Case Studies: Delicious Cakes Factory And Foxwood Company
Delicious Cakes Factory Overview
- In the given question the business of cakes of Delicious Cakes factory is getting out of business, the reason being the conventional style of cakes and no new ideas or new style of producing cakes. The managing director of Delicious Cakes is reluctant to accept the idea of the marketing director to improvise the style of cakes and enter into the business of producing gourmets pies because of low profits from the existing business and low level of funds.
Being the management accountant there are various advantages of improvising the style of the cakes and stepping into the business of producing the gourmet pies. These are being present below in various points:
- Introduction of gourmet pies will boost the brand image of Delicious Cakes since the market is untapped and the competition is very low. It will be an easy entry for the Delicious Cakes into the market(Dumay & Baard, 2017).
- The customer base will increase tremendously even for the existing cakes. Since the customers will be more eager to try the Gourmet pies, as it will be new to the market, we will be able to sell the existing cakes also by improvising the same and making it more attractive.
- The consumers are willing to pay more for quality products so it will be favourable for us to set a high price of gourmet pies to recover the initial costs and by the time, competitors will enter the market we will already have recovered our costs and would have started earning profits. We would have reached our growth stage(Alexander, 2016).
- With good marketing and advertising, we can create a long lasting goodwill and brand image of the business. Since the product is new to the market, it will attract vast customers.
- We can adopt the management control system to assess the performance of the company. The quantity, which is being produced, and the sales achieved(Visinescu, et al., 2017). There should be target sales, which have to be achieved by the marketing head. The feedback of the consumers is very important to assess in order to improvise the tastes and design of the product. There are various types of information which would merit the attention of Slick and managing director, these are:
- Additional cost being incurred in the introduction of gourmet pies along with improvising the existing cakes(Heminway, 2017).
- Incremental revenue from the sales of gourmet pies. The sales quantity of gourmet pies and the point at which the company breaks even.
- Customer feedback is of most importance in case of introduction of new products. The feedback about the taste of the product as well as the design.
- The schedule of cost of goods manufactured is as follows:
Foxwood Company
|
Particulars |
Amount ($) |
Amount ($) |
|
|
Direct Material |
|||
|
Direct material inventory 1st Jan 2018 |
40,000.00 |
||
|
Add: |
Direct Material Purchased |
460,000.00 |
|
|
Less: |
Direct material inventory 31st Dec 2018 |
(50,000.00) |
|
|
Direct Material Consumed |
450,000.00 |
||
|
Direct Manufacturing Labour |
300,000.00 |
||
|
Materials handling cost |
70,000.00 |
||
|
Sandpaper |
2,000.00 |
||
|
Lubricants & Coolants |
5,000.00 |
||
|
Work in process inventory 1 Jan 2018 |
10,000.00 |
||
|
Work in process inventory 31 Dec 2018 |
(14,000.00) |
||
|
Cost of Goods Manufactured |
823,000.00 |
- The Schedule of cost of goods sold is as follows:
Foxwood Company
|
Particulars |
Amount ($) |
Amount ($) |
|
|
Direct Material |
|||
|
Direct material inventory 1st Jan 2018 |
40,000.00 |
||
|
Add: |
Direct Material Purchased |
460,000.00 |
|
|
Less: |
Direct material inventory 31st Dec 2018 |
(50,000.00) |
|
|
Direct Material Consumed |
450,000.00 |
||
|
Direct Manufacturing Labour |
300,000.00 |
||
|
Materials handling cost |
70,000.00 |
||
|
Sandpaper |
2,000.00 |
||
|
Lubricants & Coolants |
5,000.00 |
||
|
Work in process inventory 1 Jan 2018 |
10,000.00 |
||
|
Work in process inventory 31 Dec 2018 |
(14,000.00) |
||
|
Cost of Goods Manufactured |
823,000.00 |
||
|
Miscellaneous indirect manufacturing labour |
40,000.00 |
||
|
Plant leasing costs |
54,000.00 |
||
|
Depreciation – plant equipment |
36,000.00 |
||
|
Insurance on plant equipment |
3,000.00 |
||
|
Marketing promotions |
60,000.00 |
||
|
Marketing salaries |
100,000.00 |
||
|
Distribution costs |
70,000.00 |
||
|
Customer service costs |
100,000.00 |
463,000.00 |
|
|
Cost of Goods Sold |
1,286,000.00 |
- The income Statement is as follows:
Foxwood Company
|
Particulars |
Amount ($) |
Amount ($) |
|
|
Total Sales Revenue |
1,360,000.00 |
||
|
Total Income (A) |
1,360,000.00 |
||
|
Direct Material |
|||
|
Direct material inventory 1st Jan 2018 |
40,000.00 |
||
|
Add: |
Direct Material Purchased |
460,000.00 |
|
|
Less: |
Direct material inventory 31st Dec 2018 |
(50,000.00) |
|
|
Direct Material Consumed |
450,000.00 |
||
|
Direct Manufacturing Labour |
300,000.00 |
||
|
Materials handling cost |
70,000.00 |
||
|
Sandpaper |
2,000.00 |
||
|
Lubricants & Coolants |
5,000.00 |
||
|
Work in process inventory 1 Jan 2018 |
10,000.00 |
||
|
Work in process inventory 31 Dec 2018 |
(14,000.00) |
||
|
Cost of Goods Manufactured |
823,000.00 |
||
|
