlling costs and reducing risk. As such, he would also like to make some pricing predictions on his products. Recently, Alan engaged Cindy, CPA, to review the latest operating statements. He anticipates that Cindy will be able to provide some insight into how to be proactive in addressing some of the issues. The following exhibits provide more details on these issues along with details about the budgeted and actual financial position of the company. This information will be used to complete the requirements of Project 1 and Project 2 Note: To reduce complexity in the case study, process costing is used. A batch system like candy bar production would normally use an operational costing system, which is a hybrid of process and job costing Geluis Exhibit 1 The Skinny-Bar According to the latest market research, there is a rising health concern resulting from the over-consumption of products with high sugar content. Some think that the industry may be faced with government regulations to lower the sugar content in chocolate bars. While the company hasn't been affected by this yet, it wouldn't take long to feel the effects of a major news network reporting on the confectionary industry's use of sugar in its products. To mitigate this risk, about three years ago, marketing and production managers got together to pilot a chocolate bar called the Skinny-Bar. The product manager, Ned, was able to develop a great-tasting product with stevia as a substitute for sugar. It was introduced into the market in early June of 20X5 as an even healthier version of The- Bar. The intention was to take advantage of the peak in demand for chocolate during the Christmas season. Because the advertising campaign was delayed, the general public wasn't aware of the product, and its introduction generated a loss. However, the company managers have been discussing the potential to look at this product again. Should the decision be made to reintroduce the Skinny-Bar, $900,000 ($300,000 per year for three years) of research and development will be needed to get the product ready for market. The company should be able to sell 300,000 bars per year and analysis shows that these levels are likely to hold for the next 10 years. The direct ingredients, direct labour costs and fixed general and administrative expenses from the 20X5 original plan are valid numbers for planning a relaunch. In addition, an activity-based approach for the manufacturing overhead would best and further information for doing an ABC analysis is provided in the planning notes in Exhibit 6. it would be useful to reprice the Skinny-Bar using the activity-based approach and BBCC's latest markup policy of 20% of full cost. Because Skinny-Bar does not have any particulates, it would be logical to use the ABC activities and analysis from The-Bar to cost the manufacturing overhead for Skinny-Bar. Unfortunately, true financial information for Skinny-Bar is not available because the product information was combined with the costs and revenues of the The-Bar product for the year. The only information about this product is below in Exhibit 1. Dela Exhibit 1 Planning notes from the 20X5 launch of the Skinny-Bar 20X5 actual sales Total manufacturing costs $288,600 230,880 (Total manufacturing cost consists of $115,440 in prime costs and $147,186 in conversion costs.) The contribution margin ratio for this product was 35%. 156,000 bars were sold at $1.85 per bar. This was a pilot project of the product, so there were no beginning or ending inventories associated with the product. All non-manufacturing costs relating to this product are fixed. The margin of safety percentage for the product at this sales level was -15%. The profit margins on the company's current products can be found below in Exhibit 2. The most profitable product is the Salt-Lick bar at 25.9%, followed by Alamonde at 19.3% and The-Bar at 18.8%. Budgeted margins were 14.3%, 27.5%, and 35.2% for The-Bar, Alamonde, and Salt-Lick, respectively. Exhibit 2 Actual operating income statement For the year ended December 31, 20X7 The-Bar Per bar Alamonde Per bar Salt-Lick Total Per bar 776,000 $1,164,000 $1.50 945,595 528,000 $ 897,600 724,672 $1.70 302,500 $ 605,000 $2.00 448,187 1,606,500 $2,666,600 2.118,454 $ 218,405 $ 172,928 $ 156,813 Volume Sales Cost of goods sold Gross margin Selling and administrative expenses Operating income Gross margin % $ 548,146 541681 $ 6,465 18.8% 19.3% 25.9% 20.6% Total Budgeted operating income statement For the year ended December 31, 20X7 The-Bar Per Alamonde Per Salt-Lick Per bar bar bar 774,400 529,100 301,400 $1,161,600 $1.50 $ 952,380 $1.80 $ 602,800 $2.00 996.034 690.756 390.297 1,604,900 $2,716,780 2077087 $ 165,566 $ 261,624 $ 212,503 Volumes Sales Cost of goods sold Gross margin Selling and administrative expenses Operating income Gross margin % $ 639,693 542 554 $ 97.139 14.3% 27.5% 35.2% 23.5% In order to properly analyze the financial statements, the following information is also provided: Exhibit 3 Actual cost of product manufactured For the year ended December 31, 20X7 Direct ingredients used Direct labour Manufacturing overhead Total manufacturing costs Add: beginning work-in-process Deduct: ending work-in-process Cost of goods manufactured The-Bar Alamonde $ 333,507 $ 232,724 135,876 123,926 476.954 367.795 $ 946,337 $ 724,445 1,196 837 (1.207) (815) $ 946.326 $724,467 Salt-Lick Total $ 129,948 $ 696,179 70,338 330,140 247 901 1,092.650 $ 448,187 $ 2,118,969 2,033 (2.022) $448.187 $ 2.118.980 Budgeted cost of product manufactured For the year ended December 31, 20X7 Direct ingredients used Direct labour Manufacturing overhead Total manufacturing costs Add: beginning work-in-process Deduct: ending work-in-process Cost of good manufactured The-Bar $ 330,271 147,744 518,685 $ 996,700 2,991 (2.885) 996.806 Alamonde $ 231,514 101,736 357 165 $ 690,415 2,094 (1.949) $ 690,560 Salt-Lick $ 128,694 57.996 203,607 $ 390,297 Total $ 690,479 307,476 1,079,457 $ 2,077,412 5,085 (4.834) $ 2,077.663 $ 390 297 Exhibit 4 Other budgeted and actual schedules are provided below to help with the analysis. Actual quantity and cost of direct ingredients For the year ended December 31, 20X7 Ingredient Price Cost Chocolate