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Busi 294.Assignment#5-Managerial Accounting Variances & Segmented Income Statement-Rigot Ltd. manufactures

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Question;Busi 294.Assignment#5-Managerial Accounting Variances & Segmented Income StatementQuestion 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.;Budget;Direct Materials $ 3,080,000;Direct Labor 2,500,000;Variable Overhead 700,000;Fixed Overhead 900,000;Total$ 7,180,000;Average Cost per unit$ 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);2;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;2012 2011;Total Units (produced/sold) 22,000;15,000;Manufacturing Overhead Costs;$3,860,000 $3,300,000;Product Information for 2012: K200 K100;Sales Price/Unit $ 210 $ 260;Unit Sales 10,000 units 12,000 units;Direct materials per unit $80.00;$29.17;Direct labor per unit $20.00 $25.00;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 would require a;specially trained manager at a cost of;$80,000 per year. Should the company add the;K300? Provide calculations with;explanations for your analysis/conclusion where;appropriate.(4 marks);3;Question 3 (22 marks);The YAK Ventures specializes in;producing and distributing organic fudge throughout Canada.;The company operates three autonomous;and decentralized divisions: Western, Central and;Eastern. The company?s cost of capital;is only 3% and each division is expected to earn a;return of at least this amount.;Sales data for the year ended 2012 for;the divisions;Central Western Eastern;Sales Volume 405,000 325,000 395,000;Sales Price $8.08 $7.80 $8.20;Average Invested assets for each;division;Central Western Eastern;Invested Assets $4,256,000 $4,125,000;$3,912,000;Total Fixed costs for the Company;Amortization & Lease $633,000;Advertising $546,000;Salaries $1,283,000;Legal and Audit $120,000;Other General and Administrative;$135,000;Total $2,717,000;?The variable cost to;produce the fudge for Western and Eastern was $3 per bottle.;Central?s variable cost to produce the;fudge was 1/3 higher than the other divisions?.;?All divisions incur;$1.50 per unit to package the bottles after they are produced.;?The divisions hire;sales representatives to sell the product within their territory. The;commissions are 10% of sales except;for Eastern whose representatives get 15%.;?Amortization expense;was $155,000 $135,000 and $128,000 for Central, Western and;Eastern, respectively. This;amortization calculation was based on units of production.;?Head office leases;equipment for the divisions. The Central and Western division each had;lease expense equal to ? of the;$70,000 lease expense for the Eastern Division. The;remaining amortization expense was for;a computer system used by all divisions that is;located at the Head office;(Vancouver).;?Advertising costs for;divisional radio and newspaper ad campaigns directed by the divisions;were;Central Western Eastern;$ 101,250 $ 81,250 $ 98,750;?There was also a;national T.V. campaign to promote YAK for which the advertising agency;directly billed YAK. $240,000 was billed;by a national advertising agency which worked;equally and separately on all three;divisions.;?Central, Western and;Eastern had $155,000, $195,000 and $225,000 in divisional office;salaries, respectively.In addition, each division also has a controller hired by Head;Office at $105,000 per year.The CEO was paid $200,000 and managed;the sales forces;for Central and Western Divisions.;Eastern had its own sales manager hired at $150,000;per year by the Head Office. Remaining;salaried employees worked at the Head Office.;4;?The auditors are appointed by the company?s board of directors.It is not possible to;specifically differentiate what audit;expenses were incurred for each of the divisions, except;for $45,000 that was billed for the;total of 60 hours which were equally spent auditing at;each division.;?The company?s;invested asset base at the end of the year was $12,651,048, a 6% increase;over the previous year.;Required;a) The Manager of Central has been;bragging that he has the highest sales level and;therefore he expects to achieve the;highest bonus this year. Prepare segmented;information to show the performance of;the divisions and the performance of the managers.;(14 marks);b) Based on your analysis above;calculate the performance of the divisions using return on;investment (ROI). Which division;outperformed the other divisions this year?(3;marks);c) Calculate the Residual Income for;Western.(1 mark);d) Holly, the manager of the Western;has been contacted by a soy sauce manufacture to sell;organic soy sauce under a Yak-Soy;brand name. The sales manager for Western has;calculated that this will increase;income by $150,000 for the division. An analysis of the;soy fermenting process indicates that;they will need to spend $75,000 on the necessary;equipment.;Would Holly be likely to accept this;offer from the Soy manufacturer?(2;marks);Identify and thoughtfully explain two;other issues that the manager should consider before;making this decision.(2 marks);ONLY SUBMITTHE PAGES THAT START WITH ?NAME?(pages 5?10).;5;294 ? ASSIGNMENT #5 NAME (Last, First);Student number;Q1 Grade _______ Q2 Grade _______ Q3 Grade _______ Total =;[out of 51];Question 1 (11 marks);a) Calculate the material price;variance.;b) Calculate the material quantity;variance.;c) Calculate the labor rate variance.;d) Calculate the labor efficiency;variance.;e) Analyze the 2012 results-;specifically, the variances. Do you support the decision to;change suppliers? Explain with;supporting calculations.;6;Question 2 (18 marks);a) Prepare a segmented income;statement for 2012.;K200 K100 Total;b) Should Cosmo drop the K100 product?;7;c) 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?;d) Should the company add the K300?;Provide calculations with explanations where;appropriate.;8;Question 3 (22 marks);a) Prepare segmented information to;show the performance of the divisions and the;performance of the managers.;TOTAL Central Western Eastern;9;b) Based on your analysis above;calculate the performance of the divisions using return on;investment. Which division;outperformed the other divisions this year?;ROI (Central);ROI (Western);ROI (Eastern);c) Calculate the Residual Income (EVA);for Western.;d) Would Holly be likely to accept;this offer from the Soy manufacturer? Show your;calculations and provided explanations;where appropriate. Additionally, identify and;thoughtfully explain two other issues;(qualitative) that the manager should consider before;making this decision.;10;Qualitative #1;Qualitative #2

 

Paper#37869 | Written in 18-Jul-2015

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