Explain How Businesses Could use Standard Costs for Control - Accounting & Finance Assignment Help

Assignment Task

Question 1:
a) We have learned that businesses are in control when operations proceed to plan, and objectives are achieved. Standard costing is a part of the budgetary control system.

Required:
Explain how businesses could use standard costs for control. You can use an example to support your explanation.
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Describe a process in which standards are established to ensure that departmental managers are responsible, motivated, and their employees are cost-conscious.
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b) In recent decades, many organizations, including private corporations and governmental agencies, have agreed to share information regarding performance standards in an effort to create a standard set of measures for thousands of business processes. Participating companies are encouraged to enter their information into the group’s website.
Explain how will the share of such standards benefit an organization or business?

Question 2:
In Melbourne, Flying High is the most popular kite producer. The firm has usually prepared its budget using the base of sales volume. Suppose that you recently joined the company as a junior accountant. You are required to set up a spreadsheet for sensitivity analysis in the budgeting process. This year it appears that the company may not meet expectations, which could result in a loss. Top manager is concerned that the company will incur a loss again next year, and he wants to develop a budget that will easily reflect changes in the assumptions.
The senior accountant provided you with the following data about the year 2021’s planned operations:
Direct labour requirement and rate: Assembly Packaging
Hours per kite 0.4 0.1
Rate per hour $28.00 $19.00
Use of direct materials in $ per kite: Nylon $8.00
Ribs $4.00
String $2.00
Direct materials inventory (in $): Expected inventories, 1 January Desired inventories, 31 December
Nylon $4,200 $4,800
Ribs $5,000 $5,300
Strings $800 $900
Finished goods inventory (in units): Expected inventories, 1 January Desired inventories, 31 December
Units 2000 2200
Sales forecast: Selling price $68
Volume of sales (in units): 56000
 

Required:
a) Prepare a sales budget (in dollars) for 2021.
b) Prepare a production budget (in units) for 2021.
c). Prepare a direct material purchases budget for all the required materials (in dollars) for 2021.
d) Prepare a direct labour budget (in dollars) for 2021.
e). Prepare a budgeted income statement for the year ending December 31, 2021. You are provided the following budgets: (1) Manufacturing overhead budget shows expected costs to be 80% of direct labour cost, (2) selling and administrative expenses are expected to be 15% of the expected sales revenue, and (3) expected interest expense is $250,000. The company’s income tax rate is expected to be 30% of its income before tax.

The top manager would like to prepare a budget for cash flows on a monthly basis so that they can plan short-term investments and borrowings.
The company’s sales are highest during the spring and summer. Sales are fairly even within each quarter (sales are even within 3 months of each quarter), but sales vary across quarters as follows:
Distribution of sales January - March 30%
April - June 20%
July - September 10%
October - December 40%
Payments from customers are usually received as follows:
Monthly payment from customers: Pay during the month goods are received 60%
Pay the next month 38%
Bad debts 2%
f)Prepare monthly budgets for cash receipts for 2021. (Hint: you may have to present a table of monthly sales, receipts of the month and from the prior month, and the monthly total receipts.)

Question 3:
Suppose that you are working for Amenia Ltd. as a junior management accountant. The previous accounting staff has collected the following data for the company’s last year of operations:
Sales volume (units) 180,000 Sales revenue: $2,880,000 Direct materials: $693,600 Direct labour: $498,000 Manufacturing overhead*: $648,000 Selling expenses**: $432,000 Administrative expenses***: $420,000 Note that: *65% variable and 35% fixed **45% variable and 55% fixed ***30% variable and 70% fixed The managing director has asked that you undertake a cost-volume-profit (CVP) analysis to assist with planning. (Note: Round all calculations to two decimal places.)
 

Required:
a) Calculate the breakeven point in units and in dollars for the last year of operations.
b) Based on a recent market study, the managing director has set a target profit (net income) of $450 000 for next year. What are the required sales in units and in dollars for the company to achieve this target? (Assume that information of selling price, variable costs per unit, and fixed costs will remain the same as for the last year of operations.)
c) Assuming that the company meets its target profit (net income) for next year, what will be its margin of safety ratio?
d) When consulting with the managing director about the implication of operating leverage measure, he states that the higher the operating leverage level, the better the company’s future performance. Do you agree or disagree with his statement? Explain.

Question 4:
Richmond Manufacturing’s managing director is trying to decide whether to continue manufacturing a part or to buy it from an overseas supplier. The part, called S-70, is a component of the company’s finished product.

The following information was collected from the accounting records and production data for the year ending December 31, 2020.
10,000 units of S-70 were produced in the Machining Department.
Variable manufacturing costs applicable to the production of each S-70 unit were: direct materials $5, direct labour $4, indirect labour $0.55, utilities $0.50.
Fixed manufacturing costs applicable to the production of S-70 were:

Cost item Direct Allocated
Depreciation $2,200 $ 1,800
Property taxes 1,000 400
Insurance 1,900 900

All variable manufacturing and direct fixed costs will be eliminated if S-70 is purchased. Allocated costs will have to be absorbed by other production departments.
The lowest quotation for 12,000 S-70 units from an overseas supplier is $100,000
If S-70 units are purchased, freight and inspection costs would be $0.25 per unit, and receiving costs of $2,300 per year would be incurred by the Machining Department.
If S-70 units are purchased on an ongoing basis, one of the manufacturing plants would be closed. The facilities would be rented out to produce a net income of $15,000 per year.
If S-70 units are purchased, one employee from the machining department will be transferred to purchasing (the employee’s salary is $32,000).
 

Required:
a)Make a recommendation as to whether S-70 should be manufactured or purchased. Support your answer with appropriate incremental analysis.
b)What non-financial factors should management consider in making this decision?

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