Miscellaneous indirect manufacturing labour |
40,000.00 |
||
|
Plant leasing costs |
54,000.00 |
||
|
Depreciation – plant equipment |
36,000.00 |
||
|
Insurance on plant equipment |
3,000.00 |
||
|
Marketing promotions |
60,000.00 |
||
|
Marketing salaries |
100,000.00 |
||
|
Distribution costs |
70,000.00 |
||
|
Customer service costs |
100,000.00 |
463,000.00 |
|
|
Cost of Goods Sold |
1,286,000.00 |
||
|
Total Expenditure (B) |
1,286,000.00 |
||
|
Net Income (A-B) |
74,000.00 |
- Analysis of physical flow of units is as follows:
|
Particulars |
Units |
|
Work in progress, 1st November , 2016 |
1,000 |
|
Units started in November |
12,000 |
|
Total units account for |
13,000 |
|
Work in progress, 30th November,2016 |
2,000 |
|
Units completed & transferred during November, 2016 |
11,000 |
- Total equivalent units = Total unit completed + work in process x percentage of completion
11000 + 1000 x .70 + 2000 x .40
12,500
- Calculation of Units cost is as follows:
|
Particulars |
a) Direct Material |
b) Conversion Cost |
|
Work in progress, 1st November , 2016 |
640.00 |
360.00 |
|
Units started in November, 2016 |
3,000.00 |
6,350.00 |
|
Total units account for (a) |
3,640.00 |
6,710.00 |
|
Equivalent Units (b) |
11,000.00 |
12,500.00 |
|
Cost per unit (a/b) |
0.33 |
0.54 |
- Analysis of total cost is as follows
Total cost = Cost of beginning inventory + costs added during the year
$ 1,000.00 + $ 9,350.00
$ 10,350.00
Total cost for 11000 units completed and transferred in November = 11000 * (0.33+0.54)
= $9570
Therefore the total cost incurred by the company on the units produced in November month is $9570.
- Job costing system of cost accounting is a very famous method of cost accounting. This method of cost accounting is mostly used by business concerns, which are keen in tracing costs, which are specific to particular jobs, or individual jobs in order to examine the costs so that the same can be reduced(Linden & Freeman, 2017). Under job costing system of cost accounting various costs, namely: material cost, labour cost as well as overhead costs are accumulated for a particular or specific job. Moreover, job costing can also be used to track the cost, which has been incurred in excess so that the same can be recovered from the ultimate customer by billing them the same.
In the given question, the company Martinez Building Products uses job-costing system for cost accounting (Choy, 2018). Since the company is in the business in manufacturing and marketing doors which are unique as well as customized doors for residential garages along with other variant fashion of doors, the company wants to know the cost incurred in each variant of the door which is being manufactured in order to take steps in reducing costs so that the profits can be maximized and accordingly cost control measures can also be taken. It is very much prudent for Martinez Building Products Company to have adopted job-costing system of accounting for costs (Goldmann, 2016).
- We have observed that Martinez Building Products Company allocates the total overhead costs based on direct labour costs. The same can be computed by dividing the total overhead cost by total direct labour cost(Jefferson, 2017).
The calculation for total overhead rate is as follows:
Total overhead cost / total direct labour cost
= $ 24000000 / $ 20000000
= $ 1.20 per Direct Labour Hour
- Calculation of over/under applied overhead cost is as follows:
|
Particulars |
Amount ($) |
|
Insurance for factory |
500,000.00 |
|
Indirect Labour |
7,500,000.00 |
|
Factory maintenance |
1,000,000.00 |
|
Rent on factory building |
11,000,000.00 |
|
Depreciation on factory equipment’s |
2,000,000.00 |
|
Total Overhead cost Incurred (a) |
22,000,000.00 |
|
Budgeted Overhead cost (b) |
24,000,000.00 |
|
Actual Direct Labour Cost (c) |
21,000,000.00 |
|
Actual Overhead Rate per direct labour hour (a/c) (d) |
1.05 |
|
Budgeted Overhead Rate per direct labour hour (b/c) (e) |
1.14 |
|
Over applied Overhead cost per direct labour hour (e-d) |
0.10 |
References
Alexander, F., 2016. The Changing Face of Accountability. The Journal of Higher Education, 71(4), pp. 411-431.
Choy, Y. K., 2018. Cost-benefit Analysis, Values, Wellbeing and Ethics: An Indigenous Worldview Analysis. Ecological Economics, 3(1), p. 145.
Dumay, J. & Baard, V., 2017. An introduction to interventionist research in accounting.. The Routledge Companion to Qualitative Accounting Research Methods, p. 265.
Goldmann, K., 2016. Financial Liquidity and Profitability Management in Practice of Polish Business. Financial Environment and Business Development, Volume 4, pp. 103-112.
Heminway, J., 2017. Shareholder Wealth Maximization as a Function of Statutes, Decisional Law, and Organic Documents. SSRN, pp. 1-35.
Jefferson, M., 2017. Energy, Complexity and Wealth Maximization, R. Ayres. Springer, Switzerland. Technological Forecasting and Social Change, pp. 353-354.
Linden, B. & Freeman, R., 2017. Profit and Other Values: Thick Evaluation in Decision Making. Business Ethics Quarterly, 27(3), pp. 353-379.
Visinescu, L., Jones, M. & Sidorova, A., 2017. Improving Decision Quality: The Role of Business Intelligence. Journal of Computer Information Systems, 57(1), pp. 58-66.