liquor $5.55/kg Cocoa butter $6.10/kg Cocoa powder $1.18/kg Cane sugar $0.70/kg Emulsifier $0.80/kg Vanilla $70/litre Almonds $10/kg Himalayan salt $5.50/kg Cost of ingredients Wrappers $0.08/bar Total cost The-Bar Quantity 27 160 $150,738 10,321 62,957 5.432 6,410 10,321 7.225 462 369 625 43,728 Alamonde Quantity Cost 18.480 $102,564 7,022 42.837 2,218 2,617 7.022 4,916 739 590 370 25,872 1.109 11,088 Salt-Lick Total Quantity Cost Quantity Cost 8,894 $49,359 54,534 $302.661 2,753 16.792 20.096 122,586 2,118 2,499 9,768 11,525 6 247 4,372 23,590 16,513 212 169 1,413 1,129 424 29,645 1,418 99,245 1,109 11,088 529 2.912 529 2,912 $105,748 $567,659 302,500 24,200 1,606,500 128.520 $129,948 S696,179 776,000 $271,427 62,080 $333,507 528,000 $190,484 42.240 $232,724 Budgeted quantity and cost of direct ingredients For the year ended December 31, 20X7 Ingredient Price Chocolate liquor $5.50 kg Cocoa butter $6.00/kg Cocoa powder $1.15/kg Cane sugar $0.70/kg Emulsifier $0 80/kg Vanilla $70/litre Almonds $10/kg Himalayan salt $5.50/kg Cost of ingredients Wrappers $0.08/bar Total cost The-Bar Quantity Cost 27,104 $149,072 10.300 61,797 5,421 6,234 10,300 7.210 461 389 625 43,637 Alamonde Quantity Cost 18.519 $101.852 7,037 42,222 2.222 2,556 7,037 4.926 741 593 370 25,926 1,109 11.111 Salt-Lick Total Quantity Cost Quantity Cost 8,861 $48,736 54,484 $299,660 2,743 16.456 20.079 120.476 2.110 2,426 9,753 11,216 6.224 4,357 23,560 16,492 211 169 1,412 1,130 424 29.537 1.418 99.101 1.109 11,111 529 2,901 29 2.901 $104,582 $662,087 302,500 24,112 1,606,500 128,392 $128,694 $690,479 776,000 $268,319 81,952 $330,271 528,000 $189,186 42,328 $231,514 Actual direct labour For the year ended December 31, 20X7 Direct labour hours Cost per direct labour hour Total actual direct labour costs Tho-Bar 4,105 33.10 $ 135,876 Alamonde 3.744 $ 33.10 $ 123,926 Salt-Lick 2.125 $33.110 $ 70,338 Total 9.974 $ 33.10 $ 330,140 Budgeted direct labour For the year ended December 31, 20X7 Alamondo Salt-Lick Total Direct labour hours Cost per labour hour Total budgeted direct labour cost The-Bar 4,560 $ 32.40 $ 147.744 3,140 $ 32.40 $ 101,736 1,790 $32.40 $ 57,996 9,490 $ 32.40 $ 307,476 Actual manufacturing overhead For the year ended December 31, 20X7 Variable Plant utilities $ 103,584 Plant maintenance 89,566 $ 193,150 Fixed Quality control $ 37,500 Computer and supplies 188,000 Plant and equipment amortization 150,000 Research and development 135,000 Indirect plant salary and wages 193,000 Plant lease 196.000 899.500 Total manufacturing overhead $ 1,092,650 Budgeted manufacturing overhead For the year ended December 31, 20X7 Variable Plant utilities $ 101,876 Plant maintenance 91,081 $ 192,957 Fixed Quality control $ 39,000 Computer and supplies 189,000 Plant and equipment amortization 150,000 Research and development 120,000 Indirect plant salary and wages 192,500 Plant lease 196.000 886.500 Total manufacturing overhead $ 1,079,457 Predetermined overhead rate = $1,079,457/9,490 direct labour hours = $113.74678 per direct labour hour One of the cost issues faced by the company is understanding what the variable costs are and what the fixed costs are. The manufacturing overhead schedule shows plant utilities as a purely variable cost yet even with no machinery running, the company gets a bill. So, a study was conducted on the plant utilities costs compared to direct machine hours. The information is provided below. Exhibit 5 Utilities costs and machine hour data The following are 23 months of data relating to monthly utilities costs and number of machine hours. Month Plant utilities Machine hours February 20X6 $ 8,674 650 March 20X6 8,500 625 April 20X6 8,750 629 May 20X6 9,483 745 June 20X6 9,497 664 July 20X6 9,611 748 August 20X6 8,687 653 September 20X6 8,338 656 October 20X6 8,703 699 November 20X6 8,931 701 December 20X6 7,870 610 January 20X7 7,328 571 February 20X7 8,084 620 March 20X7 8,506 665 April 20X7 8,591 662 May 20X7 9,516 749 June 20X7 9,431 656 July 20x7 9,608 761 August 20X7 8,674 656 September 20X7 8,421 667 October 20X7 8,674 690 November 20X7 8,843 671 December 20X7 7.908 621 Total $ 200.628 15.369 Exhibit 6 A consultant was hired last year to determine the cost pools of all company processes, but the information was never used to perform an activity-based costing analysis because of lack of time. What is needed is an activity-based analysis of current overhead allocations, and a proper cost of goods manufactured schedule. Below are the consultant's planning notes. Planning notes: Activity-based costing project - 20X6 : : Alan, President, Boston Bar Chocolate Company FROM: Solomon, ABC consultant RE: Activity-based costing project Thank you for giving me the opportunity to develop an activity-based costing approach for your product lines. The following is a summary of my findings. After viewing production processes and interviewing staff in operations, the following activity pools and the activity drivers were determined to adequately define the basic steps in the production line: Activity Activity driver Scheduling production runs Number of production runs Machine setup Setup hours Product administration Number of product lines Machine operations Machine hours Inspection Number of inspections Research and development R&D hours Plant lease Currently, your manufacturing overhead accounts consist of the following: plant utilities plant maintenance quality control computer and supplies plant equipment amortization research and development plant salary and wages (indirect) plant lease The balance in all of these accounts can be allocated to the three products using an activity-based approach except for the plant lease which is a facility-sustaining cost. The following are some key points to consider when allocating costs: Indirect labour is split between the following activities: o 45% for cleaning, preparing, and setting up machines for batch runs o 55% to scheduling production runs. This includes purchasing and releasing materials for production and scheduling production. Setup time for batches of The-Bar is the shortest at about one hour. The setup for the Alamonde bar takes longer (about three hours) because the particulate equipment has to