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Fossiel Company Case and Data Schedules
Fossiel Company Case Background
Fossiel Company manufactures a wide range of dried fruit.
Twenty years ago Fossiel Company had only three product lines (Dried Apple, Dried Apricots, and Dried Fruit Salad). The company produced large volumes of each product, using very simple machinery and a lot of hard work.
The company still makes and sells a lot of the original three product lines, but now also produces a wide range of low-volume speciality lines (Banana Chips, Glace Ginger, and Dried Mango). The low-volume speciality lines are complex to produce and their short production runs involve a lot of extra machinery setups and material handling. But the current figures indicate that these speciality lines have very good profit margins.
The company has undergone some dramatic changes within the business over the past 15 years. The factory had seen the introduction of computer-controlled blanching and drying machines and MAP gassing facilities that replaced a lot of the direct labour operations, and an increased emphasis on quality and delivery performance. In fact, right across the business, more and more effort had been placed on keeping the customer happy.
Despite all this progress, the company seems to be struggling. Profits are declining, and for the company to survive senior management has indicated to staff that they must be more productive. Senior management also indicated that the company must focus on increasing sales, particularly in the range of high-margin specialty products.
The company's management accountant had become concerned about the conventional product costing system at Fossiel Company. The manufacturing people were also sure that the costing system was distorting product costs.
Schedule 1
Resource Cost Categories and Resource Drivers
Cost category Cost Resource driver
Wages $7,537,500 Number of employees
Building costs $2,010,000 Floor space
Depreciation $1,340,000 Machine hours
Consumables $67,000 Orders placed by centre
Energy $281,400 Kilowatt hours used
Other $67,000 Number of employees
Total $11,302,900
- All Wages Costs can be considered indirect costs for the purposes of this case. - The current conventional approach to allocation of overheads is to use a plantwide rate.
- The current plantwide rate in use can be approximated by using the estimated annual number of units produced as the level of activity.
Schedule 2
Resource drivers consumed by activity centres
Cost categories (resource drivers) Wages Building costs Depreciation Consumables Energy Other
Activity centres (employees) (m2) (machine hours) (orders) (kilowatt hours) (employees)
Product Development 4 300 10 20000 4
Sales and distribution 13 700 10 12000 13
Inspecting 2 700 10 12000 2
Blanching 33 1,400 5300 200 270000 33
Dehydrating 33 1,400 6700 130 400000 33
MAP Gassing and Packing 26 1,400 1300 200 270000 26
Administration 13 700 20 10000 13
Corporate management 6 500 10 10000 6
Total quantity of resource drivers across all activity centres 130 7,100 13300 590 1004000 130
* All Calculations to 4 decimal places
Schedule 3
Activities and resource drivers used - Blanching
Activity Percentage of labour time Percentage of floor space Percentage of machine hours
Set up blanching vats 10% 5% 0%
Weigh and sort ingredients 10% 5% 0%
Load blanching vats 40% 70% 100%
Operate scalding and draining 20% 5% 0%
Drain and clean vats 10% 5% 0%
Move to drying room 10% 10% 0%
Total 100% 100% 100%
* All Calculations to 4 decimal places
In this Activity Centre, the only activity that makes significant use of machinery (and therefore depreciation, consumables and energy) is Operate scalding and draining
Various consumables used in this Activity Centre are almost all used by the Load blanching vats personnel, who order these supplies as and when needed.
