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Assignment  Managerial Accounting.
The exam consists of three assignments, that have to be solved completely.
The solution should be provided as a Winword file. Tables and/or graphs can be integrated. MS Excel can be used to make calculation. However, all spreadsheets should be included in your Winword file as tables. Please explain your solutions and give short interpretations of your results.
Please be aware that in the Excel sheets with the raw materials a comma is shown by "," (e.g., 24,32 ?) and the thousand sign by "." (e.g., 2.300 ? is 2300 ?).
Assignment 1: Budgeting and Variance analysis
The SCHIMANSKI GmbH is specialized on the production of skis for ambitious sportsmen. The production is structured in several steps that are allocated to the cost centers „Milling", „Grinding" and „Coating". For the cost center "Coating" the following costs are planned for the month January (in EuR):
Cost category

Total costs

Variable costs

Fixed costs

Direct materials

120,000

120,000



Overhead materials

46,000

30,000

16,000

Energy

32,000

24,000

8,000

Direct labor

184,000

184,000



Overhead labor

38,000

8,000

30,000

Social security

42,000

30,000

12,000

Depreciation & amor tization

134,000

16,000

118,000

Other overhead

74,000

49,000

25,000

All cost data is related to a planned volume of 3,000 production hours resp. 5,000 produced pairs of skis per month. At the end of January the total actual costs are 15 % above the originally planned total costs. The actual volume has been 3,300 production hours which allowed to produce 5,500 pairs of skis.
Explore the causes for the variance between actual and planned costs! Please be aware that the firm uses a flexible budgeting system based on full costing. The capacity of the produc¬tion is estimated to be 5,500 pairs of skis per month.
Assignments:
a) Please determine the following figures for the cost center "Coating":
 Planned costs
 Actual costs
 Planned costs for a pair of skis
 Absorbed costs for the actual production volume
 Standard costs for the actual production volume
 Capacity utilization
b) Please calculate the following variances for the month January for the cost center "coating":
 Spending/efficiency variance
 Volume variance
 Total variance
Remark: Please indicate a positive sign for the spending/efficiency variance and for the total variance if actual costs are higher than planned costs and a negative sign in the case of cost savings. Please indicate a positive sign for the volume variance if too less fixed costs are allocated and a negative sign vice versa.
c) Please indicate using the following graph what points (e.g., C or D) indicate the standard costs and the absorbed costs at the actual production volume!
What lines (e.g., AD) stand for the spending/efficiency variance, the volume variance, the total variance, the fixed costs?
d) Please calculate the shortterm and longterm lower price limit for a pair of skis for the planned volume!
e) For what production volume can we find the minimum variable and the minimum total costs for a pair of skis (unit costs)?
Assignment 2: Break Even Analysis
The fashion boutique BREUN & INGER sells menswear. The house is organized in two depart¬ments: the department Business Suits and the department Business Shirts. Mr. BREUN, the owner of the fashion boutique, is nervous because of bankruptcies of fellow entrepreneurs in stationary fashion retail. He also sees high growth in the online business, but modest or nega¬tive growth in stationary outlets.
The head of the department Business Shirts, HUGO Bosso, wants to know for his department how many shirts he has to sell per month to cover the costs of his department. His department makes monthly sales of € 495,000 with all shirts having an average price of € 90. The variable costs per shirt amount to € 30 on average. Furthermore, per month fixed costs of € 300,000 for the shirt department have to be covered (whereas € 50,000 EURO for the energy, € 100,000 for staff and € 150.000 for depreciation and amortization).
WOLFRAM JooD is head of the department Business Suits and is asked by Mr. BREUN to also assess the break even for his department. The department Business Suits sells four brands. In addition, fixed costs for the department of € 120.000 accrue per month. These fixed costs can¬not be allocated to the specific brands. The following data is available:
Suit brands

Price per suit (average)

Sales volume per month

variable costs per suit (average)