be set up and tested in order to add almonds to the mix. The setup for the Salt-Lick bar takes the longest (about four hours) because the salt sprinkling machine must be set up and properly tested for correct temperature before the production run. Quality control is responsible for ensuring that the finished product achieves strict standards set out by the research department. Depending on the product, inspections are made at different stages of the process. Because it has no special additions, The-Bar is tested only at the refining stage and at the finished stage. In addition to these inspections, Alamonde is inspected after the particulate is added and Salt-Lick is inspected after the salt granules are added. All lab testing labour and supplies are currently allocated to the quality control account using the normal costing system After interviewing the systems administrator, it was discovered that most of the computer's time and supplies expense is used to schedule production runs in the factory and to order and pay for the materials required in each production run (approximately 80%). The remaining 20% of computer expense is allocated to keeping records of the three products and their production, so it would fall under product administration. Research and development activities are currently concentrated on improving the flavour and consistency of the particulates and salt added to the bars. Approximately 525 hours have been spent on researching a variety of ways that could possibly achieve this goal. As The-Bar does not contain any additional particulates, this cost is allocated to Alamonde and Salt-Lick based on research hours for each. Plant utilities, plant maintenance, and plant equipment amortization are incurred to supply machine time as part of machine operation to produce chocolate bars. Total 1,606,500 Production cost pools and related activities - based on 20x7 production Activity The-Bar Alamonde Salt-Lick Production volume (bars)" 776,000 528,000 302,500 Batch size (bars) 4,000 3,000 2,500 Machine hours per batch 13.0 18.0 19.0 Number of annual production runs 194 176 121 (batches) Number of inspections per batch Setup time (hours) 3 Number of product lines 1 Research and development hours 75 450 491 3 525 *Due to stable inventory levels, it is assumed that sales equal production. Illustration of cocoa bean processing and opportunities Procedure cocoa bean processing division Cocos cakes Sales va Grinding and packaging (Cost: 54.500) Cained baking COCOB Sales $28.000 $150 Raw Cacao beans $10,000 Roasting and refining process (Cost: 6.500 Chocolate quor les value: $64.000 Pressing and drying (Cost: 53.800) Cocoa butter Sales value $31.00 Sales opportunity Processing and sales opportunity The illustration is based on the following data: Unprocessed cocoa beans - price per 5,000 kg $10,000 Roasting and refining costs - resulting in chocolate liquor $6,500 Yield of chocolate liquor 80% Selling price of chocolate liquor per kilogram $13.50 Cost of processing liquor into cocoa butter and cakes $3,800 Yield of cocoa butter 55% Yield of cocoa cakes 45% Sales value of cocoa butter per kilogram $14.50 Sales value of cocoa cakes per kilogram $9.75 Cost of grinding cocoa cakes into powder and packaging $6,500 Yield of cans of powdered baking cocoa 6,800 Selling price per can of powdered baking cocoa $4.25 The final issue is the increasing cost of cocoa for production. Because of rising temperatures in cocoa-producing countries, it is predicted that many of Africa's cocoa- production areas will be too hot to grow cocoa crops in the near future. Some farmers are already replacing their cocoa crops with palm oil or rubber. This will put upwards pressure on the price of cocoa if there are fewer suppliers. Exhibit 8 Cash budget To compensate for this, a cash requirements budget for the coming year would be useful. The information is below. Production and cash requirements The following tables provide the details required to prepare the production and purchases budget for 20X8. Additional information is as follows: BBCC's accounts payable payment policy is to pay 80% of purchases in the quarter purchased and the remainder in the quarter following purchase. When planning for ending chocolate bar inventories, the company's policy is to have 7% of the next quarter's sales available on hand at the end of the quarter for The- Bar and Alamonde. Because Salt-Lick is made to order, no ending inventories of bars are kept. Also, it plans to have 9% of next quarter's estimated ingredients requirements on hand at the end of the quarter for all products. Table 1: Sales forecasts for 20x8 and the first half of 20x9 Quarter The-Bar Alamonde Salt-lick Total 20X8 Q1 180,400 118.800 66,000 365,200 20X8 Q2 187,000 123,200 69,300 379,500 20X8 Q3 206,800 134,200 77,000 418,000 20X8 Q4 178.200 116.600 68.200 363.000 20X8 totals 752,400 492,800 280,500 1,525,700 20x9 01 188,600 124.200 69,000 381,800 20x9 Q2 193,200 127,650 70,150 391,000 Table 2: Ending inventories and last-quarter ingredients purchases The-Bar 12,628 Alamonde 8.316 Salt-Lick 0 Almonds 23 kg Sugar Vanilla 482 kg 29 litres Fourth-quarter 20X7 purchases Sugar Vanilla $3,800 $23,000 Almonds $2.500 Table 3: Budgeted costs of ingredients (per 1,000 bars) The-Bar Alamonde Ingredients Price Chocolate liquor $5.50 per kg Cocoa butter $6.00 per kg Cocoa powder $1.15 per kg Cane sugar $0.70 per kg Emulsifier $0.80 per kg Vanilla $70.00 per litre Almonds $10.00 per kg Himalayan salt $5.50 per kg Other 0.08 per bar Total cost of ingredients $ 192.50 79.80 8.05 9.31 0.48 56.35 0.00 0.00 80.00 $ 426.49 $ 192.50 79.80 4.83 9.31 1.12 49.00 21.00 0.00 80.00 $ 437.56 Salt-Lick $ 161.70 54.60 8.05 14.46 0.56 98.00 0.00 9.63 80.00 $ 426.99 Table 4: Budgeted costs for systems upgrade Alan has been working with an outside computer consultant in relation to an upgrade to BBCC's information systems. The purpose of this systems project is to do the following: Integrate information systems between the cocoa bean and chocolate bar divisions. Upgrade BBCC's software to a mid-range ERP (enterprise resource planning) system. The consultant has prepared the following budget for the project: PROJECT Project Budget Networking and software upgrade Hoursuit by developent phase Cost by development phase Og Ae Des Tawy To 24 130 982 6. 