Adv. Managerial Accounting/Cost Accounting

Week 5
Pangea Corporation
Pangea manufactures sunglasses with various fashion frame options. Their sunglasses generally sell for $10-$15 per pair.
The frames are created in-house (molded), with the lenses and screws purchased from other companies.
Week 3 Assignment
1) Using your annual budget data from Week 3 (on the 2nd/3rd tab of this sheet) and the data provided, calculate the fixed and variable costs for the 3 production departments.
2) Using your annual budget data from Week 3 and the data provided, calculate the standard costs of the 2 product lines produced in your factory.
Note: You will be using activity based costing; the various cost drivers available are specified in the data
3) Using the budgeted sales data, calculate the standard gross margin for each of the 2 products – both per unit and total gross margin with budgeted volume.
Note: Present the standard gross margin in a contribution income statement format (per unit for each product line and total for each product line)
Note: Because we are costing products and only calculating through standard gross margin, Sales and Advertising Expense and Interest Expense can be ignored this week.
4) Write a paragraph explaining the results and recommending which product line would be best to advertise to gain additional sales, and why you chose that product line.
(I asked professor if she wants me to use the format she had or what I submitted for as Week 3 data, she said “You should look at what I sent versus what had and make corrections to yours and build for this week. You had points off for not have some categories be volume based, the loan needs to come out and just let me know what loan interest method you are using. I accepted 4 methods. I prefer the $100,000 / month amortization method.”)
Plant Equipment
Pangea’s Delaware plant has 3 production departments: Mixing, Extruding, and Assembly
The Mixing department has 1 mixing tank (to mix the plastic), and the Extruding department has 2 extruders (that fill metal molds with plastic to form the sunglass frames).
Each of the three machines was purchased when the plant first started up, and they all had the same original cost and useful life.
Assembly does not use any production equipment.
Mixing uses 40% of the plant’s warehouse square footage as well as 40% of utilities costs.
Extruding use 40% of the plant’s warehouse square footage as well as 40% of utilities costs.
Assembly uses 20% of the plant’s warehouse square footage as well as 20% of utility costs (climate controlled area).
Other plant department information
20% of total Salaries are attributable to the mixing tank
30% of total Salaries are attributable to the extruding line
50% of total Salaries are attributable to the assembly area
Fringe Benefits and Travel expenses are allocated the same as Salaries
The contractors divide their time between the mixing tank and extruder areas (50% each).
Manufacturing supplies are use evenly by all production areas.
Parts and Tools are used only in the assembly area.
Cost Driver
The main cost driver is machine hours for the Mixing and Extruding Department, and Man Hours for the Assembly Department
The Mixing Department expects to run 40 hours per week for 50 weeks this year.
The Extruding Department expects to run 40 hours per week for 50 weeks this year – for each machine.
The 5 employees in the Assembly Department are expected to each work 40 hour weeks for 50 weeks this year.
Product Information
There are two different frame styles produced in Pangea’s Delaware manufacturing plant. Your budget from the prior weeks only included total volume.
Your budgeted volume will be divided by product as follows: 60% Rayz frames, and 40% Beamz frames
Rayz glasses sell for $11.50 each, and Beamz glasses sell for $14.00 each.
Purchased Material Costs
Each pair of sunglasses requires 2 lenses, 4 screws, and 0.5 gallons of plastic polymer (which gets made into frames)
Sunglass lenses cost $1.00 per lens, and screws cost $0.10 per screw.
Polymer costs $5.00 per gallon
Production of Sunglasses
Each batch of sunglasses makes 1000 pairs of sunglasses.
One batch of Rayz glasses takes 3 hours in the Mixing Department, 5 hours in the Extruding Department, and 12 hours in Assembly
One batch of Beamz glasses takes 3 hours in the Mixing Department, 8 hours in the Extruding Department, and 21 hours in Assembly
Week 3 (prof’s format)
Data for Operating Budget
2016 Full Year 2017 August YTD 2017 full year 2018 Full year
Sales 7,687,500 6,000,000 8,309,008 8,724,458 Increase of 5% in sales from 2017. 2017 full year sales calculated above times 1.05
Purchased Raw Materials 3,075,000 2,400,000 3,323,603 3,489,783 Increase of 5% in sales from 2017. 2017 full year sales calculated above times 1.05
Expense Category
Salaries and Wages 775,000 485,667 annualized 728,500 750,355 Increase of 3% for cost of living for 2018
Fringe Benefits 372,000 242,833 50% of salary 364,250 375,178
Travel & Entertainment 40,000 28,000 annualized 42,000 5% increase 44,100 Taking the same 5% increase in T&E that occurred from 2016 to 2017 and carrying over to 2018
