Background
You work for Pro Club Ltd: Pro Club Ltd (PCL) manufacture and sell golf clubs. PCL have successfully marketed themselves to be placed within the premium golf club sector. PCL spends a large amount of money in research and development and are constantly changing the design and material used to make each golf club.
PCL have 5 major divisions across Europe: you work for the Scottish Division. Each division concentrates on the design, production and distribution of specific clubs allocated to their division.
The Scottish division oversees the ‘Driver’ club and the ‘2-Wood’ club: They create a new model each year for these two clubs. This year has been very exciting as a new material, graphite fibre-reinforced epoxy HFP (HFP), has been incorporated to make the 2020 models. This material has been sourced from Europe.
In November 2020 the Scottish procurement manager highlighted an issue to you that had come to his attention for the production of the two golf clubs in December 2020. He wrote to you (management accountant):
“Dear Management Accountant,
As you know COVID and Brexit has affected all manufacturers in Europe, thus there is a delay of manufacturing HFP. Unfortunately, we will be limited to 12,000,000 grams of HFP to produce our two new 2020 models of clubs in
December.”
Tasks
It is now January 2021 and your new line manager Ray Whinestone, Senior Accountant is reviewing the information you produced in light of the above issue in December. Ray sends you the following email:
“Dear Management Accountant,
I realise you have worked so hard over the last few months creating information to overcome the shortage of our new material HFP. I have forwarded the information you sent to me back in November looking at limiting factor analysis and what golf clubs to focus on in December’s production. (see appendix 1)
As you know I am new to this job and thus I am a little confused what the information means. I need to explain to the board of directors what happened in December, so can you email me explanations on the following points below?
(Please bear in mind I want specific reference to the numbers and details around this (PCL) company, please do not give me generic explanations as that is not going to interest the directors.)
£10,000 (adverse), however the overall material variance, comparing the original budget to actuals, is £680,064 (favourable)?
Best Wishes, Ray
Appendix 1
|
Driver |
2 -WOOD |
Material HFP cost per unit (£0.5 per gram) |
£100 |
£84 |
|
£0.5 per gram |
£0.5 per gram |
Gram used per club (unit) |
200 grams |
168 grams |
Budgeted Units demanded |
50,000 |
20,000 |
Total grams needed |
10,000,000 |
3,360,000 |
|
|
|
Total grams for all products |
13,360,000 |
|
Shortfall in HFP grams |
1,360,000 |
|
|
Driver |
2 -WOOD |
Contribution per unit |
£130 |
£91 |
Contribution per gram |
£0.65 |
£0.54 |
Ranking |
1 |
2 |
|
|
|
Production plan (units) |
50,000 units |
11,904 units |
Grams used in production plan |
10,000,000 grams |
2,000,000 grams |
Variances on 2 Wood Club |
|
|
|
Material Price Variance |
£10,000 Adverse |
|
|
Material Usage Variance |
£12,000 favourable |
|
|
|
Original Budget |
Flexed Budget |
Actual |
2 Wood club units |
20,000 units |
11,904 units |
11,904 units |
Material Cost |
£1,680,000 |
£999,936 |
£997,936 |
Overall Material Variance: Original vs Actual |
|
|
|
£680,064 |
Favourable |
|
|
For students - Marking Breakdown:
Section |
Percentage of Marks |
Professional Marks: For layout and completion |
44% |
Requirement 1 |
13% |
Requirement 2 |
20% |
Requirement 3 |
13% |
Requirement 4 |
10% |
Total |
100% |
1. Why is there a shortfall of 1,360,000 grams of material HFP and how was this calculated?
Explanation for the shortfall of 1,360,000 grams: The demand and output budget were = 50,000 Driver clubs & 20,000 2-wood clubs. It is noteworthy that 200 gms of HFP is required for one unit of Driver club while 168 gms of HFP is required for one unit of 2-wood..............
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