Recent Question/Assignment

Holmes Institute HI5025 Memo 02 – Trimester 02, 2014
Background:
Mr David Buttoner the owner operator of Buttons by David Pty Ltd. runs a number of button
lines. His favourite is a cut stag-horn button that has gold filigree. Using a variable costing
approach, the revenues and costs per 100 buttons is:
However, that line is not popular with the customers and generates a substantial loss for the
company. The stag horn button inventory has built-up over the past year to 30,000 buttons.
Required:
As the External Auditor and using a standard format memo (i.e. a short report of ½ to 1 ½
pages) please explain to Mr David Buttoner:
1) Whether the staghorn inventory meets the definition of an Inventory,
2) The current full-absorption amount of the staghorn button inventory in the Books-ofAccount.
3) Why and by how much the staghorn inventory needs to be written-down (e.g. the
Lower of Cost or Market; cite the AASB Handbook section and show calculations to
justify your amount).
4) Discuss other solutions such as raising the price and or redesigning the buttons.
This is to be answered in your groups of 3-6 students, where each group will submit one
report with the names and student numbers of all group members in the heading. The
assignment is due 14 May/14, in class.
NB: you need to identify the key question and to reorganise the rest of the memo to resolve
that question.
The marking rubric that will guide the marking is posted to the assignment section of the
HI5025 Blackboard site.
Table 1: Stag Horn Button Costs per 100 Buttons
Sales Revenue $200.00
VC of materials – Stag horn $40.00
– Gold wire 50.00 $90.00
VC of labour – Cutting $ 5.00
– Wire inlay 35.00
– Polishing 8.00 48.00
VC of MO/H – Indirect Materials $ 2.00
– Indirect Labour 5.00
– Other MO/H 15.00 22.00
VC of SG&A 5.00 $165.00
Contribution Margin $ 35.00
FC of MO/H $ 100.00
FC of SG&A 25.00 $125.00
Profit/(loss) before Taxes ($90.00)

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