1 888 . AUSS 11 2005 00 103 2011 13 SML 40 U 1 SH www Here Svens random. NO 2.1 31 1 + 401 100 SM 5.30 12500 + 5 . 500 S. LE A TEN org M 4.400 Twe 2 ERPs include modules or components that deal with all functions of a company, including finance, manufacturing, marketing, human resources, supply chain, and customer relationship management. The idea is that these systems integrate all of the functions of an organization and focus on processes The consultant has prepared the following budget for the project: Project Budget PROJECT: Networking and software upgrade Cost by development phase Hours/unit by development phase Charge out Implemen Total rate/hour Analysis Design tation hours unit or unit cos Cost categories Labour Analysis Design Implementation Total COME Total by COS category Project manager Application customization and implementation End user training Process analysis and development 256 40 50 110 224 100 180 250 136 95 176 120 516 5 175 $ 405 $ 480 $ 653 $ 167 168 S 146 272 $ 360 $ 14.750 5 36.900 $ 398 $ 19.000 $ 71,6405 301 $33 110 $ 75, 2150 $ S 2340385330.0625 B8 8085 12,915 5 70,048 5 38. 120 207 891 5 402, 248 64,575 161 588 144 480 772,891 $ 772,891 3 3 $ 156,500 $ $ $ 469,500 $ Hardware Seners Network connections (equipment and telecommunications) Network connection fees Hardware maintenance contract 469.500 1 $ 85,400 1 $ 2.500 1 $10,000 1 $ $ $ $ $ 85,400 $ 5 2.500 $ $ $ 5 87/9005 $ . 10,000 $ 479 500S 85.400 2.500 10.000 567400 $ 567.400 Software Application software licence fees Application maintenance contract $ 1 $ 25.000 1 $ 13,000 $ 25,000 $ 11 $ $ 13.0005 13 000S 25,000 13 000 38.000 $ Testing S 25.000 38,000 Testing 20 144 600 764 $ 100 2000 14.400S 60.000 76.400 5 76.400 Reserves (10% of total estimate) Total project cost estimate 2269445730 S $260,632 503,0983 74.739 835. 130$ 144.169S 1,598,860 144.169 1,598,860 The consultant will bill BBCC quarterly using the following completion rates. The amount is considered due at the end of each quarter for the year. Note that hardware and software costs are billed in total at the beginning of the phase they are implemented. All other costs are based on percentage completion of the phase. Analysis 25% 35% 50% 60% 75% 85% 85% 85% 90% 95% 100% January February March April May June July August September October November December YTD % completion Design Implementation 0 10% 20% 25% 30% 40% 10% 45% 20% 50% 25% 60% 40% 70% 50% 80% 60% 100% 75% The cash budget should account for these costs as billed by the consultant Exhibit 9 The-Bar - Data for break-even visualization (20X8 forecast) Table 1: Variable costs Description Cost Cost code Per LIQ Chocolate liquor BUT Cocoa butter POW Cocoa powder SUG Cane sugar EMU Emulsifier VAN Vanilla WRA Wrapper DLA Direct labour PLU Plant utilities MTC Plant maintenance COM Commission DEL Delivery and shipping Cost Cost behaviour classification (V/F) (PR/PE) V PR V PR V PR V PR V PR V PR V PR V PR V PR V PR $5.55 $6.10 $1.18 $0.70 $0.80 $70.00 $0.08 $33.10 $10.39 $8.98 KG KG KG KG KG LITRE EACH DLH DLH DLH Number of units In finished product 140.0 53.2 28.0 53.2 2.4 3.2 4,000.0 21.16 21.16 21.16 V V PE PE $0.05 $180.00 EACH EACH 4000 1 Table 2: Annual fixed costs FCost code FCost FDescription FCost FCost behaviour classification (V/F) (PR/PE) Quality control F PR Computer and supplies F PR Plant and equipment amortization F PR Research and development PR Plant salary F PR Plant lease PR Admin. salary PE Interest and bank charges PE Professional fees F PE Advertising and promotion PE Admin. computer services F PE CTL COM PEA RDE PSA PLE ASA INT PRO ADV ACM $15,430.00 $77,400.00 $61,740.00 $55,560.00 $79,440.00 $80,670.00 $85,000.00 $4,200.00 $8,750.00 $22,560.00 $45,000.00 You are Cindy, completing the analysis and developing a final report to Alan, president of BBCC. The report should analyze BBCC's current cost allocations and give advice for the future. It should be formatted as a memo and include the following: 1. Revised 20X7 income statement (7 marks) a) Manufacturing overhead allocation (2 marks) BBCC has adopted a normal costing approach with manufacturing overhead costs allocated based on direct labour hours. However, the actual cost of product manufactured report in Exhibit 3 in the Project Details document appears to have included an allocation of actual manufacturing overhead based on a percentage of sales. Revise this report so the normal costing approach adopted by the company is properly reflected. b) Income statement results (5 marks) Prepare a revised 20X7 actual income statement (Exhibit 2) using the cost of goods manufactured in part (a) and adjusting for over- or underapplied overhead. It is the company's policy to write off any total over- or underapplied overhead to the total cost of goods sold rather than individual products during the period in which it is incurred. Comment on the change in gross margin overall, and for each product individually, as a result of the changes applied. The finished product beginning and ending inventory for all three products is as follows: The-Bar Alamonde Salt-Lick Beginning inventory $17,561 $10,702 $0 Ending inventory 18,292 10,497 2. Overview of 20X7 results (6 marks) Prepare an overview of the 20x7 results. Discuss any significant differences between the 20x7 budget and the actual figures (Exhibits 2 to 4). Base the analysis on the revised figures from requirement 1. Your analysis should include a discussion of the following: difference between actual and budgeted sales quantities for each product changes in unit selling price and effect on sales . . . change in gross margin overall unit cost changes in direct ingredients changes in direct labour in relation to sales dollars A full variance analysis is not expected or required. Brief numerical summaries are encouraged to highlight changes. 