Accounting homework help
Case Study 1: Ollivander’s
Ollivander manufactures premium Magic Wands. The following are some manufacturing overhead data for Magic Wands for the year ended March 31, 2020.
Manufacturing Overhead
Actual Results
Flexible Budget
Allocated Amount
Variable $60,560 $76,800 $76,800 Fixed $350,210 $348,096 $375,897
Budgeted number of wands (output): 892 Planned allocation rate: 3 machine-hours per wand Actual number of machine-hours used: 1,445 hours
Static-budget variable manufacturing overhead costs: $71,120
Ollivander looks at this information and needs some help with interpretation. When comparing actual results to the flexible budget it looks like he performed well on variable overhead but poorly on fixed overhead; yet, comparing to the allocated amount tells a different story. Ollivander needs your help interpreting these variances! Can you help Ollivander?
Case Study 2: Gringott’s
The Gringott’s Mine extracts gold in central London. Each tonne mined is 40% Grade F (fine) gold, 40% Grade VG (very good) gold, and 20% gold alloy (not so great, but still shiny and good for making things a gold colour). Output usually sells within two months. In January, Gringott’s mined 1,000 tonnes of gold. It spent £10,000 on the mining process. Grade F gold sells for £1000 per tonne. Grade VG gold sells for £60 per tonne. Gringott’s gets one-quarter of a vat of gold alloy from each tonne of gold processed. The gold alloy sells for £60 per vat.
Bogrod, the head goblin at Gringott’s bank has been approached by one of his workers, Gornok, with a proposal to further process Grade VG gold into Galleons on-site. Gornok insists this is a good idea since idle goblin-hours (labour-hours) are available. The process would cost £6000 with no loss in volume. One tonne of Grade VG gold makes 108,000 Galleons.
Currently, Gringott’s sells gold to the Muggle Mint for processing into Galleons (currency; think about a mine selling money to a bank; they are outsourcing processing of gold into coins). The Muggle Mint sells Galleons back to Gringott’s for a price of £5.50 per100 Galleons (ie. Gringott’s is buying back the finished product from the Mint. With Gornok’s suggestion they would be able to by-pass this and complete the entire process on their own).
Case Study 3: Hogwart’s Houses
Hogwarts’ Houses (HH) is a residential home builder that does things a little differently than the competition. HH builds homes to completion in a factory rather than outdoors and on site. HH has three divisions, prefabrication, transportation, and construction.
The Prefabrication division builds whole sections of floors, walls and roof trusses that are shipped to the Construction division, who uses these sections to build the shell of the house before adding all other interior and exterior components (e.g. insulation, wiring, outer walls, doors, etc.). The Prefabrication division “sells” its sections to the Transportation division who ships and “sells” the sections to Construction. Construction then sells finished products to the public.
At present, HH is the only home builder that makes pre-engineered homes and as such has been using its own internal transfer prices, which were set by head office. Please see Appendix I for the past two year’s summary segmented income statements.
| December 31, 2019 | Prefabrication |
Transportation |
Construction |
|
|||
| Revenue1 | $10,000,000 | $15,000,000 | $60,000,000 | |
|||
| Cost of Goods Sold2 | 8,000,000 | 14,000,000 | 42,000,000 | |
|||
| Gross Profit | 2,000,000 | 1,000,000 | 18,000,000 | |
|||
| Operating Costs3 | 2,500,000 | 400,000 | 9,000,000 | |
|||
| Operating Income (Loss) | (500,000) | 600,000 | 9,000,000 | |
|||
| December 31, 2018 |
|
||||||
| Revenue4 | 11,000,000 | 15,000,000 | 58,000,000 | |
|||
| Cost of Goods Sold2 | 8,000,000 | 15,000,000 | 39,000,000 | |
|||
| Gross Profit | 3,000,000 | NIL | 19,000,000 | |
|||
| Operating Costs3 | 2,500,000 | 400,000 | 9,000,000 | |
|||
| Operating Income (Loss) | 500,000 | (400,000) | 10,000,000 | |
|||
| 1For 2019, revenue for the Prefabrication and Transportations divisions are $50,000/unit and $75,000/unit, respectively. Finished houses are sold to the public at an average price of $300,000/unit. 2Cost of goods sold contains any and all variable costs, including transfer prices for the Transportation and Construction divisions. 3Operating costs are all fixed costs that can be traced to each respective division. 4For 2018, revenue for the Prefabrication and Transportations divisions are $55,000/unit and $75,000/unit, respectively. Finished houses are sold to the public at an average price of $300,000/unit. |
|
||||||
Case 4: Bethilda’s Brooms
Bethilda’s Brooms manufactures brooms which it sells to merchandising firms such as Quality Quidditch Supplies (QQS), Brooms ‘R Us (BRU), Broom-Mart (BM), Broom City (BC), Best Brooms (BB), and Clean Sweep (CS).