Schedule 4
List of activities
Activity Activity cost Activity driver Annual quantity of activity driver
Corporate management $347,885 Assigned directly to products
Process receivables No. of invoices 6,700 invoices
Process payables No. of purchase orders 3,400 purchase orders
Production planning No. of production schedules 1,340 production schedules
Reports to Health Dept No. of production schedules 1,340 production schedules
Process sales order No. of sales orders 5,360 sales orders
Dispatch sales order No. of dispatches 3,400 dispatches
Product Development $231,923 Assigned directly to new products lines
Inspect Ffruit No. of batches 1,340 batches
Disposal of substandard fruit No. of batches 1,340 batches
Move to mincing room No. of batches 1,340 batches
Set up blanching vats No. of batches 1,340 batches
Weigh and sort ingredients No. of batches 1,340 batches
Load blanching vats No. of kilograms 268,000 kilograms
Operate scalding and draining No. of batches 1,340 batches
Drain and clean vats No. of batches 1,340 batches
Move to drying room No. of batches 1,340 batches
Set up dryer ?? No. of batches 1,340 batches
Weigh ingredients ?? No. of batches 1,340 batches
Load dryer ?? No. of batches 1,340 batches
Operate dryer ?? No. of kilograms 268,000 kilograms
Unload and clean dryer ?? No. of batches 1,340 batches
Move to packaging room ?? No. of kilograms 268,000 kilograms
Load hopper No. of products 1,072,000 products
Set up packaging and fill No. of trays 21,440 trays
Move to MAP Gassing machine No. of trays 21,440 trays
MAP Gas and seal products No. of trays 21,440 trays
Unload MAP Gassing machine No. of trays 21,440 trays
Inspect finished products No. of trays 21,440 trays
Disposal of substandard product No. of trays 21,440 trays
Move to truck No. of trays 20,370 Finished trays
* All Calculations to 4 decimal places “??” indicates that these figures must be calculated.
Schedule 5
Product 1 Data - Mettwurst
Activities consumed Annual quantity of activity driver
Corporate management $99,571 Assigned directly to products
Process receivables 700 invoices
Process payables 300 purchase orders
Production planning 170 production schedules
Reports to Health Dept 170 production schedules
Process sales order 670 sales orders
Dispatch sales order 500 dispatches
Product Development $0 Assigned directly to new products lines
Inspect Ffruit 170 batches
Disposal of substandard fruit 170 batches
Move to mincing room 170 batches
Set up blanching vats 170 batches
Weigh and sort ingredients 170 batches
Load blanching vats 53,750 kilograms
Operate scalding and draining 170 batches
Drain and clean vats 170 batches
Move to drying room 170 batches
Set up dryer 170 batches
Weigh ingredients 170 batches
Load dryer 170 batches
Operate dryer 53,750 kilograms
Unload and clean dryer 170 batches
Move to packaging room 53,750 kilograms
Load hopper 214,400 products
Set up packaging and fill 2,150 trays
Move to MAP Gassing machine 2,150 trays
MAP Gas and seal products 2,150 trays
Unload MAP Gassing machine 2,150 trays
Inspect finished products - trays
Disposal of substandard product - trays
Move to truck 2,150 Finished trays
Direct Materials $3 per kilogram Assigned directly to products
Current Market Selling Price per unit of product
Batch size 1,300
Annual Volume 215,000
* All Calculations to 4 decimal places
Schedule 6
Product 2 Data - Csabai
Activities consumed Annual quantity of activity driver
Corporate management $12,041 Assigned directly to products
Process receivables 200 invoices
Process payables 100 purchase orders
Production planning 70 production schedules
Reports to Health Dept 70 production schedules
Process sales order 200 sales orders
Dispatch sales order 100 dispatches
Product Development $107,466 Assigned directly to new products lines
Inspect Ffruit 60 batches
Disposal of substandard fruit 60 batches
Move to mincing room 60 batches
Set up blanching vats 60 batches
Weigh and sort ingredients 60 batches
Load blanching vats 13,000 kilograms
Operate scalding and draining 60 batches
Drain and clean vats 60 batches
Move to drying room 60 batches
Set up dryer 60 batches
Weigh ingredients 60 batches
Load dryer 60 batches
Operate dryer 13,000 kilograms
Unload and clean dryer 60 batches
Move to packaging room 13,000 kilograms
Load hopper 26,800 products
Set up packaging and fill 540 trays
Move to MAP Gassing machine 540 trays
MAP Gas and seal products 540 trays
Unload MAP Gassing machine 540 trays
Inspect finished products 540 trays
Disposal of substandard product 540 trays
Move to truck 520 Finished trays
Direct Materials $4 per kilogram Assigned directly to products
Current Market Selling Price per unit of product
Batch size 500
Annual Volume 26,000
* All Calculations to 4 decimal places