Problem 1: The following sales performance indicators (in units) were identified for Elephant Corporation with consideration of high level performance using materials and processes that are environmentally friendly. The budget also considered social factors within the context of the current timeframes and logistics of the organisation including the capacity of the organisation.
|
Quarter
|
1
|
2
|
3
|
4
|
Total
|
|
Sales
|
500
|
1,500
|
3,000
|
10,000
|
15,000
|
Required:
a) The new responsible employee calculated the budget had a surplus of $70,000 for the year and a fourth quarter surplus of $69,000. If each unit was budgeted to sell for $8 and the budgeted outflows for the four quarters were, $12,000, $22,000, $7,000 and $1,000 is there a discrepancies and if so how would it be handled?
b) How should environmental and social factors such as human resource management be handled in a budget?
Question 2 - Black Neddy Ltd. produces two types of electronic skate boards the Crusty and the Wave. The Crusty skateboard is a high volume product and the Wave is a low volume skate board which is a specialized line.
The company currently allocates overhead to products at the rate of 800% of direct labour costs. Product costs are as follows:
|
|
Crusty
|
Wave
|
|
Direct Material
|
$100
|
$500
|
|
Direct Labour
|
$100
|
$300
|
|
Manufacturing Overhead (@ 800%)
|
$800
|
$2,400
|
|
Total Product Cost
|
$1,000
|
$3,200
|
The Black Neddy Ltd. accountant named Rolf was asked to implement ABC. He identified the following four activities, cost drivers and estimated overhead amount and cost driver for each activity.
|
Activity
|
Cost Driver
|
Budgeted Overhead
|
Budgeted Cost Driver
|
|
Purchasing Materials
|
Number of orders
|
$60,000
|
300 orders
|
|
Machines Setups
|
Number of Setups
|
$80,000
|
80 setups
|
|
Inspection
|
Hours of inspection
|
$70,000
|
1,000 hours
|
|
Running Machines
|
Machine Hour
|
$120,000
|
6,000 hours
|
|
Total
|
|
$330,000
|
|
During the month of January, Rolf collected the following information about the actual number of cost driver units and the number of units produced for each product.
|
|
Crusty
|
Wave
|
|
Purchasing materials (orders)
|
180
|
40
|
|
Machine setups
|
12
|
60
|
|
Inspection (Hours)
|
500
|
200
|
|
Running Machines (Hours)
|
6,000
|
2,000
|
|
Units Produced
|
3,000
|
200
|
Required:
a) Use a spreadsheet e.g. Microsoft Excel to calculate the unit cost for each product using ABC. The spreadsheet must be submitted with the answer.
b) Calculate and compare the selling price of each product assuming a markup of 60% of total product cost.
c) If a traditional costing system was used and overhead was applied at a rate of 500% of direct material what would be the cost of the products?
d) The Black Neddy Ltd. Business Plan has a reference to the use of the traditional costing system which states "the traditional costing system will be used as it has been in place for the last decade and it has served the company well". Identify a conflict between your findings and the company's commitment in the Business Plan to using the traditional costing system and resolve that conflict by describing the benefits the system you believe will serve them better. Question 3 - The Brown Cow Corporation's sales staff determined the following sales data for next year after evaluation of the market research, current trends and past performances. The number of expected sales of Molten Milk Perfume and Molten Yogurt Skin Treatment is 16,000 units and 7,000 units respectively. The sales price is expected to be $18 for Molten Milk Perfume and $15 for Molten Yogurt Skin Treatment. Management has approved the projections. Brown Cow Corporation wants to have 12,000 units of Molten Milk Perfume and 3,000 units of Molten Yogurt Skin Treatment remaining at the end of the production. The stock at start was 2,000 units of Molten Milk Perfume and 6,000 units of Molten Yogurt Skin Treatment. The raw material stock on hand was 7,000 kilograms for Molten Milk Perfume and 1,000 kilograms for Molten Yogurt Skin Treatment. Molten Milk Perfume requires 3 kilograms of material and Molten Yogurt Skin Treatment require 2 kilograms. The required stock at end is 22,000 kilograms for Molten Milk Perfume and 9,000 for Molten Yogurt Skin Treatment. The cost per kilogram of the material is 37 cents.
There are three aspects to the production of Molten Milk Perfume and Molten Yogurt Skin Treatment being stripping, churning and slicing. The amount of hours per labour type for Molten Milk Perfume is 1, 1 and 1 respectively. For Molten Yogurt Skin Treatment it is 0.5, 0.5 0.5. Production staff is paid $32 per hour.
Required:
a) Prepare the following budgets (forecast/projection) for the Brown Cow Corporation:
- Sales Budget
- Production Budget
- Direct Materials Budget.
- Labour Budget
Problem: Brown Cow Corporation Ltd. expects to receive 10% of their monthly sales for cash and receives 30% the month after, 40% the month after, 10% the month after and 5% the month after. Prepare a Cash Budget for July if March sales were $155,000, April sales were $167,000, May sales were $188,000, June's sales were $195,000 and July sales were expected to be $188,000. Sundry cash inflow was expected to be $6,900 and 5% of the sales were expected to become bad debts. Indirect labor was expected to be $20,000 and indirect materials were expected to cost $25,000. Fixed overheads were expected to be $350,000. All cash outflows were expected to be equal each month.
c) Having done such a good job of preparing the budget at Brown Cow Corporation you have been given a promotion and substantial pay rise. Your first task is to write clear and unambiguous instructions which comply with organization format to prepare either the sales budget, production budget, direct materials budget or labor budget. The organisation format is 1. Title 2. Step by step approach to preparing the relevant budget 3. Conclusion. The instructions will be used by the person who has taken over your old job. You must ensure that your instructions are so easy to use that they will promote consistency of interpretation by anyone undertaking the task.
d) Prepare a relevant aid to support your instructions from part c of the question.
e) You are aware that it is important to ensure a comprehensive understanding of relevant models and to be able to effectively use the relevant models. You are preparing a heading to store your instructions and aid which will be relevant in the industry. To enable effective financial models to be selected complete with training what types of business does Brown Cow Corporation Ltd. operate? Note you are only required to provide a relevant business type to answer this question.
