Reference no: EM131361418

Assignment: Cost Management Systems

Case Study

Word Limit: 2000 words (± 10%)

Assignment

This case study must be considered to be equivalent to 2,000 words (including PART A and B). The assignment should be submitted via the online submission portal.

Disclaimer: The information used in this assignment is fictitious and does not represent any business or industries actual financial performance or position.

Case Study: Background

Proven Patio Furniture Ltd manufactures patio tables for residential and restaurant uses. With the recent downturn in the patio furniture market, Proven Patio experienced a decline in financial performance. The management team is in the process of preparing the 2016 budget and put together the following budgeted information.

Annual sales are expected to be 5000 units. Budgeted sales for the period of April and May 2016are provided below (Table 1). All sales are on credit. A 5% discount is offered if payment is made within the month of sale.

Table 1: Expected Sales in Units and Dollars for Apriland May 2016

	Residentialtable		Restauranttable
	Units	Price	Units	Price
April	250	$285	160	$625
May	260	$265	200	$680

The annual production is expected to be5100patio tables.Table 2 identifies the material requirements and costs for each table. These costs are not expected to change during the budgeted period.

Table 2: Budgeted Direct Materials - Inputs and Costs as at April 1, 2016

	Residential table		Restaurant table
	Quantity*	Cost**	Quantity*	Cost**
Metal	2.5 m	$5.50	5 m	$5.50
Pine Timber	3 m	$13	4 m	$14.50
Fabric	1.5 m	$7.50	3 m	$12.50

*metre **per metre

Beginning inventories of Direct Materials are shown below. For direct materials, the policy of target ending inventory is to be 20% of the current month's production.

Table 3: Direct Materials Inventory - as at April 1, 2016

	Residential table		Restaurant table
	Quantity*	Cost**	Quantity*	Cost**
Metal	2.5 m	$5.50	5 m	$5.50
Pine Timber	3 m	$13	4 m	$14.50
Fabric	1.5 m	$7.50	3 m	$12.50

Proven Patio uses a FIFO cost flow assumption for both direct materials and finished goods inventory. Finished Goods ending inventory policy is 25% of the current month's sales. The following information is provided on the current ending inventory of finished goods.

Table 4: Finished Goods Inventory as at 31 March, 2016

	Residential table	Restaurant table
In Units	45	32
In Dollars	$8460	$10432

Direct labour for patios is divided into two processes: Assembly and Packaging and it is expected that direct labour hours for 2016 to be 15000 hours. The following information is provided for all classes of direct labour for each of the tables.

Table 5: Direct Manufacturing Labour - Inputs and Costs forApril 1, 2016

	Residential table		Restaurant table
	Hours*	Cost**	Hours*	Cost**
Labour - Assembly	2	$30	2.5	$30
Labour - Packaging	0.3	$22.00	0.5	$22.00

* direct labour hours **per hour

Proven Patio uses an activity based costing system and classifies overhead into three activity pools: setup (based on set-up time); processing (based on machine hour) and inspection (based on inspection time). Activity rates for these activities are $115 per machine set-up hour, $8 per machine hour and $21 per inspection hour, respectively. Other information as follows:

Table 6: Cost driver information

	Residentialtable	Restauranttable
Number of units per batch	15 units	12 units
Machine Hour (MH) per unit	4 hours	6 hours
Machine set-up time per batch	1.5 hours	2 hours
Inspection time per batch	5 hours	6 hours

Non-manufacturing fixed costs for March equal $52000, of which 50% (half) are Admin and Salaries. Admin and Salaries are expected to increase 8% in April. In addition non-manufacturing cost of sales commission for April is estimated to be 2% of sales revenue.

In June 2017, Proven Patio Furniture Ltd received the following report from the management accountant on its performance over the past quarter.