The list price of a broom is $48, and the full manufacturing costs are $28.
Salespeople receive a commission on sales; the commission of $30 per order is based on number of orders taken and paid in addition to regular salary. Bethilda’s Brooms makes products based on anticipated demand; however, Bethilda carries an inventory of brooms, so rush orders do not result in any extra manufacturing costs over and above the $28 per broom.
Bethilda’s Brooms ships finished product to the customer at no additional charge to the customer for either regular or expedited delivery. Bethilda incurs significantly higher costs for expedited deliveries than for regular deliveries. Expected and actual customer-level cost driver rates are provided.
Activity Cost Driver Rate
Order taking (excluding sales commission) $30 per order
Product handling $1.90 per unit
Delivery $2 per km driven
Expedited (rush) delivery $320 per shipment
Information about Bethilda’s clients during 2019 is as follows:
| QQS | BRU | BM | BC | BB | CS | |
| Total number of units purchased | 270 | 580 | 400 | 140 | 460 | 1,500 |
| Number of actual orders | 3 | 17 | 3 | 3 | 6 | 15 |
| Number of written orders per actual order |
3 |
2 * |
4 |
3 |
6 |
3 |
| Total number of km driven to deliver all products |
80 |
134 |
72 |
46 |
316 |
120 |
| Number of expedited deliveries | 0 | 6 | 0 | 0 | 4 | 3 |
*Because BRU places 17 separate orders, its order costs are $30 per order. All other orders are multiple smaller orders and so have actual order costs of $12 each.
Because salespeople are paid $30 per order, they break up large orders into multiple smaller orders. This practice reduces the actual order-taking cost by $18 per smaller order (from $30 per order to $12 per order) because the smaller orders are all written at the same time. This lower cost rate is not included in budgeted rates because salespeople create smaller orders without telling management or the accounting department. Also, salespeople offer customers discounts to entice them to place more orders; Brooms ‘R Us and Broom-Mart each receive a 10% discount off the list price of $48.
Case Study 1: Ollivander’s
Ollivander manufactures premium Magic Wands. The following are some manufacturing overhead data for Magic Wands for the year ended March 31, 2020.
Manufacturing Overhead
Actual Results
Flexible Budget
Allocated Amount
Variable $60,560 $76,800 $76,800 Fixed $350,210 $348,096 $375,897
Budgeted number of wands (output): 892 Planned allocation rate: 3 machine-hours per wand Actual number of machine-hours used: 1,445 hours
Static-budget variable manufacturing overhead costs: $71,120
Ollivander looks at this information and needs some help with interpretation. When comparing actual results to the flexible budget it looks like he performed well on variable overhead but poorly on fixed overhead; yet, comparing to the allocated amount tells a different story. Ollivander needs your help interpreting these variances! Can you help Ollivander?
Case Study 2: Gringott’s
The Gringott’s Mine extracts gold in central London. Each tonne mined is 40% Grade F (fine) gold, 40% Grade VG (very good) gold, and 20% gold alloy (not so great, but still shiny and good for making things a gold colour). Output usually sells within two months. In January, Gringott’s mined 1,000 tonnes of gold. It spent £10,000 on the mining process. Grade F gold sells for £1000 per tonne. Grade VG gold sells for £60 per tonne. Gringott’s gets one-quarter of a vat of gold alloy from each tonne of gold processed. The gold alloy sells for £60 per vat.
Bogrod, the head goblin at Gringott’s bank has been approached by one of his workers, Gornok, with a proposal to further process Grade VG gold into Galleons on-site. Gornok insists this is a good idea since idle goblin-hours (labour-hours) are available. The process would cost £6000 with no loss in volume. One tonne of Grade VG gold makes 108,000 Galleons.
