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Royal biscuits inc has a very select but highly respected product portfolio




Question;Royal;biscuits inc has a very select but highly respected product portfolio. They;produce 3 different kinds of fine biscuits.;-supreme;crisp: A light wafer cookie with dark chocolate cr?me filling;-tropical;chocolate: A heart-shaped cookie enrobed in smooth Belgian chocolate, with a;touch of orange flavor.;-;sublime roll: A thin crepe rolled into an elegant flute, drizzled with a hint;of dark chocolate.;All;biscuits have the same main ingredients (chocolate, butter, sugar and flower);complement with biscuit specific ingredients. Royal Biscuits Inc. only works;with top quality suppliers who charge $8 per kg of chocolate, $ 4 per kg of;butter, 1 $ per kg of sugar and $0,35 per kg of flower. All other ingredients;are purchased at an average price of $ 1,5 per kg. To produce 1 kg of supreme;crisps, Royal Biscuits Inc. needs to purchase 200g of chocolate, 150g of;butter, 250g of sugar, 250g of flower and 150g of other ingredients such as;vanilla powder, eggs, ? for 1 kg of Tropical chocolates, they need 200 g of;chocolate, 250g of butter, 150g of sugar, 250g of flower and 150g of other;ingredients. The third product, the sublime rolls, are made of 50g chocolate;250g butter, 200g sugar, 250g flower and 250g other ingredients.;Royal;biscuits Inc. employs 4 full time production workers in its production hall;working in 2 shifts. A production worker works 1750 hours every year at;practical capacity and at a cost of $ 25 per hour. In case of temporary;technical unemployment, the production workers receive an unemployment benefit;from the government and Royal Biscuits Inc. does not have pay any supplementary;compensations. To produce 1 kg of supreme crisps, Tropical chocolates and;Sublime rolls, respectively 0,09, 0,08 and 0,12 labor hours are required. In;addition, the company has 1 person(FTE) in charge of maintenance. He also works;an average of 1750 hours a year but earns only $19 per hour. A few years ago;Royal Biscuits Inc has invested in 3 new production process of Supreme crisps;takes 0,16 machine hours per kg, the process of Tropical chocolates takes 0,12;machine hours per kg and producing the Sublime rolls takes 0,13 machine hours;per kg.;Annual;depreciation of the machines is $134000. The cost of power and other supplies;to run the machines is $ 3 per machine hour for the Supreme crisp production;line, $2 per machine hour for the Tropical chocolate production line and $2,5;per machine hour for the Sublime roll production line. As such, the cost of;power and supplies is considered to be a direct cost.;William;Kensington calculated that there were $16300 general administration costs;linked to the production, and that Royal Biscuits Inc pays a total amount of;$30000 rent for the administration building and the production hall. Management;receives $48760 for running the business.;Distribution;costs and selling costs, both non related to production, amount respectively;$18450 and $7800 per year.;Royal;Biscuits Inc has a total shareholders? capital of $12500000 and outstanding;debt of $1100000 at 7% the current tax rate is 39%;Allocation;of costs;Knowing;these costs, William Kensington had to;make a decision about how to allocate the overhead costs. The allocation needed;to be both logical and uncomplicated. After a long discussion with Jim Martin;they decided it would be best to allocate the maintenance and depreciation;costs based on the machine hours. All other indirect costs linked with;production would be allocated based on direct labor hours.;Assignment;questions;1-;Calculate;the standard cost of 1 kg of Supreme crisps, Tropical chocolates and Sublime;rolls, with the full costing method, using practical capacity as a denominator.;This will allow William Kensington to review its selling prices.;2-;At;the end of the year, it becomes clear that the purchase price of chocolate;increased to $8,65 per kg. A marketing study performed by an outstanding;marketing office revealed that in order to increase sales, the flavor of the;Supreme crisps should be adapted. Therefore, the recipe of Supreme crisps was;changed. Royal Biscuits Inc. needed to purchase 150g of chocolate and 200g of;butter to produce 1kg of the new Supreme crisps. In addition the production;workers hourly cost increased from $25 to $26,5. Calculate the actual costs per;Kg of the 3 products, using the full costing method. The actual sales volume;consists of 22,500Kg of Supreme crisps, 16,300kg of Tropical chocolates and;20.880Kg of Sublime rolls.;3-;Compare;actual and standards. Calculate and analyze the following variances;a-;Direct;materials variance, direct labor variance and manufacturing overhead variance.;b-;Supreme;crisp variance, Tropical chocolates variance and Sublime roll variance(these;variances only include the direct costs);4-;Royal;Biscuits Inc. sells it Supreme crisps at $13,2/kg, its Tropical chocolates at;$14,8/Kg and its Sublime rolls at $11,5/kg. Given the actual sales volume, how;will the income statement look like using.;a-;Standard;full costing at practical capacity?;b-;Actual;costing?


Paper#44687 | Written in 18-Jul-2015

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