Question 2

Lucy is an accountant for Bored Skateboards. The company sells one type of skateboard and has the following sales budget for 2021.

Q1

Q2

Q3

Q4

Total

Expected sales units

1500

3000

2200

2500

9200

Selling Price

$25

$25

$25

$25

$25

Total sales revenue

$37,500

$75,000

$55,000

$62,500

$230,000

Lucy would like to prepare production budget. According to a recent stocktake the beginning inventory for Q1 was 300 skateboards. The inventory manager wants to ensure the ending inventory for each quarter is double the expected sales for the following quarter. Expected sales for Q1 2022 are 2000 skateboards.

Required

a)Prepare the production budget for Q1, Q2, Q3 and Q4. Show your calculations.

[5 marks]

b)Each skateboard requires a 30cm*10cm piece of plywood; however, the inventory manager orders 45*10cm pieces of plywood and scraps the remainder. Lucy is concerned this will impact on the company in a non-financial way. Explain what Lucy means by this.

[2 marks]

c)Lucy approached the manager with the production budget. The Manager dismissed Lucy and said he was not interested in looking at a budget. Explain why it is important for the manager to be involved in the budgetary process. Give two (2) examples.

[2 marks]

d)Management is currently awarded bonuses based on reaching sales targets. Provide two (2) example of possible social performance perspective targets and environmental perspective targets to be implemented by the company.

[4 marks]

e)Lucy prepares a materials budget for 2021. At the end of 2021 she checks the materials in the warehouse and is surprised to find there is a 25% variance to her budget. List three (3) possible reasons for this variance.

[2 marks]

[Total for Question 2 = 15 marks]

Question 3

Calypso Wines has two potential new product lines available.The CEO only wants to implement one of the product lines as she believes the business does not have the capacity to implement multiple new lines.The available data for each of the lines is as follows:

Pinot Grigios

Cost of growing grapes (includes pesticides)

$3,360

Labour

1 hour per bottle at $24

Electricity costs per bottle

$7

Packaging and transportation to buyer

$15 per bottle

Sale price per bottle

$60

Riesling

Cost of growing grapes (includes pesticides)

$4,760

Labour

1.5 hour per bottle at $24

Electricity costs per bottle

$7

Packaging and transportation to buyer

$15 per bottle

Sale price per bottle

$75

a)Determine which of the proposed product lines has the lowest break-even point. Explain why this should be a factor in the CEO's decision making. Show your calculations.

[3 marks]

b)The CEO would like to implement the Riesling line as this has the highest sales price per bottle. Explain to the CEO why this is not the only factor to be considered when comparing the product lines.

[2 marks]

c)After making some enquiries you find out that thePinot Grigiosrequires 1000 litres of water per 200 bottles. TheRieslingrequires 1000 litres per 250 bottles.All water used is sourced from a dam on the property and does not create additional costs. Nearby Vineyards have recently begun marketing their wines as environmentally friendly.Will this information impact your advice as to which line should be implemented? Explain your answer.

[2 marks]

d)The CEO advises she can decrease the cost of acquiring the grapes for both lines by $500 if she switches to a non-organic pesticide. Would you advise the CEO to make this switch? Explain your answer.

[2 marks]

e)The sales manager receives a 1% bonus on all gross sales. Would this mean the sales manager would be more inclined to push sales of Pinto Grigios or Riesling? Do you think this is the most effective bonus scheme for the sales manager? Explain your answer.

[2 marks]

f)Calypso wines does not have a mission statement. Explain to the CEO how a mission statement would influence the relevant costs when comparing the product lines.

[2 marks]

g)The CEO states that she wants to make a profit of $20,000 within the first 3 months of launching the new product.How many bottles of Pinot Grigios would they need to sell to achieve this profit? Show calculations. Round to the nearest whole number if necessary.

[1 mark]

h)Gives two (2) examples of ways in which Calypso wines can decrease their break-even point without reducing the selling price of their bottles.

[1 mark]

[Total for Question 3 = 15 marks]