Currently, Gringott’s sells gold to the Muggle Mint for processing into Galleons (currency; think about a mine selling money to a bank; they are outsourcing processing of gold into coins). The Muggle Mint sells Galleons back to Gringott’s for a price of £5.50 per100 Galleons (ie. Gringott’s is buying back the finished product from the Mint. With Gornok’s suggestion they would be able to by-pass this and complete the entire process on their own).
Case Study 3: Hogwart’s Houses
Hogwarts’ Houses (HH) is a residential home builder that does things a little differently than the competition. HH builds homes to completion in a factory rather than outdoors and on site. HH has three divisions, prefabrication, transportation, and construction.
The Prefabrication division builds whole sections of floors, walls and roof trusses that are shipped to the Construction division, who uses these sections to build the shell of the house before adding all other interior and exterior components (e.g. insulation, wiring, outer walls, doors, etc.). The Prefabrication division “sells” its sections to the Transportation division who ships and “sells” the sections to Construction. Construction then sells finished products to the public.
At present, HH is the only home builder that makes pre-engineered homes and as such has been using its own internal transfer prices, which were set by head office. Please see Appendix I for the past two year’s summary segmented income statements.
| December 31, 2019 | Prefabrication |
Transportation |
Construction |
|
|||
| Revenue1 | $10,000,000 | $15,000,000 | $60,000,000 | |
|||
| Cost of Goods Sold2 | 8,000,000 | 14,000,000 | 42,000,000 | |
|||
| Gross Profit | 2,000,000 | 1,000,000 | 18,000,000 | |
|||
| Operating Costs3 | 2,500,000 | 400,000 | 9,000,000 | |
|||
| Operating Income (Loss) | (500,000) | 600,000 | 9,000,000 | |
|||
| December 31, 2018 |
|
||||||
| Revenue4 | 11,000,000 | 15,000,000 | 58,000,000 | |
|||
| Cost of Goods Sold2 | 8,000,000 | 15,000,000 | 39,000,000 | |
|||
| Gross Profit | 3,000,000 | NIL | 19,000,000 | |
|||
| Operating Costs3 | 2,500,000 | 400,000 | 9,000,000 | |
|||
| Operating Income (Loss) | 500,000 | (400,000) | 10,000,000 | |
|||
| 1For 2019, revenue for the Prefabrication and Transportations divisions are $50,000/unit and $75,000/unit, respectively. Finished houses are sold to the public at an average price of $300,000/unit. 2Cost of goods sold contains any and all variable costs, including transfer prices for the Transportation and Construction divisions. 3Operating costs are all fixed costs that can be traced to each respective division. 4For 2018, revenue for the Prefabrication and Transportations divisions are $55,000/unit and $75,000/unit, respectively. Finished houses are sold to the public at an average price of $300,000/unit. |
|
||||||
Case 4: Bethilda’s Brooms
Bethilda’s Brooms manufactures brooms which it sells to merchandising firms such as Quality Quidditch Supplies (QQS), Brooms ‘R Us (BRU), Broom-Mart (BM), Broom City (BC), Best Brooms (BB), and Clean Sweep (CS).
The list price of a broom is $48, and the full manufacturing costs are $28.
Salespeople receive a commission on sales; the commission of $30 per order is based on number of orders taken and paid in addition to regular salary. Bethilda’s Brooms makes products based on anticipated demand; however, Bethilda carries an inventory of brooms, so rush orders do not result in any extra manufacturing costs over and above the $28 per broom.
Bethilda’s Brooms ships finished product to the customer at no additional charge to the customer for either regular or expedited delivery. Bethilda incurs significantly higher costs for expedited deliveries than for regular deliveries. Expected and actual customer-level cost driver rates are provided.
Activity Cost Driver Rate
Order taking (excluding sales commission) $30 per order
Product handling $1.90 per unit
Delivery $2 per km driven
Expedited (rush) delivery $320 per shipment
Information about Bethilda’s clients during 2019 is as follows:
| QQS | BRU | BM | BC | BB | CS | |
| Total number of units purchased | 270 | 580 | 400 | 140 | 460 | 1,500 |
| Number of actual orders | 3 | 17 | 3 | 3 | 6 | 15 |
| Number of written orders per actual order |
3 |
2 * |
4 |
3 |
6 |
3 |
| Total number of km driven to deliver all products |
80 |
134 |
72 |
46 |
316 |
120 |
| Number of expedited deliveries | 0 | 6 | 0 | 0 | 4 | 3 |
*Because BRU places 17 separate orders, its order costs are $30 per order. All other orders are multiple smaller orders and so have actual order costs of $12 each.