Question 4 - Stonehedge Ltd. have provided their budget information in the table below. They use a flexible budget system and actually used 40,000 machine hours for the month of May. The actual costs for May were indirect material $122,000; indirect labour $195,000; rent $56,000 and electricity $54,000.
Herbert has recently promoted Fred to the position of buying manager and he has negotiated some new agreements including a rental agreement for the same operating space. Barney had mentioned to his wife Betty that the factory next door had been vacant for quite some time and was offering a low rental agreement. Barney had noticed that Fred was resistant to new techniques saying it was like he is living in the Stone Age. Since Fred's promotion Barney has been left to deal with the machinery and yet he is not strong in that area and he feels his solutions are really just band aids and eventually a disaster will occur. Barney has already asked their boss Herbert if he could employ a maintenance manager to cover for Fred but the response was they could not afford another person at this stage. Barney is getting quite stressed and he wonders whether he could ask Fred for some help with the machinery and he could offer to help him with the buying. Fred is his best friend and next door neighbor so he did not want to put pressure on him and he didn't want him to feel he was being undermined as he really did not want his promotion as the extra responsibility did not sit well with him and the money wasn't worth it to him. In some ways he felt the promotion would isolate him from his friends.
Budget information for May
|
Machine hours
|
35,000
|
|
Indirect material
|
$105,000
|
|
Indirect labour
|
$175,000
|
|
Rent
|
$55,000
|
|
Electricity
|
$45,000
|
|
Total
|
$380,000
|
Calculations of rates:
Indirect material: $105,000/35,000 = $3
Indirect labour: $175,000/35,000 = $5
Rent: $55,000 fixed rate
Electricity: $45,000 (10,000 + $1 x 35,000)
Required:
a) Model using a flexible budget performance report as a review and analysis of actual results compared to budget to ensure consistency in a clear and unambiguous way.
b) Review and identify any areas or organisational programs which may be inhibiting performance and detail how they could be minimised or eliminated in line with available resources.
c) What question would you ask of whom to help you refine your answer to part b?
d) Using your answer in part c develop a communication strategy to facilitate the extension of improvement options in line with operational goals and needs including how you will implement it.
Question 5: Comfort Blinds Industry furnishes you with the following information, from their last year of trading, i.e. 30/6/20XX. The client has identified their parameters as being:
Current ratio to be no less than 2:1
Quick asset ratio to be no less than 1:1
Debt ratio to be no more than 0.60 or 60%
Comfort Blinds Industry Profit Statement for year ending 30/6/20XX
|
|
$
|
$
|
|
Credit Sales
|
6,385,000
|
|
|
Less COGS
|
3,300,000
|
|
|
Gross Profit
|
|
3,085,000
|
|
Less Expenses
|
|
|
|
Operating Expenses
|
650,000
|
|
|
Selling Expenses including Commissions
|
375,000
|
|
|
Administrative Expenses
|
240,000
|
|
|
Interest
|
220,000
|
1,485,000
|
|
|
|
|
|
Net Profit
|
|
1,600,000
|
|
Less Tax 30%
|
|
480,000
|
|
Net Profit after Tax
|
|
1,120,000
|
Comfort Blinds Industry Balance Sheet as at 30/6/XX
|
Current Assets
|
Current Liabilities
|
|
Inventory
|
650,000
|
|
Bank O/D
|
97,000
|
|
|
A/c Rec.
|
650,000
|
1,300,000
|
Creditors
|
428,000
|
525,000
|
|
Non-Current Assets
|
Non-Current Liabilities
|
|
Land & Building
|
2,400,000
|
|
Mortgage Loan
|
85,000
|
|
|
Plant & Equipment
|
1,680,000
|
4,080,000
|
Debenture Loan
|
800,000
|
885,000
|
|
|
Shareholders' Funds
|
|
Capital
|
2,874,000
|
|
|
Retained Profit
|
1,096,000
|
3,970,000
|
|
5,380,000
|
5,380,000
|
Required:
a) The management of Comfort Blinds Industry want you to model the financial statements by consolidating them into in the specific format required below. From the details provide an analysis and evaluation. Ensure your results are in a format suitable to meet needs of your target user.
- Profitability
- Liquidity
- Efficiency
- Financial Stability
b) How would you ensure the data collected by Comfort Blinds Industry is reliable, valid, complete and comprehensive?
c) Examine the external environment e.g. the present state of the economy and the industry in which Comfort Blinds Industry trades and give an objective overview to contextualize your answer in (a) above.) Write a letter to the client confirming your findings including how the identified parameters performed. Seek in your letter feedback on the service you have provided.
e) You believe Comfort Blinds Industry should prepare a report like the one you have prepared each quarter to ensure they are staying on track. The Comfort Blinds Industry management has agreed and are dedicating an administrative assistant to the process and you are going to manage the process and the staff member. Write a script between yourself and the authorized party about the implementation process of this initiative. Ensure the authority raises a question about the process and about your service standards. Show how you have changed your plan and addressed your shortfalls in customer service based on the points made by the authorized person. Ensure your script includes a question where you are seeking clarification on one aspect of the implementation process.
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