3. Manufacturing overhead costs analysis (13 marks) a) Plant utilities cost analysis (3 marks) Prepare an analysis of utilities costs using the data provided in Exhibit 5. Using the high-low method, determine how much of the monthly utilities costs for the year are fixed versus variable. Your answer should consist of a cost formula. Determine the accuracy of this formula by applying it to the total machine hours in the 20X7 data from Exhibit 5 and comparing the result to the actual utilities cost. Consider that a discrepancy of 3% on this cost estimation is acceptable to management. (Note: Round the final fixed cost answer to the nearest dollar; however, do not round the variable cost figure when calculating total costs.) b) Capacity analysis i) (4 marks) Prepare an analysis that highlights idle capacity costs by analyzing 20x7 total manufacturing overhead costs (Exhibit 4), similar to the approach in Topic 2.3-10. Practical capacity is 12,000 direct labour hours (Note: Round the manufacturing overhead costs to the nearest dollar; however, do not round the MPH rate calculated when calculating the total costs.) ii) (4 marks) Explain the purpose of this analysis to management and the information it provides in relation to capacity utilization. c) Based on the results of requirements 1, 2, and 3 above, briefly comment on the manufacturing costs. (2 marks) 4. Dashboard presentation of break-even options and analysis. (6 marks) Prepare a presentation and analysis of the relationship between selling price and break-even units for The-Bar based on information provided in Exhibit 9. The purpose of the presentation is to assist the management team with cost and selling price planning for 20X8. The presentation will consist of a Power BI dashboard. The appendix at the end of this project provides instructions on how to find the data and create the dashboard using Power BI. The analysis should address the following: a) Using the 20X8 budget data provided, create a Power BI dashboard similar to the one in the appendix to this project. Based on the dashboard created, prepare an analysis that addresses the following questions: i) What is the break-even in batches? ii) Compare this to actual 20X7 sales of The-Bar. Your answer should include a brief discussion on the risk of loss including addressing the margin of safety. b) Consider that the current selling price of The-Bar ($1.50 per bar) can increase by 10% before sales will begin to drop off. What effect will this increase in price have on break-even sales? Discuss any significant differences. NOTE: The dashboard is interactive. Step 7 in the Appendix creates a slider that will allow you to change the total sales dollars per case. Move the slider to a point where the total selling price of a case $1.65 (or $1.50 plus 10%) displays and answer the above question. c) In reference to part a), assume BBCC has decided to only use product costs for their breakeven analysis. Use the interactivity of the dashboard as explained in Task 4 in the Appendix to display only product costs. NOTE: Clicking on the Product Costs section of either of the pie charts will make the following changes: All period costs on the bar chart become shaded. The break-even point in units will be recalculated without the period costs. This interactivity will help you answer this question. d) Identify any concerns you have with the quality of the data being used in this analysis. . NOTE: Insert into your project a screenshot of the completed dashboard, illustrating the break-even point in units at a selling price of $6,000 ($1.50 per bar). Additionally, use screenshots of the dashboard to reinforce your discussion. While the dashboard must consist of all elements displayed, your placement of the visualizations can be arranged differently. 5. Cocoa bean processing division options (8 marks) a) (4 marks) Based on the information provided by the cocoa bean processing division manager from Exhibit 7, assess the total gross profits and total gross margin percentage of each of the following options (include total joint costs in your calculation, but do not allocate the joint costs to individual products): i) Current sales of cocoa butter and cocoa cakes ii) Proposed sales of cocoa butter and canned, powdered baking cocoa iii) Proposed sales of chocolate liquor Comment on which of the three options is most desirable for the company to pursue and why (consider other non-financial concerns that should also be taken into consideration). b) (4 marks) Allocate joint costs using the following options and methods: i) Based on the current sales of cocoa butter and cocoa cakes, use the sales value at split-off method. ii) Based on the proposed sales of cocoa butter and canned, powdered baking cocoa, use the net realizable method. Note on rounding: Use unrounded numbers for all calculations and round the final answer to the nearest dollar. 7 PROJECT DETAILS Since the first candy bar was made in Great Britain by Joseph Fry in 1847, companies have continued to perfect the quality of this decadent treat. The Boston Bar Chocolate Company (BBCC) is no exception. BBCC began operations 10 years ago by two brothers, Alan and Calvin, who had a passion for chocolate and a vision for creating a treat that was both tasty and healthy. is vision. The company's slogan is "Raising THE-BAR on health," and for good reason. Customers keep coming back for more, not only because of The-Bar's great taste, but also because of the growing number of health reports stating that the flavanols in chocolate help to reduce blood pressure and increase memory retention. BBCC roasts its own cocoa beans to ensure maximum flavanol content. This gives BBCC a competitive advantage in the premium-quality chocolate market. The two brothers continue to own a majority of the shares and are actively involved in the company - Alan as president and Calvin as marketing manager. Divisions and processes BBCC's processing plant consists of two divisions: the cocoa bean division and the chocolate bar division. The cocoa bean division purchases the raw cocoa beans and ferments and roasts them. The products and byproducts that cannot be used in the chocolate bar division are packaged and sold to customers for a variety of other final products. The chocolate bar division produces the wrapped chocolate bars that are sold to retailers. All products follow the same mixing procedure and some products have an additional step of adding particulates such as almonds