Assignment Task: Divine Denim case study
TASK:
Read the background information on the fictitious business, Divine Denim Pty Ltd, and then apply the knowledge you have gained in this subject to answer the various Problems.
Background - Helen Croker
Problem 1: Business background
As part of your initial meeting with Helen, you are concerned to find out as much as possible about the business and the strategies that she plans to use. To start this discussion, you explain to her Porter's Five Forces and Porter's Strategy Model and how these can affect her costs and sales. You ask Helen to explain to you how she thinks the forces in Porter's model affect the custom clothing and the RTW businesses and the strategies she will take with these different products.
Required:
i. Prepare an explanation of Porter's Five Forces model and of Porter's broad-based organisational strategies for Helen.
ii. Prepare a statement from Helen setting out how she sees the forces affecting both the made to measure clothing and the RTW business and the general strategies that she is adopting for each of these businesses. Ensure that you use the background information above to support Helen's approach to Porter's Five Forces model and Porter's broad-based organizational strategies.
Problem 2: Cost allocation
You have explained to Helen the importance of understanding how indirect costs can be allocated to the cost of finished goods and the problems of using a cost of goods manufactured statement to apply these costs and appropriately cost and price her products. Divine Denim has 2 production departments (Cutting and Machining), and 3 support departments (Administration, IT and Design).
The IT Department's costs are allocated based on the number of computers. The Administration Department's costs are allocated based on the number of employees. The Design Department's costs are allocated 50% to cutting and 50% to Machining. Allocate the support department costs in the following order: Administration then IT. Helen has provided some estimates of costs for the current year.
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Materials & Labour
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55,000
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35,000
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45,000
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50,000
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400,000
|
|
Indirect costs
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10,000
|
7,500
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10,000
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7,500
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25,000
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|
Total
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65,000
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42,500
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55,000
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57,500
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425,000
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Allocation base
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1
|
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1
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1
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9
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No of computers
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|
|
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0.5
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0.5
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Designs
|
|
|
|
|
|
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No. of employees
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1
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1
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1
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1
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8
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Required:
i. Allocate the support department costs to the operating departments using the direct method.
ii. Allocate the support department costs to the operating departments using the step- down method. Allocate first the costs for the support department with the largest direct costs.
iii. Allocate the support department costs to the operating departments using the reciprocal method. Use Excel Solver to prepare your answer.
Presentation: The input data above can be copied directly from the online subject outline into a spreadsheet. Cut and paste your spreadsheet results and formula view into your Word document. The formula view should include the column letters and the row numbers. See the 'Getting Started' menu tab on the Interact subject sitefor advice on spreadsheet layout and utilities.
Problem 3: Process costing
As part of your role, you provide Helen with the costs of running her Cutting and Machining departments in July. Only skinny jeans were manufactured in July. All work is commenced in the Cutting Department and output is then transferred to the Machining Department. No direct material is added in the Machining Department but labour and overhead costs, including thread, rivets, buttons, and zippers are incurred uniformly throughout the process. Overhead is allocated based on 125% of direct labour cost. For the Machining Department, the following work in process information for 1 March 2020 is available: 100 units, 75% complete. Costs of this work in process include:
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$
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Cutting department costs transferred in
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3,330
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Machining department costs
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|
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Direct labour
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32,000
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During March 200 units were completed and transferred to Administration for dispatch. Units transferred from the Cutting Department to the Machining Department were charged to Machining at $44.50 each. Direct labour costs in March for the Machining department were $32,000.
On 31 March 35 units were in process in Machining and these were estimated to be 45% complete.
Required:
For the Machining Department calculate, for the month of March, the cost of work completed and the cost of work in process as at 31 March 2020, using:
i. The weighted average cost method, and (8 marks)
ii. FIFO. (12 marks)
Use the example in Figure 7.4 of the text and the information in the Background to Divine Denim, design a job cost record for a pair of custom-made jeans. (5 marks)
Presentation: Use Excel to prepare your answers to parts i and ii. Cut and paste your spreadsheet results and formula view into your word document. The formula view should include the column letters and the row numbers.
Problem 4: Budgets
Part A: On 1 February 2020 Divine Denim has a cash balance of $40 000. Sales for the next six months are expected to be:
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Feb
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March
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April
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May
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June
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July
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$50,000
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$70,000
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$130,000
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$210,000
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$260,000
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$300,000
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The gross margin on sales is expected to be 50%. The company plans to carry a finished goods inventory equal to expected sales for the next two months. Purchases are paid in the month following purchase.
Variable selling expenses are expected to equal 15% of sales. Fixed selling and administrative expenses are expected to be $30 000 per month, including $2,000 depreciation. Eighty percent of the expenses will be paid in the month incurred, the balance in the month following.
Sixty percent of sales are expected to be cash sales. Twenty-five percent of credit sales are collected in the month of sale and 75% in the month following sale.
Required:
i. As an accountant working for Good Numbers you have been asked to prepare a cash budget for the months of March, April, May and June. Comment on the results. (150 words) (12 marks)
ii. In light of your findings in i. Good Numbers have been told that the company has arranged to borrow funds whenever necessary in order to maintain a minimum cash balance of $10,000. A line of credit has been arranged with the bank requiring interest of 1% per month on borrowed cash. Interest will be paid at the time the loan is repaid. The loan will be repaid as soon as there is enough cash to do so. Using this information, revise the cash budget. (5 marks)
Presentation: Use Excel to prepare your answers to parts i. and ii. Cut and paste your spreadsheet results and formula view into your word document. The formula view should include the column letters and the row numbers.
Part B:
Explain to Helen how the budget is related to the organizational strategies outlined in your answer to Problem 1. (Max 300 words)
Attachment:- Case Study-Divine Denim.rar