Description
UNIVERSITY OF SUNDERLAND
LEVEL: 6
MODULE: STRATEGIC MANAGEMENT ACCOUNTING
ASSIGNMENT CODE: APC309
Submission Date: Friday, July 5th, 2024
Assessment weight: 100% of module
Assignment Requirements
You are required to SELECT 2 questions out of 3 presented below. Each question accounts for 50% of a total of 100%.
Question 1. Limiting factors and optimal production programme.
The Managing Director of Gamma Flooring Ltd. emailed you, as a Management Accountant, with some concerns about the current production mix and inability to meet customer demand. Please see his email below. ————————————————————————————————————–
To: Management Accountant
From: John Smiles, Managing Director
Re: Gamma Flooring optimal production plan
Date: 14 Nov 2023
“Dear Management Accountant,
I have recently reviewed Gamma Flooring’s plans for production and the raising product demand; and I am increasingly concerned about our production line ability to fulfil all the orders on time. The machinery in our factories is not the newest and may be limiting us in achieving the full demand. According to the analysis provided by the Production Manager las week, the machinery can operate at maximum 2,500 hours per week. I am, therefore, writing to ask you to:
- a) Review the below product details and demand and propose the optimal production plan that will help Gamma Flooring to maximise profits along with the profit statement. (20 marks)
- b) As we have a limited factor of machine hours, if we are unable to fulfil demand for all products within the limit, please can you calculate the net benefit (if any) that we could achieve by asking our staff to work overtime. The overtime would be paid at 50% above normal labour rates, and variable overhead costs would be expected to increase in proportion to labour costs. (10 marks)
- c) As the production capacity is our limiting factor, can you please critically evaluate the benefits and limitations of outsourcing some of Gamma Flooring’s production to external suppliers. – 350 words (15 marks)
Please do let me know your findings (both quantitative and qualitative) in a written memo as to the expected contribution and any issues that could arise that we would need to review in the future. (5 marks)
Many thanks, John Smiles, Managing Director, Gamma Flooring Ltd
| Product A-Vinyl sheet £ per unit | Product B-Vinyl Tile £ per unit | Product C- Luxury Vinyl Tile £ per unit | Product D- Carpet Tile £ per unit | |
| Selling Price | 32 | 35 | 55 | 48 |
| Direct Material | 5 | 6 | 9 | 7 |
| Direct Labour | 6 | 6 | 12 | 12 |
| Variable Overhead | 3 | 3 | 6 | 6 |
| Fixed Overhead | 9 | 9 | 18 | 18 |
| Profit | 9 | 11 | 10 | 5 |
| Labour Hours | 1 | 1 | 2 | 2 |
| Machine Hours | 4 | 3 | 4 | 2 |
| Units | Units | Units | Units | |
| Max Demand per week | 250 | 190 | 250 | 300 |
*Fixed Overhead – Absorbed on budgeted labour hours of 1000 per week.
Question Guide: In your answer you can include (in your logical order and approach):
- The calculations of the product contribution (per limiting factor) and the production plan for the available machine hours.
- The calculation of the net benefit (if any) when the overtime is offered to staff, including information on the additional cost per unit and the revised contribution per unit.
- A memo-style response to the Managing Director to indicate your findings (points a & b) and include suggestions to overcome the production limitations (c).
Question 2: Budgets
Strong Bond Ltd is preparing its annual budget for the year ending 31st December 2024. The company manufactures and sells one product (strong-bond glue) which has a selling price of £420. The marketing team of Strong Bond Ltd believes that the selling price of the glue is marketed too low and should be increased to £460 with effect from 1st July 2024. If the price is increased, the sales volumes for each quarter of 2024 will be as below:
Sales Volume
Quarter 1 28 000
Quarter 2 23 000
Quarter 3 17 000
Quarter 4 32 000
For 2025, sales for each quarter are expected to be 45,000 units.
Each unit of strong-bond glue requires 4 units of component R and 3 units of component T. Both components are purchased from the external supplier at below prices:
Component R £4.50 each
Component T £2.50 each
These prices were agreed with the current supplier at the same price for all quarters of 2024.
In addition, below production data is available to help with budgeting:
- It takes 5 labour hours to assemble the two components (R & T) into a finished product.
- Labour is paid at £6 p/hour and a 7% increase in salary costs is expected from October 2024.
- Variable Overhead costs are expected to be £9 per unit for the whole year of 2024.
- Fixed Production Overhead costs are excluded from the budget.
- Stocks / Inventories on 31st December 2023 are expected as follows: Finished units – 8,500 units
- Closing stocks / inventories at the end of each quarter are to be as below: Finished units 10% of next quarter’s sales
Requirements:
As a Management Accountant for Strong-Bond Ltd., you are required to:
a) Prepare the following budgets of Strong-Bond Ltd for the year ending 31st December 2024, showing values for each quarter and the year in total
i) Sales Budget (in £’s and in units)
ii) Production Budget (in units)
iii) Material Usage Budge (in units)
iv) Production Cost Budget (in £’s) (35 marks)
b) Budgeting has been criticized as:
o A cumbersome process that takes a lot of management time
o Concentrating in majority on short-term financial control
o Having undesirable effects on the motivation of managers
Requirements:
i) Explain these criticisms.
ii) Explain what changes could be made in response to these criticisms to improve the budget process. (15 marks)
Question Guide:
In your answer you can include (in your logical order and approach):
- The calculations of the sales budget, production budget, material usage budget and production cost budget.