or salt granules. The mixture is then poured into moulds, cooled, separated into bars, and wrapped. While most of the resources in the two divisions are separate, the divisions operate on the same premises. Chocolate bar division The chocolate bar division currently produces 1.6 million chocolate bars per year. This represents around 80% of its practical capacity. Practical capacity is 12,000 direct labour hours or about 2 million bars per year. In addition to The-Bar, the chocolate bar division also produces a version of The-Bar with almonds called Alamonde and another with pieces of pink Himalayan salt called Salt-Lick. Most national grocery chains carry The-Bar and Alamonde. In addition, health-food stores carry Salt-Lick as a health booster because the Himalayan pink salt is said to detoxify the body by balancing pH. Because Salt-Lick is fairly new, it is produced as a special order and no inventory is kept on hand. It takes about the same amount of effort and resources to produce The-Bar as it does to produce Alamonde. As such, a process costing system is used. The batches are processed in a similar manner and receive the same amount of direct labour costs, basic ingredients, and manufacturing overhead costs. Therefore, these costs are averaged over all batches. The production process involves several operations in which conversion costs and ingredients are added to manufacture the product. Ingredients are added at the beginning of each operation. Direct labour costs and overhead are added evenly throughout the process based on direct labour hours. While the Salt-Lick bar is also processed in batches, it is special ordered, and production runs are scheduled based on demand. As a result, costs are assigned to a distinct batch using a job costing system. Current situation Alan has not been complacent about the success of the company. He continually monitors progress and scrutinizes costs. While candy bar consumption has fallen, the overall consumption of chocolate per capita in the market is stable, and the company has been able to maintain its market share due to continued consumer demand for healthy chocolate products. However, Alan would like to ensure that the company is adequately controlling costs and reducing risk. As such, he would also like to make some pricing predictions on his products. Recently, Alan engaged Cindy, CPA, to review the latest operating statements. He anticipates that Cindy will be able to provide some insight into how to be proactive in addressing some of the issues. The following exhibits provide more details on these issues along with details about the budgeted and actual financial position of the company. This information will be used to complete the requirements of Project 1 and Project 2 Note: To reduce complexity in the case study, process costing is used. A batch system like candy bar production would normally use an operational costing system, which is a hybrid of process and job costing Geluis Exhibit 1 The Skinny-Bar According to the latest market research, there is a rising health concern resulting from the over-consumption of products with high sugar content. Some think that the industry may be faced with government regulations to lower the sugar content in chocolate bars. While the company hasn't been affected by this yet, it wouldn't take long to feel the effects of a major news network reporting on the confectionary industry's use of sugar in its products. To mitigate this risk, about three years ago, marketing and production managers got together to pilot a chocolate bar called the Skinny-Bar. The product manager, Ned, was able to develop a great-tasting product with stevia as a substitute for sugar. It was introduced into the market in early June of 20X5 as an even healthier version of The- Bar. The intention was to take advantage of the peak in demand for chocolate during the Christmas season. Because the advertising campaign was delayed, the general public wasn't aware of the product, and its introduction generated a loss. However, the company managers have been discussing the potential to look at this product again. Should the decision be made to reintroduce the Skinny-Bar, $900,000 ($300,000 per year for three years) of research and development will be needed to get the product ready for market. The company should be able to sell 300,000 bars per year and analysis shows that these levels are likely to hold for the next 10 years. The direct ingredients, direct labour costs and fixed general and administrative expenses from the 20X5 original plan are valid numbers for planning a relaunch. In addition, an activity-based approach for the manufacturing overhead would best and further information for doing an ABC analysis is provided in the planning notes in Exhibit 6. it would be useful to reprice the Skinny-Bar using the activity-based approach and BBCC's latest markup policy of 20% of full cost. Because Skinny-Bar does not have any particulates, it would be logical to use the ABC activities and analysis from The-Bar to cost the manufacturing overhead for Skinny-Bar. Unfortunately, true financial information for Skinny-Bar is not available because the product information was combined with the costs and revenues of the The-Bar product for the year. The only information about this product is below in Exhibit 1. Dela Exhibit 1 Planning notes from the 20X5 launch of the Skinny-Bar 20X5 actual sales Total manufacturing costs $288,600 230,880 (Total manufacturing cost consists of $115,440 in prime costs and $147,186 in conversion costs.) The contribution margin ratio for this product was 35%. 