Question 4:

Brighton North management has recently appointed a new general manager, Ms Lisa White, to look after the new plant. Ms White has noticed that the company's profit has been declining and the company is experiencing problems. After further investigation, Ms White found that the spinning car wheels that have been launched last year are no longer profitable. The company accountants prepared the June contribution format income statement for spinning wheels as attached

Flexible Budget Actual Sales (15,000 spinning wheels) $675,000 $675,000 Variable expenses: Variable cost of goods sold* 435,000 461,890 Variable selling expenses 20,000 20,000 Total variable expenses 455,000 481,890 Contribution margin 220,000 193,110 Fixed expenses: Manufacturing overhead 130,000 130,000 Selling and administrative 84,000 84,000 Total fixed expenses 214,000 214,000 Net operating income (loss) $ 6.000 $ (20,890) "Contains direct materials, direct labour, and variable manufacturing overhead. The new general manager, Lisa White, has been given instructions to "get things under control." Upon reviewing the income statement, Ms. White has concluded that the major problem lies in the variable cost of goods sold. She has been provided with the following standard costs per spinning car wheel: Standard Quantity Standard Price Standard or Hours or Rate Cost Direct materials 3.0 kgs $5.00 per kg $ 15.00 Direct labour 0.8 hours $16.00 per hour 12.80 Variable manufacturing overhead 0.4 hours* $3.00 per hour 1.20 Total standard cost per unit $29.00 *Based on machine-hours