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):
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Cost category
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Total costs
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Variable costs
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Fixed costs
|
|
Direct materials
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120,000
|
120,000
|
---
|
|
Overhead materials
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46,000
|
30,000
|
16,000
|
|
Energy
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32,000
|
24,000
|
8,000
|
|
Direct labor
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184,000
|
184,000
|
---
|
|
Overhead labor
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38,000
|
8,000
|
30,000
|
|
Social security
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42,000
|
30,000
|
12,000
|
|
Depreciation & amor- tization
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134,000
|
16,000
|
118,000
|
|
Other overhead
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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 actual costs are 15 % above the originally planned total costs. The actual volume has been 3,300 production hours.
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 stand- ard 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 small, but highly ambituous airline EUROSCHWING faces increasing sales despite sharp competition. To make future price setting more flexible owner LUTZ HANSA wants to run a break even analysis to explore the relation between cost, volume and net income. Being a lawyer by nature, LUTZ HANSA asks you for support.
The following average values based on data of the previous year have been collected by the accounting department:
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Average ticket price per flight for one passenger
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154.00 €
|
|
Averge fuel costs per flight*
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1,280.00 €
|
|
Average catering costs per flight for one passenger
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7.50 €
|
|
Costs of outsourced maintenance costs per year
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250 Mill. €
|
|
Personal costs per year
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81.0 Mill. €
|
|
In addition increase of pension provisions per year
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0.5 Mill. €
|
|
Other operating costs per year
(leasing, insurance, sales & administration)
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98 Mill. €
|
|
Amortization on planes and other fixed assets per year
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21 Mill. €
|
|
Amount of scheduled flights per year
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49,400
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|
Amount of charter flights per year
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9,600
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Number of passengers per year
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3,770,000
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Assignments:
a) What number of passengers is necessary to reach break even, to reach the cash point and to reach a profit target of EUR 15 Mill.?
By what percentage can the number of passengers shrink without making a loss? How do you assess the risk for a loss for EUROSCHWING?
b) Based on calculations please assess the following changes in the cost position and explain your results:
- How much does the break even volume change if fuel prices increase by 5 %?
- What absolute change in the cash point is effected by a reduction of future pension provisions by 20 %?
- What absolute change in the break even volume is effected by an increase of catering costs per passenger by 20 % and a simultaneous decrease of maintenance costs by 10 %?
c) What sales figures are necessary if ticket prices change by plus/minus 20 % to sustain the original net income target of assignment a) ? Please make an adequate spider chart for this sensitivity analysis for changes of 10 % and 20 % and assess your results!
d) Please assume now that ticket prices plummet by 20 %. Please assess the resulting break even volume if you consider the following maximum capacity of the firm assuming that an average flight covers 500 km:
Please indicate two potential activities for the firm to reach break even!
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Maximum capacity
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in passenger km
|
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Offered Seat kilometers
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2,094 Bill. km
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|
Sold Seat kilometers
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1,885 Bill. km
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Assignment 3: Activity Based Costing and Surcharge calculation
Techno.Drive Inc. acquires from the Italian manufacturer Trapatoni in Cremona (Italy) special motors for the electric windows of its new roadster model. Mr. Kleinfuß, production controller at the plant in Schnupperhausen, considers how the deliveries from Trapatoni to Techno.Drive should be organized.
So far Techno.Drive's disposition does not follow any fixed logic, rather the company orders are based on short-term demands. So far, the company has used a surcharge calculation with a surcharge rate for material overheads of 25 % on direct material costs. Techno.Drive Inc. estimates that a set of electric motors for both the driver and front passenger side involve direct material costs of 60.00 EUR.
Mr. Kleinfuß considers which impact the order quantity might have on Techno.Drive's cost position. For many other products, which he disposes, he is confronted with a similiar situation. Therefore, he wants to create a fundamental analysis of how the order quantity affects the costs. So far, the company just assumes stable processes and considers the order sizes to be irrelevant. From his point of view, the following cost positions should be considered in his analysis:
- direct material costs
- disposition costs for the components
- potential interest costs (capital charge) for warehousing larger orders
- costs for internal storage of components
- internal logistic costs for moving components in and out of storage, if warehousing is necessary
Mr. Kleinfuß has compiled the following information for his analysis:
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Surcharge calculation:
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Direct material costs (€ per item)
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60.00
|
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Surcharge rate for overhead costs
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25%
|
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Activity based costing:
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Disposition in EUR per order item
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300.00
|
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Interest costs as WACC in % p.a.
|
10%
|
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Component consumption per day
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20
|
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Storage costs in EUR per storage location, day and unit
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2.00
|
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Costs per stock placement and removal in EUR
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5.00
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Hence, four processes can be identified for actitivity based costing: disposition, paying interests, storage, and stock placement/removal.
Assignments:
a) Calculate the material costs per unit of a special motor for alternative order quantities between 1 unit and 1,000 units! Please apply on the one hand the surcharge rate calculation and on the other hand the method of activity based costing!
b) What is the optimal order quantity?
c) Please compare the results of the surcharge rate calculation with the results based on activity based costing What conclusions can be drawn from your analysis?
Attachment:- Data assignment.xls