Outside Contractors 145,000 100,000 annualized 150,000 3% increase 206,000 Increase of 3% for outside contractors = 154,500 / 3 = $51,500 per contractor X 4 people = 206,000
Manufacturing Supplies 250,000 160,000 volume based 221,574 229,139 if full year would have been .3333 per unit, (221,574/664,721) see savings below
Parts and Tools 60,000 40,000 volume based 55,393 57,288 if full year would have been .08333 per unit, (55,393/664,721) see savings below
Utilities 300,000
rbamo: rbamo: 300,000/615,000=.4878 220,000
rbamo: rbamo: 220,000/480,000= .4583 volume based 304,664 315,075 if full year would have been .4583 per unit, (304,664/664,721) see savings below
Depreciation 150,000 110,000 new mix tank 167,167
rbamo: rbamo: month Depr 110,000/8= $13750*12 months plus addition depr for mixing tank $65,000/10 years = $6500/12 times 4 months Sept-Dec 4 month depr 171,500 New mixing tank purchased Sept 2017 – 4 months depreciation in 2017, full year in 2018
Warehousing Costs 80,000 50,000 volume based 69,242
rbamo: rbamo: Thru August 50,000/480,000 units = .104167 each 71,636 if full year would have been .1042 per unit, (69,242/664,721) see savings below
Total Operating Expenses 2,172,000 1,436,500 2,102,789 2,220,272
Sales and Advertising Exp 450,000 300,000 volume based 415,450 436,223 volume based in 2017 – per unit cost .625, case study silent on method of growth or savings
Interest expense 14,000 12,000 See accepted amortization methods
Income from Operations 1,990,500 1,863,500 2,453,165 2,566,180
Volume 615,000 480,000 664,721 697,957
12.50 12.50 12.50 12.50
5 5 5 5
Notes: based on based on based on
8 months 12 months 12 months
Units sold 2018 Volume based savings
2016 2017 based on 2016 2017 annual 2018 Annual Mfr supp Parts Utilities Warehouse
Jan-March 102,705 102,705 110,897 116,442 0 0 0
Oct-Dec 102,090 – 0 110,900 116,445 1164.33 291.10 1601.00 364.01
April- Sept 410,205 341,838 442,924 465,070 2325.12 581.31 3197.12 726.90
615,000 444,543 664,721 697,957 3489.45 872.41 4798.13 1090.91
480,000
2017 % increase in sales over 2016 7.976% sales based on Sales 5% higher
7.976% volume case study
increase assumption
Week 3 ( I submitted)
Esra Surmen Case Study 1
Data for Operating Budget
2017 August YTD 2017 Full Year 2018 Full Year Assumptions for 2017 Assumptions for 2018
Sales 7,687,500 6,000,000 8307692.5 8723077.13 correct Sales of materials based on 2016 selling price Sales of materials based on 2016 selling price
Purchased Raw Materials 3,075,000 2,400,000 3323077 3489230.85 correct Assumed to vary according to volume Assumed to vary according to volume
Expense Category
Salaries and Wages 775,000 485,667 728,500 750,355.00 correct Increased by 3 percent per annum of 2017 value
Fringe Benefits 372,000 242,833 364,250 375,177.50 correct Varies according to wages Assumed to be 50 percent of 2017’s total salaries and wages
Travel & Entertainment 40,000 28,000 42,000.00 44,100.00 correct Varies annually by 5 percent Varies annually by 5 percent
Outside Contractors 145,000 100,000 150,000.00 200,000.00 correct Varies per month The company hires four contractors accepted 2017 over 2016 esculated 3% similar in 2018
Manufacturing Supplies 250,000 160,000 240,000.00 252,000.00 minus 1 Varies according to volume Varies according to volume missed 2nd half efficeincy measures
Parts and Tools 60,000 40,000 55,384.62 58,153.85 minus 1 Varies according to volume Varies according to volume missed 2nd half efficeincy measures
Utilities 300,000 220,000 304,615.39 319,846.16 correct Varies according to volume Varies according to volume; volume related cost decreases by 3% for second half of 2018
Depreciation 150,000 110,000 165000 171500 correct Varies monthly Net depreciation of 2017 +depreciation of new machine
Warehousing Costs 80,000 50,000 69230.77 72692.31 minus 1 Varies according to volume Varies according to volume missed 2nd half efficeincy measures
Loan 400,000 800,000.0 minus 10 Paid at end of 2017 Paid at end of 2018 Loan payments are not expenses. Payments is on fixed asset
Interest 16000 32000 accepted Interest computed on 1200000 Interest computed on 800000
Total Operating Expense 2,172,000 1,436,500 2,534,981 3,075,824.8
Sales and Advertising Exp 450,000 300,000 415384.63 436153.86 correct Assumed to vary according to volume Assumed to vary according to volume
Income from Operations 1,990,500 1,863,500 2,034,250.1 1,721,867.6
Volume 615,000 480,000 664615.4 697846.17 correct
0.41 0.33 0.36 0.36
Process
Sales estimation between August 2017 and September 2018
Let sales (in quantity) between October and March be X Grade 87
Quantity of sales between April and September = 2X
Therefore;
Sales from January to August = 480,000
X/2+2X*5/6=480000
X= 221,538.5 units
Assuming uniform distribution of sales;
Demand for the month of September = 2X/6
Demand between October and December = (X/6)*3
Net demand = 2X/6+3X/6 =5X/6
=5 (221,538.5)/6
=184,615.4 units
For simple simplification assume the demand to be 185,000 units