Cost & Management Accounting
1. The CEO of a leading fan manufacturer is concerned about certain teething issues involving sales of ceiling fans. Ceiling fans come in several models, and each model has numerous Stock Keeping Units (SKUs) involving different colours, blade size etc.
Tastes and preferences of consumers vary widely across the vast geography of the country. Recently there have been numerous complaints from the divisional sales offices across the country that they have received supplies of fans in colours and blade sizes, which are not popular in their territory. This has led to loss of sales as distributors in their regions would not accept those fans. Sales people have not been able to achieve their quarterly sales targets, leading to de-motivation and attrition. The CEO has approached you to review the Management Accounting process in the company in the light of the above events. Critically analyze the issues at hand, and suggest a suitable roadmap for the company to revamp its Management Accounting process.
2. Due to economic depression, a company is running its plant currently at 50% of its capacity. The following details are available:
- Cost of Production per unit:
- Direct Materials – Rs.6
- Direct Labour – Rs. 2
- Variable Overhead – Rs. 4
- Fixed Overhead – Rs. 4
- Production per year – 20000 units
- Total Cost of Production – Rs. 320000
- Total Yearly Sales – Rs. 300000
- Loss – Rs. 20000
An exporter offers to buy 5000 units per year at the rate of Rs. 13 per unit. The company is hesitating to accept the offer for the fear of increasing its already incurring operating losses. Advise whether the company should accept or decline the offer.
3. A) The budgeted working conditions for a factory are as follows:
- Normal working week – 45 hours
- Number of machines – 30
- On maintenance etc., normal weekly loss of hours – 4 hours per m/c
- Estimated annual overhead – Rs.153750
- Estimated direct wages rate – Rs.2.00 per hour
- No of weeks worked per year – 50
The company uses Machine Hours as a base for apportioning overhead costs. Estimate the overhead absorption rate per machine hour.
3. B) For the above company, during a four week period, the actual results are as follows:
- Overhead incurred – Rs.11000
- Wages incurred – Rs. 11200
- Machine hours produced – 4500
Calculate the amount of under or over-absorption of both wages and overheads.