management accounting assignment

Case Study 1: Ollivander’s

Ollivander manufactures premium Magic Wands. The following are some manufacturing overhead data for Magic Wands for the year ended March 31, 2020.

Management Accounting, I FINAL EXAM CASES

1

Manufacturing Overhead

Actual Results

Flexible Budget

Allocated Amount

Variable $60,560 $76,800 $76,800 Fixed $350,210 $348,096 $375,897

Budgeted number of wands (output): 892 Planned allocation rate: 3 machine-hours per wand Actual number of machine-hours used: 1,445 hours

Static-budget variable manufacturing overhead costs: $71,120

Ollivander looks at this information and needs some help with interpretation. When comparing actual results to the flexible budget it looks like he performed well on variable overhead but poorly on fixed overhead; yet, comparing to the allocated amount tells a different story. Ollivander needs your help interpreting these variances! Can you help Ollivander?

Case Study 2: Gringott’s

The Gringott’s Mine extracts gold in central London. Each tonne mined is 40% Grade F (fine) gold, 40% Grade VG (very good) gold, and 20% gold alloy (not so great, but still shiny and good for making things a gold colour). Output usually sells within two months. In January, Gringott’s mined 1,000 tonnes of gold. It spent £10,000 on the mining process. Grade F gold sells for £1000 per tonne. Grade VG gold sells for £60 per tonne. Gringott’s gets one-quarter of a vat of gold alloy from each tonne of gold processed. The gold alloy sells for £60 per vat.

Bogrod, the head goblin at Gringott’s bank has been approached by one of his workers, Gornok, with a proposal to further process Grade VG gold into Galleons on-site. Gornok insists this is a good idea since idle goblin-hours (labour-hours) are available. The process would cost £6000 with no loss in volume. One tonne of Grade VG gold makes 108,000 Galleons.

Currently, Gringott’s sells gold to the Muggle Mint for processing into Galleons (currency; think about a mine selling money to a bank; they are outsourcing processing of gold into coins). The Muggle Mint sells Galleons back to Gringott’s for a price of £5.50 per100 Galleons (ie. Gringott’s is buying back the finished product from the Mint. With Gornok’s suggestion they would be able to by-pass this and complete the entire process on their own).

Case Study 3: Hogwart’s Houses

Hogwarts’ Houses (HH) is a residential home builder that does things a little differently than the competition. HH builds homes to completion in a factory rather than outdoors and on site. HH has three divisions, prefabrication, transportation, and construction.

The Prefabrication division builds whole sections of floors, walls and roof trusses that are shipped to the Construction division, who uses these sections to build the shell of the house before adding all other interior and exterior components (e.g. insulation, wiring, outer walls, doors, etc.). The Prefabrication division “sells” its sections to the Transportation division who ships and “sells” the sections to Construction. Construction then sells finished products to the public.

At present, HH is the only home builder that makes pre-engineered homes and as such has been using its own internal transfer prices, which were set by head office. Please see Appendix I for the past two year’s summary segmented income statements.

December 31, 2019	Prefabrication		Transportation		Construction
Revenue1	$10,000,000		$15,000,000		$60,000,000
Cost of Goods Sold2	8,000,000		14,000,000		42,000,000
Gross Profit	2,000,000		1,000,000		18,000,000
Operating Costs3	2,500,000		400,000		9,000,000
Operating Income (Loss)	(500,000)		600,000		9,000,000
December 31, 2018
Revenue4	11,000,000		15,000,000		58,000,000
Cost of Goods Sold2	8,000,000		15,000,000		39,000,000
Gross Profit	3,000,000		NIL		19,000,000
Operating Costs3	2,500,000		400,000		9,000,000
Operating Income (Loss)	500,000		(400,000)		10,000,000
1For 2019, revenue for the Prefabrication and Transportations divisions are $50,000/unit and $75,000/unit, respectively. Finished houses are sold to the public at an average price of $300,000/unit. 2Cost of goods sold contains any and all variable costs, including transfer prices for the Transportation and Construction divisions. 3Operating costs are all fixed costs that can be traced to each respective division. 4For 2018, revenue for the Prefabrication and Transportations divisions are $55,000/unit and $75,000/unit, respectively. Finished houses are sold to the public at an average price of $300,000/unit.

Management Accounting, I FINAL EXAM CASES

Case 4: Bethilda’s Brooms

Bethilda’s Brooms manufactures brooms which it sells to merchandising firms such as Quality Quidditch Supplies (QQS), Brooms ‘R Us (BRU), Broom-Mart (BM), Broom City (BC), Best Brooms (BB), and Clean Sweep (CS).

The list price of a broom is $48, and the full manufacturing costs are $28.

Salespeople receive a commission on sales; the commission of $30 per order is based on number of orders taken and paid in addition to regular salary. Bethilda’s Brooms makes products based on anticipated demand; however, Bethilda carries an inventory of brooms, so rush orders do not result in any extra manufacturing costs over and above the $28 per broom.

Bethilda’s Brooms ships finished product to the customer at no additional charge to the customer for either regular or expedited delivery. Bethilda incurs significantly higher costs for expedited deliveries than for regular deliveries. Expected and actual customer-level cost driver rates are provided.

Activity Cost Driver Rate

Order taking (excluding sales commission) $30 per order

Product handling $1.90 per unit

Delivery $2 per km driven

Expedited (rush) delivery $320 per shipment

Information about Bethilda's clients during 2019 is as follows:

	QQS	BRU	BM	BC	BB	CS
Total number of units purchased	270	580	400	140	460	1,500
Number of actual orders	3	17	3	3	6	15
Number of written orders per actual order	3	2 *	4	3	6	3
Total number of km driven to deliver all products	80	134	72	46	316	120
Number of expedited deliveries	0	6	0	0	4	3

*Because BRU places 17 separate orders, its order costs are $30 per order. All other orders are multiple smaller orders and so have actual order costs of $12 each.

Because salespeople are paid $30 per order, they break up large orders into multiple smaller orders. This practice reduces the actual order-taking cost by $18 per smaller order (from $30 per order to $12 per order) because the smaller orders are all written at the same time. This lower cost rate is not included in budgeted rates because salespeople create smaller orders without telling management or the accounting department. Also, salespeople offer customers discounts to entice them to place more orders; Brooms ‘R Us and Broom-Mart each receive a 10% discount off the list price of $48.