156,000 bars were sold at $1.85 per bar. This was a pilot project of the product, so there were no beginning or ending inventories associated with the product. All non-manufacturing costs relating to this product are fixed. The margin of safety percentage for the product at this sales level was -15%. The profit margins on the company's current products can be found below in Exhibit 2. The most profitable product is the Salt-Lick bar at 25.9%, followed by Alamonde at 19.3% and The-Bar at 18.8%. Budgeted margins were 14.3%, 27.5%, and 35.2% for The-Bar, Alamonde, and Salt-Lick, respectively. Exhibit 2 Actual operating income statement For the year ended December 31, 20X7 The-Bar Per bar Alamonde Per bar Salt-Lick Total Per bar 776,000 $1,164,000 $1.50 945,595 528,000 $ 897,600 724,672 $1.70 302,500 $ 605,000 $2.00 448,187 1,606,500 $2,666,600 2.118,454 $ 218,405 $ 172,928 $ 156,813 Volume Sales Cost of goods sold Gross margin Selling and administrative expenses Operating income Gross margin % $ 548,146 541681 $ 6,465 18.8% 19.3% 25.9% 20.6% Total Budgeted operating income statement For the year ended December 31, 20X7 The-Bar Per Alamonde Per Salt-Lick Per bar bar bar 774,400 529,100 301,400 $1,161,600 $1.50 $ 952,380 $1.80 $ 602,800 $2.00 996.034 690.756 390.297 1,604,900 $2,716,780 2077087 $ 165,566 $ 261,624 $ 212,503 Volumes Sales Cost of goods sold Gross margin Selling and administrative expenses Operating income Gross margin % $ 639,693 542 554 $ 97.139 14.3% 27.5% 35.2% 23.5% In order to properly analyze the financial statements, the following information is also provided: Exhibit 3 Actual cost of product manufactured For the year ended December 31, 20X7 Direct ingredients used Direct labour Manufacturing overhead Total manufacturing costs Add: beginning work-in-process Deduct: ending work-in-process Cost of goods manufactured The-Bar Alamonde $ 333,507 $ 232,724 135,876 123,926 476.954 367.795 $ 946,337 $ 724,445 1,196 837 (1.207) (815) $ 946.326 $724,467 Salt-Lick Total $ 129,948 $ 696,179 70,338 330,140 247 901 1,092.650 $ 448,187 $ 2,118,969 2,033 (2.022) $448.187 $ 2.118.980 Budgeted cost of product manufactured For the year ended December 31, 20X7 Direct ingredients used Direct labour Manufacturing overhead Total manufacturing costs Add: beginning work-in-process Deduct: ending work-in-process Cost of good manufactured The-Bar $ 330,271 147,744 518,685 $ 996,700 2,991 (2.885) 996.806 Alamonde $ 231,514 101,736 357 165 $ 690,415 2,094 (1.949) $ 690,560 Salt-Lick $ 128,694 57.996 203,607 $ 390,297 Total $ 690,479 307,476 1,079,457 $ 2,077,412 5,085 (4.834) $ 2,077.663 $ 390 297 Exhibit 4 Other budgeted and actual schedules are provided below to help with the analysis. Actual quantity and cost of direct ingredients For the year ended December 31, 20X7 Ingredient Price Cost Chocolate liquor $5.55/kg Cocoa butter $6.10/kg Cocoa powder $1.18/kg Cane sugar $0.70/kg Emulsifier $0.80/kg Vanilla $70/litre Almonds $10/kg Himalayan salt $5.50/kg Cost of ingredients Wrappers $0.08/bar Total cost The-Bar Quantity 27 160 $150,738 10,321 62,957 5.432 6,410 10,321 7.225 462 369 625 43,728 Alamonde Quantity Cost 18.480 $102,564 7,022 42.837 2,218 2,617 7.022 4,916 739 590 370 25,872 1.109 11,088 Salt-Lick Total Quantity Cost Quantity Cost 8,894 $49,359 54,534 $302.661 2,753 16.792 20.096 122,586 2,118 2,499 9,768 11,525 6 247 4,372 23,590 16,513 212 169 1,413 1,129 424 29,645 1,418 99,245 1,109 11,088 529 2.912 529 2,912 $105,748 $567,659 302,500 24,200 1,606,500 128.520 $129,948 S696,179 776,000 $271,427 62,080 $333,507 528,000 $190,484 42.240 $232,724 Budgeted quantity and cost of direct ingredients For the year ended December 31, 20X7 Ingredient Price Chocolate liquor $5.50 kg Cocoa butter $6.00/kg Cocoa powder $1.15/kg Cane sugar $0.70/kg Emulsifier $0 80/kg Vanilla $70/litre Almonds $10/kg Himalayan salt $5.50/kg Cost of ingredients Wrappers $0.08/bar Total cost The-Bar Quantity Cost 27,104 $149,072 10.300 61,797 5,421 6,234 10,300 7.210 461 389 625 43,637 Alamonde Quantity Cost 18.519 $101.852 7,037 42,222 2.222 2,556 7,037 4.926 741 593 370 25,926 1,109 11.111 Salt-Lick Total Quantity Cost Quantity Cost 8,861 $48,736 54,484 $299,660 2,743 16.456 20.079 120.476 2.110 2,426 9,753 11,216 6.224 4,357 23,560 16,492 211 169 1,412 1,130 424 29.537 1.418 99.101 1.109 11,111 529 2,901 29 2.901 $104,582 $662,087 302,500 24,112 1,606,500 128,392 $128,694 $690,479 776,000 $268,319 81,952 $330,271 528,000 $189,186 42,328 $231,514 Actual direct labour For the year ended December 31, 20X7 Direct labour hours Cost per direct labour hour Total actual direct labour costs Tho-Bar 4,105 33.10 $ 135,876 Alamonde 3.744 $ 33.10 $ 123,926 Salt-Lick 2.125 $33.110 $ 70,338 Total 9.974 $ 33.10 $ 330,140 Budgeted direct labour For the year ended December 31, 20X7 Alamondo Salt-Lick Total Direct labour hours Cost per labour hour Total budgeted direct labour cost The-Bar 4,560 $ 32.40 $ 147.744 3,140 $ 32.40 $ 101,736 1,790 $32.40 $ 57,996 9,490 $ 32.40 $ 307,476 Actual manufacturing overhead For the year ended December 31, 20X7 Variable Plant utilities $ 103,584 Plant maintenance 89,566 $ 193,150 Fixed Quality control $ 37,500 Computer and supplies 188,000 Plant and equipment amortization 150,000 Research and development 135,000 Indirect plant salary and wages 193,000 Plant lease 196.000 899.500 Total manufacturing overhead $ 1,092,650 Budgeted manufacturing overhead For the year ended December 31, 20X7 Variable Plant utilities $ 101,876 Plant maintenance 91,081 $ 192,957 Fixed Quality control $ 39,000 Computer and supplies 189,000 Plant and equipment amortization 150,000 Research and development 120,000 Indirect plant salary and wages 192,500 Plant lease 196.000 886.500 Total manufacturing overhead $ 1,079,457 Predetermined overhead rate = $1,079,457/9,490 direct labour hours = $113.74678 per direct labour hour One of the cost issues faced by the company is understanding what the variable costs are and what the fixed costs are. The manufacturing overhead schedule shows plant utilities as a purely variable cost yet even with no machinery running, the company gets a bill. So, a study was conducted on the plant utilities costs compared to direct machine hours. The information is provided below. Exhibit 5 Utilities costs and machine hour data The following are 23 months of data relating to monthly utilities costs and number of machine hours. Month Plant utilities Machine hours February 20X6 $ 8,674 650 March 20X6 8,500 625 April 20X6 8,750 629 May 20X6 9,483 745 June 20X6 9,497 664 July 20X6 9,611 748 August 20X6 8,687 653 September 20X6 8,338 656 October 20X6 8,703 699 November 20X6 8,931 701 December 20X6 7,870 610 January 20X7 7,328 571 February 20X7 8,084 620 March 20X7 8,506 665 April 20X7 8,591 662 May 20X7 9,516 749 June 20X7 9,431 656 July 20x7 