- This topic has 4 replies, 4 voices, and was last updated 2 years ago by
.
- Posts
Goodlinks Inc. manufactures windscreens of Type 1 and sells this product to large car manufacturers around the world.
Due to the recession, however, sales of Type 1 windscreens have been far less than the expected annual volume of 120,000,000 units. Therefore, the company has ended each year with significant unused capacity.
Goodlinks has the following annual costs:
Variable costs per windscreen:
Direct Materials £100
Variable Manufacturing Overhead £70
Sales Commissions £45
Direct Manufacturing Labour £20
Total fixed costs:
Advertising £20,500
Customer hotline service £40,500
Machine set-ups £2,000,000
Plant machinery lease £900,000
To improve sales, Goodlinks has decided to search for potential special orders from other companies in the market. BigCar Ltd., the manufacturer that builds cars for armed forces, offered to buy 100,000 windscreens from Goodlinks during March for £200 a unit. The chief controller of Goodlinks, James White, was very excited about the company’s entry into this new market and hoped that this would increase the use of the expensive windscreen plant.
In addition, James arranged a meeting with several of Goodlinks key production managers to discuss the special order. In the meeting, he discovered the following information:
• The special order will not incur any additional marketing or customer-service costs
• The total machine set-up costs would increase by £800,000 if the special order is accepted.
• Goodlinks leases its plant machinery. The production manager negotiates and signs the lease agreement on the first day of each year. Goodlinks currently leases machinery to produce 120,000,000 units of Type A windscreens.
• BigCar requires an independent inspection of every facility that might be used to fulfil its order. Thus, the terms of the special offer would require Goodlinks to set an independent inspection team that will incur £20,000 in costs.should they accept or reject the order?
Closwa Biltong is a Namibian based biltong manufacturer and retailer. The company is famous for its tasty biltong snack packets which are sold at lower prices than that of competitors.
Closwa Biltong oversees the entire process of the manufacture of the biltong; they buy the meat from a reputable local company. The meat is then cut into long strips and salted with a secret recipe which gives the biltong its special and unique flavour. The spice mixture is rubbed into the meat by hand and the salted strips are then transferred to a suitable container for further curing.
Thereafter the meat is dried in a solar dryer for a few hours. Once dry, the biltong is sliced by hand and packed into individual 100-gram packets. This is the only size of this product that they sell. The biltong is then sold to retailers.
Salt and pepper are the principal ingredients used in secret spice recipe, although other ingredients such as sugar, coriander, vinegar and Worcestershire sauce also give their biltong its famous taste.
The financial manager of Closwa Biltong has told you that the company is very pleased with the current state of affairs at the company. He informed you that actual sales for April 2020 were 2 000 packets more than the 20 000 packets that were expected to be sold. However, he cannot understand why actual results for April 2020 differed so much from the budget as he has maintained the same labour force and the same suppliers for April with the same strategic outlook as in prior months. He approached you, as a management consultant to look into this, and presented you with the following facts and figures:
Budget – April 2020
Sales
N$560 000
Meat
1
Spices
2
Packaging
3
Labour
4
Overheads
N$ 85 000
5
Net profit
N$112 200
1) One-third of the meat weight entered into the biltong manufacturing process is lost due to the drying process (I.e. 3 kilograms of raw meat will make 2 kilograms of biltong). Raw meat is purchased from Flash Meat distributors for N$65 per kilogram.
2) One kilogram of biltong meat (after drying) should use 50 grams of the special spice mix. Closwa Biltong purchases the spices from Patel Spices in pre-packaged containers which cost N$140 per kilogram.
3) The branded packaging is manufactured and imported from a supplier in Botswana who has proved to be more reliable and less expensive than local Namibian competitors. The packets cost 0.5 Botswana Pula each.
4) The company employs 25 direct labourers who are paid an hourly rate of N$30. These workers slice and spice the meat, place the pieces in the solar dryer and when dry, package the biltong into individual packets. Management expects each worker to complete 5 packets of biltong an hour. Each worker should work 160 hours a month to meet normal production.
5) Overheads are comprised of a fixed and variable portion. Examples of overheads include electricity used by the solar dryer, insurance and administrative salaries. In the previous month, direct labour hours totalled 3 600 and overheads were N$83 000.
Fixed overheads are allocated on direct labour hours based on normal capacity. The April 2020 budget assumes normal capacity.
Actual – April 2020
Although more packets were sold than anticipated, actual sales were N$10 000 less than expected.
During April 2020 management used a more efficient drying method. Using this method, the loss from drying only amounts to 20% of the meat entering the biltong-making process. Flash Meat distributors increased their prices to N$67 per kilogram.
117kg spices were used during the month at a total cost of N$14 960.
1% of the packets used in the month were stolen from the company’s warehouse and had to be re-ordered from the Botswanan supplier. The price per packet in Botswanan Pula remained the same for this order as for the previous order.
Direct labourers were paid at the expected rate. Each worker worked for 160 hours as expected by management.
Variable overheads amounted to N$6 per direct labour hour.
Fixed overheads were N$68 000 for the month.
Actual profit for the month was N$123 017.
Additional informationThe expected average exchange rate for April 2020 was 1 Botswana Pula = 1.38 Namibian Dollar. The actual average rate was 1 Botswana Pula = 1.42 Namibian Dollar.
The company uses a standard absorption costing system.
There was no opening or closing stock of any kind during April 2020.
The only other product that management sell in addition to the biltong is chilli bites. 20% of all packets sold should be chilli bites which have a selling price of N$36 per packet. Only 4 000 packets of chilli bites were sold during April 2020.Required:
Calculate the Packaging price variance?
Im afraid we cant help with questions of this length or nature. This is not a short CIMA objective question – so its not valid to ask here. Im afraid we cant solve longer homework or assignment problems ( NON-CIMA) ones here.
Sorry
CathT.N.R.K.O.T.B wrote:Closwa Biltong is a Namibian based biltong manufacturer and retailer. The company is famous for its tasty biltong snack packets which are sold at lower prices than that of competitors.
Can You please help me solve this question
- You must be logged in to reply to this topic.