Because salespeople are paid $30 per order, they break up large orders into multiple smaller orders. This practice reduces the actual order-taking cost by $18 per smaller order (from $30 per order to $12 per order) because the smaller orders are all written at the same time. This lower cost rate is not included in budgeted rates because salespeople create smaller orders without telling management or the accounting department. Also, salespeople offer customers discounts to entice them to place more orders; Brooms ‘R Us and Broom-Mart each receive a 10% discount off the list price of $48.
Case Study 1: Ollivander’s (19 marks)
Ollivander needs your help interpreting these variances! Can you help Ollivander?
- For the year ended March 2020, compute the variance, indicating whether each is favourable (F) or unfavourable (U). (9 marks)
- Variable manufacturing overhead efficiency variance
- Total manufacturing overhead rate variance
- Production volume variance
- Select any two of the variances calculated and prepare an explanation (or possible explanation) that you would present to the management team. (4 marks)
Suggestion: select two of the more significant variances OR select two that are related to each other,
- Prepare the journal entry(ies) to record your variances and write them off at the end of the year. Assume the variance accounts are written off to Cost of Goods Sold. Show your work. (5 marks)
- Before making any adjustments for variances, (ie. The journal entry you wrote in part 3) will net income for the year be over-stated, or under-stated? (1 mark)
Case Study 2: Gringott’s (15 marks)
- Draw a diagram to depict this process. Be sure to label all the relevant product categories, key points in the process, and related costs for each stage and output. Show your work. (5 marks)
*you may draw and scan a photo of a diagram and paste it in your excel tab for this question*
- With respect to Gornok’s suggestion:
- List and explain the costs that are relevant to Bogrod’s decision. If a cost is not relevant, explain why using simple terminology that Bogrod will understand. Remember, he has never taken a cost accounting course (or any course for that matter). (4 marks)
- Should Bogrod bring Galleon production in house? Support your answer with a balanced analysis of both quantitative and qualitative factors. (6 marks)
Case Study 3: Hogwart’s Houses (18 marks)
- HH is happy with the profitability of its Construction division but is concerned that the other two divisions are struggling. PH is considering discontinuing one or both of these divisions. Advise HH as to whether it should discontinue one of, both, or neither of its divisions (4 marks)
- Now consider for 2020 that there are other competitors in the pre-engineered home business. Prefabrication can sell, Transportation can buy and sell, and Construction can buy from external parties and all divisions are operating at capacity. Market prices for 1 prefabricated housing unit, pre and post shipping, are $60,000 and $90,000, respectively. Further assume that at these prices, the optimal capacity remains at 200 units per division. Calculate operating income for each division using market prices as the transfer prices – does your answer to part a change at all given these results? (8 marks)
- Still considering that the market prices from part b exist, what would happen if HH allowed the divisions to negotiate their own transfer prices? Qualitatively discuss whether or not there would be changes to the transfer price or quantity exchanged. (6 marks)
Case 4: Bethilda’s Brooms (18 marks)
- Calculate the expected customer-level operating income for the six Use the number of written orders at $30 each to calculate expected order costs. (6 marks)
- Recalculate the customer-level operating income using the number of written orders but at their actual $12 cost per order instead of $30 (except for Brooms ‘R Us, whose actual cost is $30 per order). What will Bethilda’s assessment of customer-level (and salespeople) performance be for this period? (ie. Did they perform better or worse than expected?)
(6 marks)
- Recalculate the customer-level operating income if salespeople had not broken up actual orders into multiple smaller orders. Don’t forget to also adjust sales commissions. (3 marks)
- How is the behaviour of the salespeople affecting the profit of Belinda’s Brooms? Is their behaviour ethical? What can Bethilda do to change their behaviour? (3 marks)
*hint* this question requires you to take the same information making only minor adjustments. Read the full question first, then plan for your response
Talk to us support@bestqualitywriters.com