Task 3:

Prepare the following planned values:

a.Contribution and contribution / sales ratio (for each product and in total) and the gross profit

(in total only - see note)

b.Preparing a reconciliation to explain the difference between the total gross profits established using an absorption costing system (task 2 d.) and a marginal costing system (task 3 a.)

task 2d: Answers

Fabien Ltd Trading accounts (Gross profits and gross profit margins) (Planned December 2020)

Gross profits and margins: Order 1101 'Sky' Order 1102 'Sun' Order 1103 'Moon' Totals

Sales 58,500 33,250 63,250 155,000

Less cost of sales 21,988.30 25,770.06 17,395.04 18,254.83

Gross profit

(Absorption

system): 36,511.70 7,479.94 44,995.17 88,986.80

Gross profit

margin: 62.40% 22.50% 71.10% 57.40%

Note to task 3 a. & b.:

The requirement of task 3 should be established using a marginal costing system where:

• All direct costs are classified as variable
• All indirect production overheads are classified as fixed

These notes should be 'short explanatory notes' that will serve to define the terminology used and explain the workings (and results) to a colleague who does not work in the finance office.

Catherine Smith, the company sales manager has commented that product 'Sun' (Order 1102) is not performing well and the company profits would increase if this product was removed from the range.

Fabien Ltd - continued: Fixed indirect production overheads: Indirect production overheads are fixed (unaffected by production activity levels) at 841,500 per month. This value has been allocated and apportioned to the 3 production departments as follows: Production department: Machining Painting Assembly Total Fixed costs (allocation / apportionment) E19,400 E8,600 E13,500 E41,500 Bases for absorption: Machining department = Machine hours Painting department = Direct labour hours Assembly department = Direct labour hours Note: The quantity for absorption basis (for each production department) should be established using the total departmental resources requirement shown in the tables above. Required:Find Aa Ap BA A AaBbCcL AaBbCcDd AaBbCc[ AaBbCc] AaBbCcD AaBbC AaBbCct AaBbCCI Replace Emphasis 1 Heading 1 1 Normal Strong Subtitle Title No Spac... Subtle Em.. Select Create and Adobe Paragraph Styles Editing Ado Fabien Ltd - continued: Fabien Ltd - continued: Fabien Led - Production Process Flowchart The production process: The production process of Fabien Ltd takes place through 3 production departments; machining, painting Start Materials and assembly. movement process Machining department: Direct materials are transferred from the direct materials stores to the machining department. These are transformed using direct labour employees and machine processes into machined goods. The total Machining department: Materials movements of the prime costs add the fixed production overhead (allocated and / or apportioned) is the total cost Direct materials and internal transfer of machined goods transferred to the painting department. For the machining department, the direct Add Direct labour (E13.00 per hour) inspection processes labour employees are paid at a rate of $13.00 per hour and the variable machine cost is E8.00. Add Direct expenses (E8.00 per machine hour) Add Fixed indirect production overhead costs absorbed Painting department: = Total cost of machined goods Incremental direct materials are transferred from the direct materials stores to the painting (Transferred out to painting department) department. These are combined with the machined goods transferred in and are transformed using direct labour employees and machine processes into painted goods. The total combined costs add the fixed production overhead (allocated and / or apportioned) is the total cost of painted goods Painting department transferred to the assembly department. For the painting department, the direct labour employees are Direct materials paid at a rate of E15.00 per hour and the variable machine cost is $6.00. Materials movements Add machined goods transferred IN and internal transfer Add Direct labour ($15,00 per hour) inspection processes Assembly department: Add Direct expenses (86.00 per machine hour) Incremental direct materials and components are transferred from the direct materials stores to the Add Fixed indirect production overhead costs absorbed assembly department. These are combined with the painted goods transferred in and are transformed = Total cost of painted goods using direct labour employees and machine processes into saleable finished goods. The total Transferred out to assembly department) combined costs add the fixed production overhead (allocated and / or apportioned) is the total cost of the saleable finished goods transferred to the finished goods warehouse. For the assembly department, the direct labour employees are paid at a rate of E11.00 per hour and the variable Assembly department: machine cost is $7.00. Direct materials Add painted goods transferred IN Add Direct labour (E11.00 per hour) Add Direct expenses (E7.00 per machine hour) The production process is described in the production process flowchart below: Add Fixed indirect production overhead costs absorbed - Total cost of saleable finished goods produced (Transferred out to finished goods warehouse) Materials movements and internal transfer Finished goods warehouse inspection processes End Note: The costs of materials movements between departments and internal inspection checks are included in indirect production overheads. The above flowchart is an outline process only and does not include control decision, documentation raising and filing requirements.Financial and Management Information Systems (FMIS) - CRN 35565 Fabien Ltd Task: 3 a Contribution and C/S ratio (Planned December 2020 - To max 4 marks) Order 1101 Order 1102 Order 1103 Contributions and profits "Sky' 'Sun' "Moon' E Selling price Less variable / prime cost per unit - Unit contribution: C/S ratio: Total x Units sold E = Total contribution earned: Less total fixed costs: Gross profit (marginal basis): Note to workings (Gross profits - marginal system / observations - To max 3 marks):Financial and Management Information Systems (EMIS) - CRN 35565 Task: 3b Fabien Ltd Reconciliation of profits -(To max 4 marks) Difference in profits: Gross profit (absorption system) Gross profit (marginal system) Difference (to be reconciled Order 1101 Order 1102 Order 1103 Reconciliation: Sky' 'Sun' 'Moon' Total overhead + Total production (units) = Overhead per unit Total (as above) X closing inventory (units) = Overhead held in inventory: Note to workings (Reconciliation of profits / explanation - To max 3 marks):Fabien Ltd - continued: Trading (production and sales): You should assume that today is Monday 23d November 2020. Sales: The company has the following sales orders to be delivered during December 2020. Order / product: Order 1101 Order 1102 Order 1103 "Sky' `Sun' "Moon Quantity to be delivered (sales in units) 650 950 1,150 Selling price (per unit) 190 635 E55 Production: The production schedule for December 2020 (product quantities and production resources requirement) is shown below. Order / product: Order 1101 Order 1102 Order 1103 "Sky" `Sun' 'Moon' Finished goods: Quantity to be produced 790 1,000 1,320 Note: At 1" December 2020 there will be no opening inventory of finished goods. Resources requirement for production: Direct costs (variable costs): Order / product: Order 1101 Order 1102 Order 1103 "Sky' `Sun" Moon' Machining department: Totals Incremental materials cost E1,440 E720 E1,150 E3,310 Direct labour hours (total) 102 144 72 318 hours Machine hours (total) 186 221 144 551 hours Painting department: Incremental materials cost E864 E1,740 E288 12,892 Direct labour hours (total) 144 114 90 348 hours Machine hours (total) 114 60 30 204 hours Assembly department: Incremental materials cost E1,150 E1, 150 $720 E3,020 Direct labour hours (total) 216 258 204 678 hours Machine hours (total) 60 72 102 234 hours FOO