Reference no: EM131359845

Managerial Accounting Final Exam

Assignment 1: Budgeting and Variance analysis

NANOSINE Corp. produces a brand new sports drink which uses a new grinding procedure to transform natural minerals into nano particles which themselves are later on dissolved in water. In the last year, for net sales of EUR 625,000 in year 01 the following costs could be realised. However, the costs considerably deviate from the planned values as the following table shows:

Produced and sold volume	Planned Values for Year 01		Actual Values for Year 01
	200,000 liters		125,000 liters
Cost categories:	Total	of which variable	Total	of which variable
Material costs	74,000	64,000	40,000	30,000
Production costs	530,000	80,000	520,000	70,000
General Administration costs	136,000	96,000	120,000	80,000
Sales costs	390,000	240,000	310,000	160,000

For the year 02, the management expects that the so far only 40% capacity utilization will double. The actually realised cost structure for the year 01 is assumed to be constant, i.e., the variable costs will adjust according to volume and the fixed costs will be realized as in the year 01. As for the year 01 also for the year 02 the total production is just in time and is immediately sold which results in no change in inventories. The prices on the sales market are expected to be stable.

Assignments:

a) What are the actual net earnings (EBIT) for the year 01 based on the full costing approach? What conclusions do you draw for the firm?

b) Please indicate the following planned and actual cost figures for the year 01 using flexible budgeting based on full costs! Please calculate the following figures for the entire firm:

- Actual costs

- Planned costs

- Absorbed costs

- Standard costs

- Unused idle costs

- Volume variance

- Spending/efficiency variance

- Total variance

Please deliver an interpretation for your results, especially for the three different variances!

c) Which net earnings (EBIT) can be expected for the year 02 under the given conditions? Please calculate the profit based on full costing! How do you assess your results in relation to a).

d) 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, and the fixed costs?

e) Please calculate the short-term and long-term lower price limit for a litre of the new sports drink for the planned volume! What do both values mean for the firm?

f) For what production volume can we find the minimum variable and the minimum total costs for a litre of the sports drink (unit costs)? What does this mean for the firm?

Assignment 2: Price setting and costing

The travel agency N. JOY LIFE is specialized on short recreation trips for stressed managers in mid-sized firms and asks the SAXONIAN CRUISING CORPORATION for an offer for the short tour „Xpress-RelaX" from Dresden, Germany to Praha, Czech Republic, to expand their customer base for Eastern Europe. The tour is planned to take place 30 times per year always from Friday to Sunday over a period of five years. The following services will be included in the trip:

• Check-In at the pier in Dresden
• Shipping from Dresden to Praha
• An overnight stay each on board and in a hotel in Praha
• Breakfast, lunch and dinner for both travelling days
• Guided city tour in Praha
• Backhaul by train

The departure is about to take place on Fridays afternoons to allow that the journey can be organized within the normal office hours of the pier in Dresden. LOTTE FLOTTE, the chief controller of the SAXONIAN CRUISING CORPORATION is highly motivated to get the contract as the regular tours of her company are under pressure due to severe price competition on the tourist market. Her firm has currently only a 50 % capacity utilization from their regular tour businesses. For the cruise ship under consideration the following cost data is available:

Cost position	Calculation
Captain + First Officer	2 Employees 10 h at EUR 80 each
+ Service staff	4 Employees 10 h at EUR 25 each
+ Technical Staff	1 Employee  10 h at EUR 50
	1 Employee  10 h at EUR 25
+ Check-In at Dresden	1 Employee    2 h at EUR 25
= Direct labour costs
+ Labour overhead costs	25 % on direct labour costs
= Labour costs
Fuel costs	EUR 750
+ Catering on board	EUR 30 per person
+ Lodging on board	EUR 60 per person
+ Fees Port of Praha	Flat rate EUR 75
= Other costs
Depreciation cost rate per day	2 days at EUR 500 each
+ Surcharge for maintenance and hardware	50 % surcharge on depreciation
= Costs for machinery
Costs in Praha:
Overnight stay	EUR 30 per person
+ Catering in Praha	EUR 15 per person
+ Guided city tour	Flat rate EUR 100 (not dependent on # of participants)
+ Backhaul by train	EUR 25 per person
+ Administration costs	20 % of shipping costs*
+ Sales costs	10 % of shipping costs*
= Total costs

* The shipping costs are the total of labour costs, other costs and costs for machinery.