- The short section with the explanation of each of the criticisms of the budgeting process.
- The analytical discussion on suggestions to respond to the budgeting process’ criticisms.
- Summarise your findings and suggestions and provide a concise conclusion that highlights key takeaways from your analysis of the criticisms of the budgeting process.
Question 3. Contemporary Cost Management
“Modern techniques of cost accounting assist strategic management of contemporary organization to achieve their strategic objectives. External versus internal, long-term unlike short-term perspective is what differentiates the strategic cost management approach from the traditional cost management system ”
As the author of the article suggests, modern cost management techniques help management with achieving their goals and aspirations. Taking this into consideration, critically discuss the benefits and limitations of:
- Quality cost management (15 marks)
- Activity-based costing (20 marks)
- Target costing (15 marks)
Question Guide:
In your answer you can include (in your logical order and approach):
- The short section with an explanation of each of the contemporary cost management methods.
- The analytical discussion on benefits and limitations of each of the contemporary cost management methods and its impact on the strategic goals of the company.
- Supporting evidence of your argument in the form of case studies, calculations and references to relevant articles and studies.
- Summarise your findings and suggestions and provide a concise conclusion that highlights key takeaways from your analysis of the contemporary cost management methods in achieving organizational goals.
Solution
Question 1:
| Contribution per | Product A-Vinyl sheet £ per unit | Product B-Vinyl Tile £ per unit | Product C- Luxury Vinyl Tile £ per unit | Product D- Carpet Tile £ per unit |
| Selling price | 32 | 35 | 55 | 48 |
| Less: Direct material | (5) | (6) | (9) | (7) |
| Direct labour | (6) | (6) | (12) | (12) |
| Variable overhead | (3) | (3) | (6) | (6) |
| Contribution per Unit | 18 | 20 | 28 | 23 |
| Machine hours | 4 | 3 | 4 | 2 |
| Contribution per machine hour | 5 | 6.67 | 7 | 12 |
| ranking per machine hour | 4 | 3 | 2 | 1 |
Capacity for the week is restricted to 2500 machine hours
Production plan
Profits are maximized by allocating scarce capacity according to ranking per machine hours as follows:
| Production | Machine hours per unit | Machine hours used | Balance of machine hours available |
| 300 units of Product D | 2 | 600 | 1900 |
| 250 units of product C | 4 | 1000 | 900 |
| 190 units of product B | 3 | 570 | 330 |
| 82 units of product A | 4 | 328 | 2 |
Profit Statement
| Profit Statement | Product A-Vinyl sheet | Product B-Vinyl Tile | Product C- Luxury Vinyl Tile | Product D- Carpet Tile | Total |
| Revenues | |||||
| Selling price per Unit | £32 | £35 | £55 | £48 | |
| Number of units | 82 | 190 | 250 | 300 | |
| £2,624 | £6,650 | £13,750 | £14,400 | £37,424 | |
| Less costs | – | ||||
| Direct material | 410 | 1,140 | 2,250 | 2,100 | 5,900 |
| Direct labour | 492 | 1,140 | 3,000 | 3,600 | 8,232 |
| Variable overhead | 246 | 570 | 1,500 | 1,800 | 4,116 |
| Fixed overhead | 738 | 1,710 | 4,500 | 5,400 | 12,348 |
| Total costs | 1,886 | 4,560 | 11,250 | 12,900 | 30,596 |
| Profit | 738 | 2,090 | 2,500 | 1,500 | 6,828 |
b) Under the current capacity constraint, Gamma Flooring Ltd cannot meet all of Product A demand. If additional capacity becomes available, it can produce more units of unit A. To determine whether its worthwhile operating overtime, Gamma Flooring needs to analyze ……………………………..
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Solution to Question 2: Strong Bond Ltd Budgets
Sales Budget (in £’s and in units)
A sales budget is a budget which shows the amount of product that a firm plans to sell in a given period as well as the selling price (Rajasekaran and Lalitha, 2010). Thus, the sales budget is the foundation of other budgets since expenses are largely based on the estimated sales volume.
| Sales budget for the year ending 31st Dec 2024 | |||
| units sold | Selling price | Revenue | |
| £ | £ | ||
| Quarter 1 | 28,000 | 420 | 11,760,000.00 |
| Quarter 2 | 23,000 | 420 | 9,660,000.00 |
| Quarter 3 | 17,000 | 460 | 7,820,000.00 |
| Quarter 4 | 32,000 | 460 | 14,720,000.00 |
| 100,000 | 43,960,000.00 | ||
Production Budget
Production budget shows the quantities that are to be produced in the year in order to ensure that, the sales demand is met and also to ensure that anticipated inventory levels are maintained (Rumble et al. 2017).
| Production budget for the year ending 31st Dec 2021 | |||||
| Quarter 1 | 2 | 3 | 4 | Total | |
| Units to be sold | 28,000 | 23,000 | 17,000 | 32,000 | 100,000 |
| Add: planned closing inventory | 2,300 | 1,700 | 3,200 | 4,500 | 11,700 |
| 30,300 | 24,700 | 20,200 | 36,500 | 111,700 | |
| less planned opening inventory | 8,500 | 2,300 | 1,700 | 3200 | 15,700 |
| Units to be produced | 21,800 | 22,400 | 18,500 | 33,300 | 96,000 |
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