Calculate the unit costs for one standard micro computer or

Question

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 SCHIMAN-SKI 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 short-term and long-term 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 depart-ment 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. (2000-2007)

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 activity-based 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		Special-MC (31,500 units)	Standard-MC (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