Management Accounting - Farnsworth's Fine Furniture Ltd
Question 1 -
(a) Prepare a new profit statement for Fred, using a variable costing approach (Also known as marginal costing, or the contribution margin approach). You should identify the contribution made by each product over the last six months, as well as the overall net profit for the company.
(b) Calculate the company net profit for the last six months if Fred had stopped production of the dressing tables six months ago, and demand for the other two products had remained the same. (You may assume that supplies of mahogany are unlimited). Show all of your workings clearly.
(c) Name at least six relevant qualitative issues that Fred should consider before stopping production of the dressing tables. (Qualitative issues are those that are likely to have a financial impact on the organisation, but which cannot be exactly quantified at this stage).
(d) Calculate how much contribution the dressing tables would have made in the past six months if the mirror section had not been contracted out. You should show your workings clearly.
(e) Mention three important qualitative issues which Fred should consider when deciding whether to make the mirror sections in house, or to continue buying them from the outside supplier.
Question 2 -
Write a memo to Fred, setting out in detail the implications of the American enquiry, with particular regard to:
(a) The potential profitability of the current enquiry. (You must provide calculations and any other schedules you feel are necessary to support your figures).
(b) Other short and long term issues to be considered before accepting the order.
Question 3 -
At the urgent meeting last week, the Sussex Timber Company informed Fred that supplies of mahogany from South America were in jeopardy. There had been a serious forest fire at the premises of the South American exporter and much of the seasoned timber ready for export had been wiped out. Sussex Timber envisages that there will be no more supplies of the mahogany used by FFF for the next six months. After that date, it appears that supplies should be restored to normal.
(a) Draw up a production schedule which would maximise profits if the available stocks of mahogany held by FFF were used up. You should also calculate the forecast profit figure based on this production schedule.
Note: You should assume that forecast demand from the normal customer base will be 10% higher than the last six months' figures and that the decision on the American enquiry has not yet been made. You should also assume that the mirror section of the dressing table will be manufactured by FFF as the current supplier does not have any stocks of mahogany on hand.
(b) Identify at least four other significant issues that Fred should consider if the above-mentioned production schedule is put in place.
Attachment:- MANAGEMENT ACCOUNT ASSIGNMENT.rar