9,608 761 August 20X7 8,674 656 September 20X7 8,421 667 October 20X7 8,674 690 November 20X7 8,843 671 December 20X7 7.908 621 Total $ 200.628 15.369 Exhibit 6 A consultant was hired last year to determine the cost pools of all company processes, but the information was never used to perform an activity-based costing analysis because of lack of time. What is needed is an activity-based analysis of current overhead allocations, and a proper cost of goods manufactured schedule. Below are the consultant's planning notes. Planning notes: Activity-based costing project - 20X6 : : Alan, President, Boston Bar Chocolate Company FROM: Solomon, ABC consultant RE: Activity-based costing project Thank you for giving me the opportunity to develop an activity-based costing approach for your product lines. The following is a summary of my findings. After viewing production processes and interviewing staff in operations, the following activity pools and the activity drivers were determined to adequately define the basic steps in the production line: Activity Activity driver Scheduling production runs Number of production runs Machine setup Setup hours Product administration Number of product lines Machine operations Machine hours Inspection Number of inspections Research and development R&D hours Plant lease Currently, your manufacturing overhead accounts consist of the following: plant utilities plant maintenance quality control computer and supplies plant equipment amortization research and development plant salary and wages (indirect) plant lease The balance in all of these accounts can be allocated to the three products using an activity-based approach except for the plant lease which is a facility-sustaining cost. The following are some key points to consider when allocating costs: Indirect labour is split between the following activities: o 45% for cleaning, preparing, and setting up machines for batch runs o 55% to scheduling production runs. This includes purchasing and releasing materials for production and scheduling production. Setup time for batches of The-Bar is the shortest at about one hour. The setup for the Alamonde bar takes longer (about three hours) because the particulate equipment has to be set up and tested in order to add almonds to the mix. The setup for the Salt-Lick bar takes the longest (about four hours) because the salt sprinkling machine must be set up and properly tested for correct temperature before the production run. Quality control is responsible for ensuring that the finished product achieves strict standards set out by the research department. Depending on the product, inspections are made at different stages of the process. Because it has no special additions, The-Bar is tested only at the refining stage and at the finished stage. In addition to these inspections, Alamonde is inspected after the particulate is added and Salt-Lick is inspected after the salt granules are added. All lab testing labour and supplies are currently allocated to the quality control account using the normal costing system After interviewing the systems administrator, it was discovered that most of the computer's time and supplies expense is used to schedule production runs in the factory and to order and pay for the materials required in each production run (approximately 80%). The remaining 20% of computer expense is allocated to keeping records of the three products and their production, so it would fall under product administration. Research and development activities are currently concentrated on improving the flavour and consistency of the particulates and salt added to the bars. Approximately 525 hours have been spent on researching a variety of ways that could possibly achieve this goal. As The-Bar does not contain any additional particulates, this cost is allocated to Alamonde and Salt-Lick based on research hours for each. Plant utilities, plant maintenance, and plant equipment amortization are incurred to supply machine time as part of machine operation to produce chocolate bars. Total 1,606,500 Production cost pools and related activities - based on 20x7 production Activity The-Bar Alamonde Salt-Lick Production volume (bars)" 776,000 528,000 302,500 Batch size (bars) 4,000 3,000 2,500 Machine hours per batch 13.0 18.0 19.0 Number of annual production runs 194 176 121 (batches) Number of inspections per batch Setup time (hours) 3 Number of product lines 1 Research and development hours 75 450 491 3 525 *Due to stable inventory levels, it is assumed that sales equal production. Illustration of cocoa bean processing and opportunities Procedure cocoa bean processing division Cocos cakes Sales va Grinding and packaging (Cost: 54.500) Cained baking COCOB Sales $28.000 $150 Raw Cacao beans $10,000 Roasting and refining process (Cost: 6.500 Chocolate quor les value: $64.000 Pressing and drying (Cost: 53.800) Cocoa butter Sales value $31.00 Sales opportunity Processing and sales opportunity The illustration is based on the following data: Unprocessed cocoa beans - price per 5,000 kg $10,000 Roasting and refining costs - resulting in chocolate liquor $6,500 Yield of chocolate liquor 80% Selling price of chocolate liquor per kilogram $13.50 Cost of processing liquor into cocoa butter and cakes $3,800 Yield of cocoa butter 55% Yield of cocoa cakes 45% Sales value of cocoa butter per kilogram $14.50 Sales value of cocoa cakes per kilogram $9.75 Cost of grinding cocoa cakes into powder and packaging $6,500 Yield of cans of powdered baking cocoa 6,800 Selling price per can of powdered baking cocoa $4.25 The final issue is the increasing cost of cocoa for production. Because of rising temperatures in cocoa-producing countries, it is predicted that many of Africa's cocoa- production areas will be too hot to grow cocoa crops in the near future. Some farmers are already replacing their cocoa crops with palm oil or rubber. This will put upwards pressure on the price of cocoa if there are fewer suppliers. Exhibit 8 Cash budget To compensate for this, a cash requirements budget for the coming year would be useful. The information is below. Production and cash requirements The following tables provide the details required to prepare the p