Assessment Information – Semester 1; 2017
Subject Code: ACCT 204
Subject Name: Management accounting
Assessment Title: Individual Assignment-Case study
Word count: 900 words
Weighting: 25%
Due Date: Week 11 Monday 11 pm
Topic: Activity based costing
Assessment Description
You are required to complete the assessment task noted below as a word document and submit your answer electronically through turn it in within LEO; Instructions are on LEO.
Any work which has been copied or shared among students will result in a Fail grade for all students concerned. This assignment must be in your own words and not copied directly from any source.
Stylish Ltd sells two models of coffee tables: Casual and Deluxe. Direct materials inventory and finished goods inventory are costed using the first-in first-out (FIFO) method. Unit costs of direct materials purchased and unit costs of finished goods sold remain unchanged throughout the budget year. There are two types of direct materials namely XX and YY; XX is the material used as the legs of the table and YY is the materials used as the surface top of the table. The height of the table is one meter. Direct manufacturing labour workers are hired on an hourly basis and no overtime is normally allowed for. Frank Morton, one of the workers, who frequently exceeds 40 hours per week, thus receiving overtime.
The CEO Luis Franco and Julius Frino, the manufacturing manager is generally happy with Frank’s works, but the manager talks to Frank constantly about working more quickly. Frank’s overtime causes the actual direct labour costs to exceed the direct labour cost budget almost every month (reporting period).
Direct manufacturing labour-hours is the cost driver for the variable portion of manufacturing operations overhead. The fixed component of manufacturing operations overhead is tied to the manufacturing capacity of 300,000 direct manufacturing labour-hours that Stylish has planned for 2017.
Setup labour-hours is the cost driver for the variable portion of machine setup overhead. The fixed component of machine setup overhead is tied to the setup capacity of 15,000 setup labour-hours that Stylish has planned for 2017.
There are two cost drivers for manufacturing overhead costs – direct manufacturing labourhours and setup labour-hours. Stylish allocates all (variable and fixed) manufacturing overhead costs using direct manufacturing labour hours and machine setup overhead costs using setup labour-hours. The manufacturing direct labour hours overhead costs budget for the year ending 30 June 2017 is $9,000,000 and the machine setup overhead costs budget is $3,000,000.
Stylish Ltd applies activity-based budgeting whereby the number of ‘Casual’ tables to be produced in batch is 50 while the number of ‘Deluxe’ tables to be produced in batch is 40. The setup time per batch is 10 hours for ‘Casual’ table and 12 hours for ‘Deluxe’ table.
Non-manufacturing costs consist of product design, marketing, and distribution costs. All product design costs are fixed costs for 2017. The variable component of marketing costs equals the 6.5% sales commission on revenues paid to salesperson. The variable portion of distribution costs is $2 per cubic meter of tables moved.
The following data are available for the 2017 budget:
Direct material XX $7 per meter (same as 2016)
Direct material YY $10 per square meter (same as 2016)
Direct labour $20 per hour
Product design costs $1,200,000 (same as 2016)
Fixed marketing costs $1,300,000 (same as 2016)
Fixed distribution costs $1,250,000 (same as 2016)
Content of each product (table):
Casual Table Deluxe Table
Direct material XX 12 meter 12 meter
Direct material YY 6 square meter 8 square meter
Direct labour 4 hours 6 hours
Changes in inventory level in finished goods inventory:
Casual Table Deluxe Table
Expected sales in units 50,000 10,000
Selling price $600 $800
Target ending inventory in units 11,000 500
Beginning inventory in units 1,000 500
Beginning inventory in dollars $384,000 $262,000
Changes in inventory level in direct material inventory:
XX YY
Beginning inventory 70,000 meter 60,000 sq. m.
Target ending inventory 80,000 meter 20,000 sq. m.
Stylish Ltd bases its budgeted cost information on the costs it predicts it will incur to support its revenue budget, taking into account the efficiency improvements it expects to make in 2017. Some suggested budgets that might be useful to prepare in table format are provided in the later pages of this assignment.
Requirements:
1. The CEO, Luis Franco, and the financial controller, Arthur Batten, are currently evaluating the usefulness of Activity based costing (ABC). Provide an argument for and against the benefits of ABC. The arguments must be backed up by peer review journals and articles from the CPA/CA journals only.
2. Luis Franco is concerned that his manufacturing manager Julius Frino is not familiar with the Industrial award that should be used for his staff. Find an appropriate award and provide a summary of the hourly wages/weekly wages and associated penalties inclusion overtime.
Part 3-CALCULATION SECTION-Use Excel -must be attached to the report
3. Discuss the results of sensitivity analysis of the changes in the selling prices (Casual and Deluxe type) and costs of raw materials (XX and YY) have on the operating income of Stylish Ltd. The workings as well as the master budget (operating budget) needed for Stylish Ltd should be included at the back of the assignment as appendix and excluded in the word count.
4. Suggest what might be done to solve the problem or improve the situation of Frank Morton.
Marking criteria and the Rubrics are on the unit outline, appendix 2
Revenues’ budget
For the year ending 30 June 2017
Quantity (units) Selling Price Total revenues
Casual
Deluxe
Total
Production budget (in units)
For the year ending 30 June 2017
Casual Deluxe
Budgeted unit sales
Target ending finished goods inventory
Total required units
Deduct: beginning finished goods inventory
Units of finished goods to be produced
Direct materials usage budget (in units)
For the year ending 30 June 2017
XX YY
Direct materials required for Casual tables
Direct materials required for Deluxe tables
Total quantity of direct materials to be used
Direct materials usage budget (in dollars)
For the year ending 30 June 2017
XX YY
Beginning direct materials inventory
Purchased direct materials during the period
Direct materials to be used
Direct material purchases budget
For the year ending 30 June 2017
Physical Units Budget
To be used in production
Add: Target ending inventory
Total Requirements
Less: Beginning inventory
Purchases to be made (in quantity)
Purchases in dollars
Direct labour cost budget
For the year ending 30 June 2017
Output units produced Direct labour hours per unit Total hours Hourly wage rate Total
Casual
Deluxe
Total
Stylish Ltd applies activity-based budgeting whereby the following information is available:
Casual tables Deluxe tables
Quantity of tables to be produced
Number of tables to be produced per batch
Number of batches
Setup time per batch
Total setup hours
Setup-hours per table
Unit Costs of Ending Finished Goods Inventory
Cost per unit ‘Casual’ input Total ‘Deluxe’ input Total
XX
YY
Direct labour
Manufacturing overhead
Machine setup overhead
Total
Ending Finished Goods Inventories budget
Quantity Cost per unit Total
Casual
Deluxe
Total
Cost of Goods Sold Budget
For the year ending 30 June 2017
Beginning finished goods inventory, 1/7/16
Direct materials used
Direct manufacturing labour
Manufacturing overhead
Cost of goods manufactured
Cost of goods available for sale
Less: Ending finished goods inventory, 30/6/17
Cost of goods sold
Nonmanufacturing costs budget
For the year ending 30 June 2017
Business function Variable costs Fixed costs Total costs
Product design
Marketing
Distribution
Total
Budgeted income statement
For the year ending 30 June 2017
Revenues
Cost of goods sold
Gross Margin
Operating costs
Product design costs
Marketing costs
Distribution costs
Operating income