Managerial Accounting Variances & Segmented Income Statement


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Managerial Accounting Variances & Segmented Income Statement 10 pages Busi294.Assignment#5.2013(1).pdf 294 − Assignment #5 Question 1 (11 marks) Rigot Ltd. manufactures landscaping equipment known for durability. The unionized workforce renews its contract every five years, with the most recent agreement signed last year which provided for a 2% salary increase per year. The following is the budget for 2012 based on the production of 20,000 units. Direct Materials Direct Labor Variable Overhead Fixed Overhead Total Average Cost per unit Budget $ 3,080,000 2,500,000 700,000 900,000 $ 7,180,000 $ 359 Information available for standards utilized for 2012: Direct materials $11 per KG Direct labor $25 per hour The Year 2012 in Review: During 2012 the actual production was 20,000 units. At the start of 2012 the senior management decided to buy materials from a new supplier for $15 per KG. Management was excited when they found out that the actual labor hours per unit was three less than the standard. In addition, since overhead is driven primarily by labor the variable overhead decreased by $180,000 and the fixed overhead was reduced by $60,000. Actual material used per unit was 18 KG and the actual average labor rate was $30 per hour. The company implemented a just-in-time inventory system in 2011. REQUIRED: a) Calculate the material price variance. (2 marks) b) Calculate the material quantity variance. (2 marks) c) Calculate the labor rate variance. (2 marks) d) Calculate the labor efficiency variance. (2 marks) e) Analyze the 2012 results- specifically, the variances. Do you support the decision to change suppliers? Explain with supporting calculations. (3 marks) 1 Question 2 (18 marks) Cosmo Corp. manufactures two electronic parts: K100 and K200. The company operates in a very competitive industry and their products compete directly with several other products. The CEO has played an active role in pricing the products and in decisions to add or drop product lines. The CEO is quite concerned with the decreasing sales of the K100 and is convinced that action must be taken to remedy the problem. Sales of K100 dropped significantly in 2012 while the sales of the K200 have increased. At the end of 2011, the marketing department persuaded the CEO to pursue an advertising campaign to raise the sales of the K100. The subsequent 1,000 unit annual drop in sales of K100 (compared to 2011) has left the CEO furious. The production manager has assured the CEO that the quality of the product has remained constant. The CEO is considering: 1) Firing the sales staff and sales/administrative manager of K100 2) Dropping the K100 Total Units (produced/sold) Manufacturing Overhead Costs 2012 22,000 $3,860,000 2011 15,000 $3,300,000 Product Information for 2012: K200 Sales Price/Unit $ 210 Unit Sales 10,000 units K100 $ 260 12,000 units Direct materials per unit Direct labor per unit $29.17 $25.00 $80.00 $20.00 Other information: The variable overhead cost per unit for the K100 and K200 is the same. Each product has a sales/administrative manager who is paid $72,000. The K100 leases factory equipment at $50,000 per annum while the K200 uses fully amortized/depreciated equipment that has a market value of $93,000. The company is not operating at full capacity. REQUIRED: a. Prepare a segmented income statement for 2012 to “evaluate” the products. (10 marks) b. Should Cosmo drop the K100 product? (2 marks) c. Respond to the CEO’s intention to fire personnel. Should they be fired? Provide reasons for why they should or should not be fired? Based on the segmented income statement, what recommendations do you have for the company re: the two products? (2 marks) d. The K300, a new product, is being considered with expected sales of 5,000 units at $135 each for the first year. K300’s sales growth per annum for the next three years is projected at 3%. Direct material, direct labor and VOH total $120 per unit. The K300 woul

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