Question 1

Bokco is a manufacturing company. It has a small permanent workforce but it is also reliant on temporary workers, whom it hires on three-month contracts whenever production requirements increase. All buying of materials is the responsibility of the company's purchasing department and the company's policy is to hold low levels of raw materials in order to minimise inventory holding costs. Bokco uses cost plus pricing to set the selling prices for its products once an initial cost card has been drawn up. Prices are then reviewed on a quarterly basis. Detailed variance reports are produced each month for sales, material costs and labour costs. Departmental managers are then paid a monthly bonus depending on the performance of their department.

One month ago, Bokco began production of a new product. The standard cost card for one unit was drawn up to include a cost of $84 for labour, based on seven hours of labour at $12 per hour. Actual output of the product during the first month of production was 460 units and the actual time taken to manufacture the product totalled 1,860 hours at a total cost of $26,040.

After being presented with some initial variance calculations, the production manager has realised that the standard time per unit of seven hours was the time taken to produce the first unit and that a learning rate of 90% should have been anticipated for the first 1,000 units of production. He has consequently been criticised by other departmental managers who have said that, 'He has no idea of all the problems this has caused.'

Required:

(a) Calculate the labour efficiency planning variance and the labour efficiency operational variance AFTER taking account of the learning effect.

Note: The learning index for a 90% learning curve is -01520 (5 marks)

(b) Discuss the likely consequences arising from the production manager's failure to take into account the learning effect before production commenced. (5 marks)

(10 marks)

Question 2

The Safe Soap Co makes environmentally-friendly soap using three basic ingredients. The standard cost card for one batch of soap for the month of September was as follows:

Material Kilograms Price per kilogram ($)

Lye 025 10

Coconut oil 06 4

Shea butter05 3

The budget for production and sales in September was 120,000 batches. Actual production and sales were 136,000 batches. The actual ingredients used were as follows:

Material Kilograms

Lye 34,080

Coconut oil 83,232

Shea butter 64,200

Required:

(a) Calculate the total material mix variance and the total material yield variance for September. (8 marks)

QUESTION 3

KeepItUp Bhd is a very successful multinational retail company. It has been selling a large range of household and electronic goods for some years. One year ago, it began using new suppliers from the China, where labor is very cheap, for many of its household goods. In 2018, KeepItUp Bhd also became a major provider of 'cloud computing' services, investing heavily in cloud technology. These services provide customers with a way of storing and accessing data and programs over the internet rather than on their computers' hard drives.

All KeepItUp Bhd customers have the option to sign up for the company's 'Gold' membership service, which provides next day delivery on all orders, in return for an annual service fee of RM40. In September 2019, KeepItUp Bhd formed its own logistics company and took over the delivery of all of its parcels, instead of using the services of international delivery companies.

Over the last year, there has been worldwide growth in the electronic goods market of 20%. Average growth rates and gross profit margins for cloud computing service providers have been 50% and 80% respectively in the last year.

KeepItUp Bhd's prices have remained stable year on year for all sectors of its business, with price competitiveness being crucial to its continuing success as the leading global electronic retailer.

The following information is available for KeepItUp Bhd for the last two financial years:

Notes 31 August 2020 31 August 2019

RM'000 RM'000

Revenue 1 94,660 82,320

Cost of sales 2 (54,531) (51,708)

Gross profit 40,129 30,612

Administration expenses 3 (2,760) (1,720)

Distribution expenses (13,420) (13,180)

Other operating expenses (140) (110)

Net profit 23,809 15,602

Notes:

1. Breakdown of revenue

31 August 2020 31 August 2019

RM'000 RM'000

Household goods 38,990 41,160

Electronic goods 41,870 32,640

Cloud computing services 12,400 6,520

Gold membership fees 1,400 2,000

94,660 82,320

2. Breakdown of cost of sales

31 August 2020 31 August 2019

RM'000 RM'000

Household goods 23,394 28,812

Electronic goods 26,797 21,216

Cloud computing services 4,240 1,580

Gold membership fees 100 100

54,531 51,708

3. Administration expenses

Included in these costs are the costs of running the customer service department (RM860,000 in 2019; RM1,900,000 in 2020.) This department deals with customer complaints.

4. Non-financial data

31 August 2020 31 August 2019

Percentage of orders delivered on time 74% 92%

No. of customer complaints 1,400,000320,000

No. of customers 7,100,000 6,500,000

Percentage of late 'Gold' member deliveries 1400% 200%

REQUIRED:

Discuss the Financial and Non-Financial Performance of KeepItUp Bhd for the year ending 31 August 2020. ( 25 MARKS)

QUESTION 4

Fitness First Co manufactures three types of fitness equipment: treadmills (T), cross trainers (C) and rowing machines (R). The budgeted sales prices and volumes for the next year are as follows:

T C R

Selling price RM1,600 RM1,800 RM1,400

Units 420 400 380

The standard cost card for each product is shown below.

T C R

RMRMRM

Material 430 500 360

Labor 220 240 190

Variable overheads 110 120 95

Labor costs are 60% fixed and 40% variable. General fixed overheads excluding any fixed labor costs are expected to be $55,000 for the next year.

REQUIRED:

A.Calculate the weighted average contribution to sales ratio for Fitness First Co using the formula of Total Contribution/Total Sales Revenue for the three products. (9 Marks)

B.Calculate the margin of safety in RM revenue for Fitness First Co. (5 Marks)

C.Using a graph paper and assuming that the products are sold in a CONSTANT MIX, draw a multi-product break even chart for Fitness First Co. Label fully both axes, any lines drawn on the graph and the breakeven point. (6 Marks)

D.Explain what would happen to the breakeven point if the products were sold in order of the most profitable products first. (5 Marks)

QUESTION 5

Excellent Sdn Bhd is preparing its budgets for the coming year. It expects to be able to sell 10,000 units of its only product, ExSmart, in January 2020. Sales are then expected to rise to 11,000 units in February and 14,000 units in March, and then remain stable for the rest of the year. Excellent Sdn Bhd aims to carry a finished goods inventory at the end of each month equal to 10% of the following month's sales. Each ExSmart takes four labor hours to make.

The company's 280 production workers are employed on contracts that require them to work a minimum of 160 hours per month and are each paid RM1,280 per month. Production workers are highly skilled and require a minimum of one year's training. In short term, it is not possible to recruit any more production workers. Any labor hours required in excess of 160 hours per worker are made up by overtime that is paid at basic rate plus an overtime premium of 50%.

You are required to prepare, for the first three months of 2020:

i. A production budget, showing opening and closing inventories of finished goods. (8 Marks)

ii.A labor budget, showing both hours and labor cost. (7 Marks)