ACCT2019: Management Accounting - Jasper Spotless Pty Ltd Case Study - Accounting Assignment Help

Assignment Task:

CASE STUDY 

Jasper Spotless Pty Ltd (JSPL) produces two laundry detergent products (Magic and Frothy) and sells them directly to major clothes manufacturing companies. It has six departments – Magic (M###), Frothy (F###), Accounting (A###), Human resources (H###), Sales & distribution (S###) and Technical services (T###) within their Jasper cost centre group (JG###). 

At the beginning of current year, there are 2000 units of Magic on hand costing $45 each and 2,750 units of Frothy, at a cost of $20 each. Their budgeted estimates for current year are as follows: 

FINISHED GOODS 

PRODUCT Sales 

Volume 

Selling price 

Required ending inventory (units) 

Inventory at the beginning (units) Magic 120,000 $85.00 1000 2000x $45=$90,000 Frothy 385,000 $50.00 12,750 2750x $20=$55,000 

DIRECT MATERIALS 

Direct Material per unit of Finished product (litres) 

Required ending inventory (Litres) 

Balance beginning of the year (litres) Material Cost per litre Magic Frothy A $1.50 6 3 30,000 20,000 B 1.00 4 1 5,000 4,250 C 3.00 2 2 3,000 5,500 D 2.50 6 0 5,000 8,000 

DIRECT LABOUR 

Direct labour hours per batch of finished product Cost per direct labour Process Magic Frothy hour Blending 3.0 1.2 Packaging 0.3 0.2 Total Hours 3.3 1.4 Batch size (units) 33 35 Direct labour hours per unit 0.1 0.04 $25 

Actual Cost ($) Cost centres the costs to be charged (actual & budgeted) Indirect labour 371,502 800,000 M### Supplies & Electricity 599,069 620,000 M### Repairs, rates & insurance 1,047,422 1,080,643 M### Total variable overhead costs 2,017,993 2,500,643 Fixed Overheads: Factory rentals 1,200,000 1,200,000 A### Depreciation & miscellaneous 2,150,600 2,140,000 A### Total fixed overheads 3,350,600 3,340,000 

The management of JSPL currently uses traditional method of allocating overhead costs using a predetermined rate based on the number of units produced. They have recently hired you and you team as their Management Accountants and want you to prepare various components of operating budget, cost of goods sold budget and a budgeted income statement. 

By the end of the year you find that JSPL has actually sold 125,000 units of Magic at a selling price of $87 per unit and 370,000 units of Frothy at a selling price of $55 per unit. Actual ending inventories were 5000 units and 15,000 units of Magic and Frothy respectively. You also find that Material A was purchased for 1.55 per litre and material D was purchased at $2.48 per litre. They have used1 495,000 litres of Material B for producing Magic while they used 382,000 litres of Material B for Frothy. The production department also informed that they used 230,000 litres of Material C for Magic and 790,000 litres of Material C for Frothy. 

Actual direct labour hours per unit of Magic produced was 0.12 hours while for Frothy it was 0.038 hours. Total labour cost for Magic was $330,000 and for Frothy it was $337,440. 

Actual total variable manufacturing overhead spent was $ 2,500,643 and total fixed overhead spent was 3,340,000. Rent expenses were fixed for the year. Based on an invoice submitted by a Real Estate agent (called ###Realty), monthly payments are made by JSPL towards the actual rent. For controlling purposes, the management allocates rent costs to various cost centres/departments based on the area occupied by each department using an appropriate method of allocation in their SAP system and wants the identity of the costs to be shown in the receiving cost centres’ report. The area occupied by Magic (M###), Frothy (F###), Accounting (A###), Human resources (H###), Sales & distribution (S###) and Technical services (T###) is 400, 360, 100, 120, 100 and 140 square metres respectively. 

Management has also noticed the increase in variable overheads and in particular the cost of indirect labour. For controlling purposes, it has decided to allocate 30% of the indirect labour costs to the Magic (M###) and another 30% to Frothy (F###) cost centres; and 10% each to the remaining four cost centres – Accounting (A###), Human resources (H###), Sales & distribution (S###) and Technology services (T###). Management would NOT like these costs to be shown in the receiving cost centres’ performance reports as they don’t believe the managers of the receiving cost centres have any control on these costs. 

Except rental costs, all the other overhead costs (both fixed and variable overhead costs) as shown in the above table, are posted directly into the general ledger every month and charged to various cost centres as shown in the tables above. In addition, direct materials costs and direct labour costs are also posted directly in the general ledger every month and charged equally between Magic (M###) and Frothy (F###) cost centres. 

Management would like to allocate the cost of providing maintenance services (MS###) by the Technology Services (T###) cost centre to the other departments in the company. In the current month, T### has provided 200, 300, 50, 40 and 60 hours respectively to the Magic (M###), Frothy (F###), Accounting (A###), Human resources (H###) and Sales & distribution (S###) cost centres respectively. The total planned activity is 585 hours per month and the service rate is $120 per hour. It is important for JSPL to see these costs mapped in SAP and shown in the SAP reports for reference for controlling purposes. 

JSPL management has been concerned in recent times with the quality of their products. Both Magic and Frothy are marketed as highly effective laundry detergent products. Magic is sold as an all-rounder effective clothes detergent, whereas Frothy is sold as a highly-concentrated detergent liquid that is especially effective on tough stains. Even though sales have been more or less reasonable, the subsequent rate at which customers have been returning products has increased by an average of around 5% of Magic sales and around 8% of Frothy sales in 2019. This is particularly concerning as JSPL is competing with a handful of major brand competitors, and given the relative similarities of cleaning products on the market, customers are inclined to switch brands easily. 

On the production front, JSPL has tried to bring more control over product quality by minimising reliance on labour significantly and increasing reliance on machinery in the past 2 years. Many small aspects of production.

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