Table 7: Budget Report

Proven Patio Furniture Ltd
Budget Report for Quarter ending 30 June 2017
	Actual	Flexible	Flexible	Sales	Static
	Results	Budget	Budget	Volume	Budget
		Variance		Variance
Units Sold:
Residential	3325				3500
Restaurant	4620				4200
Revenues:
Residential	$1,213,212.50		$1,213,212.50		$1,250,750.00
Restaurant	$871,563.00		$889,350.00		$808,500.00
Total Sales Revenues	$2,084,775.50		$2,102,562.50		$2,059,250.00
Direct Materials:
Metal(Residential)	$104,363.44		$99,750.00		$105,000.00
Pine Timber (Residential)	$170,931.90		$171,465.00		$136,762.50
Fabric (Residential)	$9,875.25		$9,143.75		$9,625.00
Metal (Restaurant)	$18,534.60		$15,390.00		$24,435.00
Pine Timber (Restaurant)	$47,015.50		$47,381.25		$49,875.00
Fabric (Restaurant)	$56,368.50		$52,632.00		$46,485.00
Total direct Materials	$407,089.19		$395,762.00		$372,182.50
Direct Labour
Labour - Assembly	$450,495.00		$412,953.75		$388,162.50
Labour - Packaging	$31,358.25		$24,282.00		$23,490.00
Total Direct Labour	$481,853.25		$437,235.75		$411,652.50
Variable Overhead	$339,931.82		$289,165.45		$271,945.45
Total Variable Costs	$1,228,874.26		$1,122,163.20		$1,055,780.45
Contribution Margin	$855,901.24		$980,399.30		$1,003,469.55
Fixed Manufacturing Costs	$236,500.00		$215,000.00		$215,000.00
Operating Profit	$619,401.24		$765,399.30		$788,469.55

Required:

PART A: Operating Budgets

Prepare the following budgets for Proven Patio Furniture Ltd, for April, 2016 both in dollars and units as required (Referring Tables: 1-6).

I. Revenues Budget
II. Production Budget
III. Direct Materials Usage Budget
IV. Direct Materials Purchases Budget
V. Direct Manufacturing Labour Budget
VI. Manufacturing Overhead Budget
VII. Ending Inventories Budgets (Direct Materials and Finished Goods)
VIII. Cost of Goods Sold Budget
IX. Budgeted Income Statement

All budgets and supporting schedules must be neatly presented (students are encouraged to use Excel workbook to do all the calculations). Cells and worksheets must be linked via formulas/references wherever possible (Important!!).

PART B: Variance Analysis

1. Calculate the flexible budget variances and sales volume variances for the quarter ending June 30, 2017 based on the information provided in the Table 7 in both dollars and percentages.

2. Write a report (750 words) which analyses the variances calculated in requirement 1.Your report must include the following:

• Potential causes of any variance above 5% including both favourable and unfavourable variances
• Recommend possible courses of action to address the potential causes of significant variances, where this is within the control of Proven Patio Furniture Ltd.

PART B (2) Report should be within the word limit of 750 words (± 10%)

Preparation and Submission Details:

Option 1:using Excel to prepare budgets (Part A) and Word to prepare the Report (Part B)

• Thestudents who choose this option, need to submit both word and excel files. An Excel file containing PART A, i.e. budgets and supporting schedules and a Word file containing PART B - the Report including recommendations should be submitted.There is no further requirement to provide/show separate calculations for budgets/supporting schedules in the word files(calculations/formula links/cell references/worksheet references in the excel file will be checked by the markers).

o Students could use excel to perform the calculation in PART B (1) - flexible budget and sales volume variances. However the Report i.e. PART B (2) should be prepared using Word document.

• Each budget should be prepared in a new worksheet. For example worksheet 1 -sales budget and worksheet 2 - production budget and so on. All budgets/supporting schedules should be properly labelled.