Fixed costs for the brands

Lorenz Biagiotti

800 EUR

500 units

500 EUR

70,000 EUR

Jo Sander

700 EUR

100 units

600 EUR

9,000 EUR

Giovanni Rigatoni

2,000 EUR

40 units

800 EUR

10,000 EUR

Giorgio Armini

1,200 EUR

200 units

1,000 EUR

30,000 EUR

Assignments:
a) Please assess the break even volume for the department Business Shirts!
b) Please calculate the cash point for the department Business Shirts!
c) Regarding the actual situation, how much can the sales volume decline until the department is in the loss (safety margin)? How do you assess the situation of the department?
d) What is the target volume for intended net earnings of € 30.000 per month for the department?
e) Please calculate the lowest possible break even sales for the department Business Suits if you assume that the sales mix might change! For this, assume that all fixed costs can¬not be modified and are regarded as one entity!
f) Please calculate now the lowest possible break even sales for the department Business Suits for the case that now part of the fixed costs as indicated above can be allocated to the specific brands and can be modified when discussing the listing of the brand!
g) Please visualize your results from e) and f) in a graph! What can you derive from that for the risk exposure of the firm facing the trend to online sales?
h) What is the break even if the entire fashion boutique is considered as an entity? Make three suggestion to improve the situation of the firm.
Assignment 3: Activity Based Costing
Micro Comp Inc. has been founded in 1998 by Steve Lobs in Boca Raton (Florida). In the first years of its existence the company did produce and sell standard micro computers. In the years following its market entry the company had a very substantial growth (figure 1).
Figure 1: Development of Sales of the Micro Comp Inc. (20002007)
The growing competition of Asian, especially Chinese and Japanese, suppliers forced the company in 2007 to specialize on customers specific computers for multi media and presentation purposes. An analysis of the micro computer market and a study of the production structure showed, that this market segment should have a higher profit margin.
However, the structure of the incoming orders changed dramatically since the company's foundation:

1998

2007

Special Microcomputer Standard Microcomputer

25 75

% %

70 30

% %

As the structure of the acquired orders was so different (Figure 2) the Company decided to substitute its traditional surcharge calculation by a activity based calculation. The manage¬ment expected a calculation that better fits with the cause principle and expected a better control of its activities.
Figure 2: Distribution of order size at Microcomp. Inc. in 2007
To make the implementation of the new cost accounting system efficiently the company fo¬cused on the cost categories overhead material costs, production related administration over¬head costs, sales overhead costs and service costs. These cost categories have been influenced by the change in strategy. The following figure 3 shows the change in the cost accounting system.

Surcharge calculation

Change

Activity Based Costing

Material

38,850

0

38,850

Overhead material costs

11,159

11,159


Procurement


+5,665

5,665

Storage


+5,494

5,494

Direct production costs

13,650

0

13,650

Overhead production costs

13,056

0

13,056

Production relation
overhead administration costs

6,285

6,285


PPS


+2,430

2,430

Quality audit


+3,855

3,855

Production costs

83,000

0

83,000

Sales costs

3,443

3,443


Acquisition


+1,214

1,214

Calculation and offering


+690

690

Managing incoming orders


+339

339

Accounting


+302

302

Shipment


+898

898

Service costs

3,546

3,546


Installation at customers


+2844

2,844

Maintenance


+702

702

General administration costs

15,011

0

15,011

Total unit costs

105,000

0

105,000

Figure 3: Change from the surcharge calculation to the activitybased calculation at MicroComp Inc. (all values in 1,000 $)
Configuration driver process 
Cost driver 
Value of cost drivers (units) 
Process costs ($) 
Process costs per unit ($/unit) 
Procurement 
Number of parts 
5,130,000 
5,130,000 
1 

Number of interfaces 
53,550 
535,500 
10 
Storage 
Number of storage positions 
3,591,000 
5,386,500 
1.5 

Number of interfaces 
53,550 
107,100 
2 

(Total amount material overhead costs) 
11,159,100 


PPS 
Number of construction plan 
1,215,000 


positions 
2,430,000 
2 


Quality audit 
Number of standard modules 
450,000 
3,150,000 
7 

Number of interface A 
26,800 
294,800 
11 

Number of interface B 
17,800 
249,200 
14 

Number of interface C 
8,950 
161,100 
18 

(Total production related overhead administration costs) 
6,285,100 


Installation at customer 
Number of special MC's 
31,500 
2,331,000 
74 

Number of standard MC's 
13,500 
513,000 
38,00 
Maintenance 
Number of special MC's 
31,500 
567,000 
18 

