Assessment 4: Using Cost Accounting Data to Evaluate Management Control Systems

000

Expenses

Cost of Goods Sold

Materials

$580,800

Direct Labor

$594,000

Variable Overhead

$356,4000

Fixed Overhead

$52,800

$1,548,000

Beginning Inventory

$211,200

$,1795,200

Ending Inventory

$211,200

$1584,000

Selling:

Salaries

$59,400

Commissions

$66,000

Promotion and Advertising

$138,600

$264,000

General and Administrative:

Salaries

$61,600

Travel

$8,800

Office Costs

$35,200

$105,600

Income Taxes

$36,960

$1,990,560

Operating Profit

$55,440

Beginning Retained Earnings

$442,640

Subtotal

$498,080

Less Dividends

$22,000

Ending Retained Earnings

$476,080

Complete the following:

Prepared a budgeted income statement and balance sheet.

Assessment 4 Part 3: Comparing Business Units Using Divisional Income, ROI, and Residual Income

Calculate divisional income, operating margin, ROI, and residual income for two divisions of Wellness Pharmaceuticals. Analyze the financial performance of the two divisions based on your review of their selected financial data. Explain the current financial situation for each division in two or more paragraphs.

Part 3 Scenario

Wellness Pharmaceuticals is a small firm specializing in new products. It is organized into two divisions, which are based on the products they produce. BD Division is smaller and the life of the products it produces tend to be shorter than those produced by the larger PM Division. Selected financial data for the past year is shown below. Divisional investment is as of the beginning of the year. Wellness Pharmaceuticals uses a 9 percent cost of capital and uses beginning-of-the-year investment when computing ROI and residual income. Ignore income taxes.

Wellness Pharmaceuticals: Selected Financial Data

Item

BD Division

PM Division

Allocated Corporate Overhead

$660

$1,980

Cost of Goods Sold

$3,520

$7,700

Divisional Investment

$9,900

$88,000

Research and Development

$2,200

$3,960

Sales

$8,800

$2,200

SG&A

$770

$1,680

Complete the following:

  1. Compute divisional income for the two divisions.
  2. Calculate the operating margin, which is equivalent to the return on sales, for the two divisions.
  3. Calculate ROI for the two divisions.
  4. Compute residual income for the two divisions.
  5. Assess the financial performance of the two divisions based on your analysis.
Assessment 4 Part 4: Prepare Flexible Budget

Review sales revenue, manufacturing costs, and all other fixed costs to prepare a flexible budget for Oak Grove, Inc.

Part 4 Scenario

Oak Grove, Inc., reports the following information concerning operations for the most recent month:

Oakgrove: Information on Operations

Item

Actual (based on actual 1,080 units)

Master Budget (based on budgeted 1,200 units)

Sales Revenue

$176,640

$192,000

Less Manufacturing Costs

Direct Labor

$27,264

$28,800

Materials

$23,040

$26,880

Variable Overhead

$15,744

$19,200

Marketing

$10,076

$11,520

Administrative

$9,600

$9,600

Total Variable Costs

$85,824

$96,000

Contribution Margin

$90,816

$96,000

Fixed Costs

Manufacturing

$9,380

$9,600

Marketing

$19,968

$19,200

Administrative

$19,122

$19,200

Total Fixed Costs

$48,420

$48,000

Operating Profits

$42,396

$$48,000

There are no inventories.

Complete the following:

Prepare a flexible budget for Oak Grove, Inc.

Assessment 4 Part 5: Manufacturing Variances

Prepare a cost variance analysis for the variable costs at Delmar Products.

Part 5 Scenario

Delmar Products prepares its budgets on the basis of standard costs. A responsibility report is prepared monthly, showing the differences between master budget and actual results. Variances are analyzed and reported separately. There are no materials inventories.

The following information relates to the current period.

Delmar Products: Information for the Current Period

Item

Value

Standard Costs (Per Unit of Output)

Direct Materials (6 gallons @ $4.00 per gallon)

$24

Direct Labor (4 hours @ $40 per hour)

$160

Factory Overhead

Variable (25% of direct labor cost)

$40

Total Standard Cost Per Unit

$224

Actual costs and activities for the month follow:

Delmar Products: Actual Costs and Activities for the Month

Item

Value

Materials Used

15,120 gallons at $3.60 per gallon

Output

2,280 units

Actual Labor Costs

6,400 hours at $44 per hour

Actual Variable Overhead

$72,900

Complete the following:

Prepare a cost variance analysis for the variable costs.

Competencies Measured

By successfully completing this assessment, you will demonstrate your proficiency in the course competencies through the following assessment scoring guide criteria:

  • Competency 4: Utilize cost accounting data to evaluate management control systems.
    • Explain plan incentives and determine the relevancy of the plan.
    • Prepare budgeted income statement and balance sheet.
    • Demonstrate financial performance analysis.
    • Prepare a flexible budget.
    • Prepare a variance analysis of direct materials, direct labor, and overhead.
  • Competency 5: Communicate in a manner that is professional and consistent with expectations for professionals in the field of accounting.
    g costs
    Direct labor    27,264   28,800
    Materials    23,040   26,880
    Variable overhead    15,744   19,200
    Marketing    10,076   11,520
    Administrative      9,600     9,600
    Total variable costs  $85,824 $96,000
    Contribution margin  $90,816 $96,000
    Fixed costs
    Manufacturing      9,380     9,600
    Marketing     19,968   19,200
    Administrative     19,122   19,200
    Total fixed costs $  48,420 $48,000
    Operating profits $  42,396 $48,000
    REQUIRED
    Prepare a flexible budget for Oak Grove, Inc.

    Assessment 4 Part 5

    Assessment 4 Part 5: Manufacturing Variances
    Scenario:
    Delmar Products prepares its budgets on the basis of standard costs. A responsibility report is prepared monthly, showing the differences between master budget and actual results. Variances are analyzed and reported separately. There are no materials inventories. The following information relates to the current period:
    Standard costs (per unit of output)
    Direct materials, 6 gallons @ $4.00 per gallon   $24
    Direct labor, 4 hours @ $40 per hour   160
    Factory overhead
    Variable (25% of direct labor cost)     40
    Total standard cost per unit $224
    Actual costs and activities for the month follow:
    Materials used 15,120 gallons at $3.60 per gallon
    Output 2,280 units
    Actual labor costs 6,400 hours at $44 per hour
    Actual variable overhead $72,900
    REQUIRED
    Prepare a cost variance analysis for the variable costs.
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