Option 2:using only Word documentto prepare both budgets (Part A) and the Report (Part B):

• Students who choose this option, need to submit only one word file. A word file containing both PART A (budgets and supporting schedules) and PART B (variance analysis including the Report) should be submitted. All relevant calculations in the word files (see example below) should be provided.

• All calculations should be included in the word document as footnotes to the individual budgets. For example,

	Selling Price	Units Sold	TotalRevenues
1-Litre bottles	$0.20	3,840,000a	$768,000
15-Litre containers	1.20	960,000b	$1,152,000
			$1,920,000

a 320 000 × 12 months = 3,840,000
b 80 000 × 12 months = 960,000

• Each budgets should be prepared on a new page. For example page 1 -sales budget and page 2 - production budget and so on. All the budgets/supporting schedules must be properly labelled.

Additional information:

• PDFs will not be accepted.
• Students must submit their assignments using the submission link on the course website.
• The language used should be concise and appropriate for professional environment.
• Marks will bededucted for poor presentation.
• Please make sure that PART B (2) Report doesnot exceed 750 (± 10%)words limit.
• The assignment should be submitted via the online submission link.

Backup for assignments:

• Please keep ‘hard and ‘soft' copies of work submitted. An extension will not be granted on the basis that the assignment ‘soft' copy has become corrupted and cannot be accessed by the computer. Students are expected to keep backups to ensure that a corrupted file (or lost assignment) will not affect the submission of the assignment.Students will not be given extra time to complete an assignment as a result of a corrupted computer - a backup of your assignment will negate the need to have extra time to complete your assignment. These rules will be imposed without recourse.

• Important! Please make sure you have checked the file you upload BEFORE you submit. We have had instances in the past when students have submitted the wrong version of their assignment. It is expected that students have checked the file before uploading. If the wrong version of the assignment has been up loaded and the deadline has passed, students will not be able to submit a new file. The file which has been submitted by the deadline will be the one which is marked. If however, a replacement file is submitted, penalties will apply from the original due date until the replacement file has been submitted. In accordance with the Division of Business guidelines, assignments submitted late without permission from the course coordinator/s will attract a penalty of 10% of the total possible marks for the assignment per day for each day late, or part thereof, after the due date.

Academic integrity

Plagiarism is an offence in a tertiary education environment so ensure that you use in text referencing where appropriate. The University of South Australia wants its students to display academic integrity so that its degrees are earned honestly and are trusted and valued by its students and their employers. To ensure this happens and that students adhere to high standards of academic integrity and honesty at all times, the University has policies and procedures in place to promote academic integrity and manage academic misconduct for all students. Work submitted electronically by students for assessment will be tested using the text comparison software Turnitin. More information about academic integrity and what constitutes academic misconduct can be found in Section 9 of the Assessment Policies and Procedures Manual (APPM) at: https://w3.unisa.edu.au/policies/manual/

Receiving assistance when not permitted: What the policy says:

‘Inclusion of material in individual work that has involved significant assistance from another person, where such assistance is not expressly permitted in the course outline' (UniSA 2014).

What this means:

When you produce an assignment, it is expected that the assignment is your own work.If you submit work that has involved significant assistance from another person, it would be considered misconduct.Assistance for assignments does not only relate to writing, but can include solving problems, doing calculations, writing computer code, and designing creative work and images.

Examples of significant assistance can include, but are not limited to:

• paying someone to write, rewrite or produce your assignment
• asking anyone to write, rewrite or produce your assignment
• receiving assistance to the extent that it no longer resembles your original work
• doing assignments with others when this is not specified as part of the task. This is known as 'collusion'.

However, if your course outline states that the assignment is a group task which requires input from the group members thencollaboration is acceptable.While it is also acceptable to ask someone to read your work and provide feedback, it is unacceptable for them to provide feedback to such an extent that they are rewriting your assignment.

References: https://w3.unisa.edu.au/policies/manual/2014/S9AcademicIntegrity_2014.pdf

Attachment:- Assignment_Part_A_Layout.xlsx