Number of standard MC's 
13,500 
135,000 
10 

(Total service costs) 
3,546,000 


Order driver process 
(Orders) 
($) 
($/Order) 

Order acquisition 
Number of customer specific orders 
3,360 
940,800 
280 

Number of standard orders 
1,440 
273,600 
190 
Calculation and offering 
Number of customer specific orders 
3,360 
554,400 
165 

Number of standard orders 
1,440 
135,360 
94 
Managing incoming orders 
Number of customer specific orders 
3,360 
255,360 
76 

Number of standard orders 
1,440 
83,520 
58 
Accounting 
Number of orders 
4,800 
302,400 
63 
Shipment 
Number of orders 
4,800 
897,600 
187 

(Total sales costs) 
3,443,040 



(Total process costs) 
24,433,240 







Structure of process utilization per unit 
SpecialMC (31,500 units) 
StandardMC (13,500 units) 

Parts 
120 
100 


Interfaces (A, B, C) 
A, B and C 
None 


Storage positons 
84 
70 


Constructing plan positions 
30 
20 


Standard modules 
10 
10 

Figure 4: Evaluation of process unit costs
A) Traditional surcharge calculation

Costs (surcharge)
_{*}

Special

Standard

Direct material costs^{*}

951.00

744.00

Overhead material costs (28.72 %)

273.16

213.70

Direct production costs (DPC)^{*}

305.00

275.00

Overhead production costs (OPC)(95.65 % on

291.73

263.03

DPC)



Production related overhead administration costs

140.43

126.62

(23.53 % on DPC and OPC)



Production costs (PC)

1,961.32

1,622.36

Sales costs (4.15 % on PC)

81.36

67.30

Service costs (4.27 % on PC)

83.79

69.31

General administration costs (18.09 % on PC)

354.72

293.41

Total costs of order

2,481.19

2,052.38

Total unit costs

2,481.19

2,052.38

Figure 5: Example for calculation of 1 standard Micro Computer and 1 customer specific Micro Computer with 3 interfaces A, B, C
* Installing the interfaces in the special MC additional to the standard MC following direct costs are produced:

Material 
Wages 
Interface A 
38 
8 
Interface B 
64 
10 
Interface C 
105 
12 
Total 
207 
30 
B1) Surcharge calculation with integrated ABC (order size 1 unit)

Costs (surcharge)

Special

Standard

Direct material costs

951.00

744.00

Overhead material costs



Procurement

150.00

100.00

Storage

132.00

105.00

Direct production costs

305.00

275.00

Overhead production costs (95.65 % on DPC)

291.73

263.03

Production related overhead administration costs



PPS

60.00

40.00

Quality audit

113.00

70.00

Production costs (PC)

2002.73

1597.03

Sales costs



Acquisition

280.00

190.00

Calculation and offering

165.00

94.00

Managing incoming offers

76.00

58.00

Accounting

63.00

63.00

Shipment

187.00

187.00

(Total)

(771)

(592.00)

Service costs



Installation at customers

74.00

38.00

Maintenance

18.00

10.00

(Total)

(92.00)

(48)

General administration costs (18.09 % on PC)

362.20

288.83

Total costs of orders

3,227.93

2,525.87

Total unit costs

3,227.93

2,525.87

Assignments:
The Micro Comp Inc. has got two calls for offers.
The first customer wants to know, what either 10 standard Micro Computers (no interfaces) or 10 Micro Computers with customer specific layout (with all three interfaces A, B, C) will cost.
Another customer is interested to have either 20 Micro Computers in the standard form (no interfaces) or 20 customer specific Micro Computers (with all three interfaces A, B, C).
a) Please calculate the unit costs for one standard Micro Computer or specialized Micro Computer for both customers (order size 10 and order size 20) using the activity based calculation!
b) Compare both orders for the effect of complexity and for the effect of degression and calculate both effects on your results of a)!
c) What conclusions can be drawn from your analysis? What are limitations for your conclusions? Please discuss and explain your results!
Attachment: Raw data.xls
The solution deals with question relating to budgeting and variance analysis, BreakEven analysis and Activity Based Costing. The solution was prepared using the excel spreadsheet and was copied to word file as per requirement.