Description
University of South Australia
ACCT 2013 Cost Management and Control Systems
Major Assignment: Case Study (Weighting: 50%)
PART A – Excel Report: due on 4 October 2023, 11.59 pm and
Individual Assignment
Disclaimer: The information used in this assignment is fictitious and does not represent any business or industry’s actual financial performance or position.
Case Study: Background
Modern Living manufactures customised timber pergolas for residential and commercial use.
The company sells exclusively to distributors, who in turn sell to independent stores and retail chains. With the recent downturn in the pergolas and carport market, Modern Living experienced a decline in financial performance. Company’s CEO, Nathan Chan is concerned and asked for a budget report from the management accountant on its performance during August 2023. The management team is in the process of preparing and analysing the 2023 budget and put together the following information.
Annual sales are expected to be 4,600 pergolas (Residential: 2 100 units; Commercial: 2 500 units). Budgeted sales for the period of July and August 2023 are provided below (Table 1).
All sales are on credit. A 5% discount is offered if payment is made in the month of sale.
Table 1: Standard/Budgeted Sales in Units and Dollars for July and August 2023
| Residential | Commercial | |||
| Units | Price per unit | Units | Price per unit | |
| July | 250 | $2850 | 160 | $6250 |
| August | 270 | $2750 | 200 | $6800 |
The annual production is expected to be 4,600 pergolas (Residential: 2 100 units; Commercial: 2 500 units). Table 2 identifies the material requirements and costs for each pergola. These costs are not expected to change during the budgeted period. Assume that all units manufactured in August are sold in August.
Table 2: Standard/Budgeted Direct Materials – Inputs and Costs as at August 2023
| Residential | Commercial | |||
| Quantity * | Cost ** | Quantity * | Cost ** | |
| Oak Timber | 2.5 | $35.50 | 5 | $45.50 |
| Pine Timber | 3 | $44.00 | 4 | $55.00 |
| Metal | 1.5 | $77.50 | 3 | $112.50 |
*metre **per metre
All direct materials are purchased and used in the same budget period. There are no inventories of direct materials, work in process or finished goods at either the beginning or the end of the period. The cost per pergola is determined by the standard costs for direct materials, direct labour, variable overhead and fixed overhead.
Direct labour for pergolas is divided into two processes: Assembly and Installation. The following information is provided for all classes of direct labour for each of the pergola.
Table 3: Standard/Budgeted Direct Manufacturing Labour – Inputs and Costs for August 2023
| Residential | Commercial | |||
| Hours * | Cost ** | Hours * | Cost ** | |
| Labour – Assembly | 40 | $40 | 60 | $60 |
| Labour – Installation | 20 | $32 | 25 | $38 |
* direct labour hours **per hour
Modern Living is currently using an Activity Based Costing system to allocate costs more effectively between the two types of product lines manufactured in order to remain competitive as far as their pricing is concerned. It classifies variable overhead into three activity pools: setup (based on batch set-ups); machine maintenance (based on machine time) and engineering (based on engineering cost). Based on these classifications, management has calculated the estimated variable overhead rates as follows:
The budgeted manufacturing variable overhead rate per unit are:
o Residential: $88
o Commercial: $203
Modern Living’s actual results for August 2023 are as follows:
Table 5: Actual Sales in Units and Dollars for July and August 2023
| Residential | Commercial | |||
| Units | Price per unit | Units | Price per unit | |
| July | 260 | $2750 | 150 | $6800 |
| August | 300 | $2650 | 150 | $6900 |
Table 6: Actual Direct Materials – Inputs and Costs as at August 2023
| Residential | Commercial | |||
| Quantity * | Cost ** | Quantity * | Cost ** | |
| Oak Timber | 2.6 | $33.00 | 5.2 | $40.00 |
| Pine Timber | 3.5 | $38.00 | 5 | $52.50 |
| Metal | 3 | $59.00 | 5 | $98 |
*metre **per metre
Table 7: Actual Direct Manufacturing Labour – Inputs and Costs for August 2023
| Residential | Commercial | |||
| Hours * | Cost ** | Hours * | Cost ** | |
| Labour – Assembly | 48 | $35.00 | 50 | $62.00 |
| Labour – Installation | 18 | $33.00 | 20 | $42.00 |
* direct labour hours **per hour
Actual variable overhead rates for the three activities are estimated and based on this information, the actual variable manufacturing overhead rate per unit is calculated as below:
o Residential: $70
o Commercial: $250
Modern Living do not assume fixed cost to be driven by any activity. The management estimated the fixed cost to be $960,000 per year. However, $1,300,000 fixed cost was incurred during the year.
Required: PART A: Budget Report (10%) (Due date: Excel Report: 4 October 2023)
✓ Calculate the flexible budget variances and sales volume variances for August 2023 based on the information provided in the Tables above in both dollars and percentages using the below format which is prescribed by Modern Living’s management.
| Actual Results | Flexible Budget variance | F/U | % | Flexible budget | Sales Volume Variance | F/U | % | Static budget | |
| Units sold | |||||||||
| Residential | |||||||||
| Commercial | |||||||||
| Revenues | |||||||||
| Residential | |||||||||
| Commercial | |||||||||
| Total sales revenue | |||||||||
| Direct materials | |||||||||
| Oak timber (Residential) | |||||||||
| Pine timber (Residential) | |||||||||
| Metal (Residential) | |||||||||
| Oak Timber (commercial) | |||||||||
| Pine timber (commercial) | |||||||||
| Metal (commercial) | |||||||||
| Total Direct materials | |||||||||
| Direct labour | |||||||||
| Residential: labour – assembly | |||||||||
| Labour – installation | |||||||||
| Commercial: labour – assembly | |||||||||
| Labour installation | |||||||||
| Total Direct Labour | |||||||||
| Variable overhead | |||||||||
| Variable overhead- Residential | |||||||||
| Variable overhead- commercial | |||||||||
| Total variable overhead costs | |||||||||
| Total variable costs | |||||||||
| Contribution margin | |||||||||
| Fixed manufacturing costs | |||||||||
| Operating profit | |||||||||
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