Due to many years of experience the variability for the different cost categories can be assessed by the following averages: Direct labour costs are fully variable, labour overhead costs are 100% fixed. Fuel costs, catering and lodging depend fully on the capacity utilisation. Of the total machinery costs only a quarter of the general costs for maintenance and hardware is variable. From the absolute values for administration two third and from the sales costs one third of the original full costs are not depending on volume.

Assignments:

a) What is the lowest possible price for a tour with 20 participants that Mrs. FLOTTE can offer to N. JOY LIFE under the given conditions?

b) Please assume now independently from a) the following situation. N. JOY LIFE requests an offer for one single tour to Praha. The tour will take place only once at one specific weekend in June. What is the ultimate offer?

c) If you assume that Mrs. FLOTTE has to call off another customer for the same weekend who intends to book a tour with also 20 participants with the same ship to Magdeburg (similar distance as to Praha) to enable the tour described under b). What is the ultimate offer in this case when the alternative order has the same cost structure as the tour to Praha and when Mrs. FLOTTE calculated a Return on Sales of 10% for the order?

Assignment 3: Activity Based Costing

The postal courier service, GERMAN LETTER GMBH, intends to measure and analyze the costs for its standard letter. The firm intends on the one hand to reach as far as possible cost covering prices and on the other hand to find starting points for cost reduction and innovative product design. In cooperation with the consulting firm MCCLEVER & CO. a pilot study is supposed to analyze a standard letter running from Augsburg to Dresden.

So far the price for a standard letter was 0,60 € which was raised by selling stamps. The letters are collected in public mailboxes which are further transported via the inbound logistics center Gersthofen near Augsburg to the outbound logistics center Ottendorf-Okrilla near Dresden and from there to local distribution centers where the letters are picked up by the postmen and finally delivered to the customers of GERMAN LETTER.

Assignment:

a) Which processes would you underlie for the calculation of the activity based costs for all the way a letter takes from dropping in the public mailbox to delivery by the postman to your private mailbox at home? (Please explain the processes of the supply chain briefly, considering that you might not be a full experts in this field of logistics)

b) Which cost drivers, i.e. the factors that finally determine the amount of cost, can be allo¬cated to these main processes?

c) The consulting firm MCCLEVER & CO. has selected in a pilot study the sub-processes for the delivery of the standard letter from the outbound logistics center (here near Dresden) to the customer (main processes "outbound transportation" and „delivery"). The sub-processes are structured as follows:

Sub-processes	Cost driver	Ratio
1. Transportation from the outbound logistics center to the  local distribution cen­ter	One-way distance from the out­bound logistics center to the local distribution center in km	30 km
	Transportation costs per km	40 €/km
	Number of standard letters for the area of postal code per day	40,000 standard letters
2. Sequence sorting by postman	Number of standard letters for the area of postal code per day	40,000 standard letters
	Number of sorted letters per hour	2,000 letters per hour
	Hourly rate postman	40 €/h
3. Way to customer	Average distance in m from customer to customer on a round trip	200 m
	Speed of movement postman (Bike)	10 km/h
	Hourly rate postman	40 €/h
	Average number of letters per customer and day	5 letters per delivery
4. Delivery	Number of standard letters for the area of postal code per day	40,000 standard letters
	Average number of letters per customer and day	5 letters per delivery
	Time consumption for delivery to customer	18 sec per customer
	Hourly rate postman	40 €/h

Calculate the activity based costs of the „outbound transportation" and „delivery" for a private customer (5 standard letters per delivery) and for a firm (200 standard letters per delivery)!

d) What starting points do you derive from your analysis for cost reduction, for product de-sign, and for the price policy based on the activity based costs for the main processes „outbound transportation" and „delivery"?

Attachment:- Assignment Raw data.rar