Continental Engineering Ltd manufactures three types of ceramic coffee percolator; the Silver, Gold and the Platinum models. The maximum market demand and resource requirements of each of these products are shown below. The percolators are made from an advanced heat-resistant material that gives the firm a competitive advantage. An email from the purchasing manager has informed you that, because of a problem with the supplier, it should be assumed that the half year’s supply of this special material is limited to 90,000kg. Continental operates on a just-in-time production (JIT) method so that opening and closing inventory levels are zero. The sales director has already accepted an order for 5,000 Gold percolators that, if not fulfilled, would incur a financial penalty of £10,000. This order is included in the Gold’s maximum market demand figure. Continental’s directors need to know whether they should go ahead and satisfy the contract and then prioritise production in the normal way or whether it should consider breaching the contract and incurring the penalty. Budgeted data for the first half of 2021 Silver Gold Platinum Maximum demand 10,000 15,000 8,000 Heat resistant material per unit 2 Kg 5 Kg 6 Kg Actual results for first half of 2020 Silver Gold Platinum Total Sales (units) 8,000 4,000 5,000 Sales revenue (£) 180,000 150,000 500,000 830,000 Raw materials (£) 60,000 66,000 144,000 270,000 Direct labour (£) 24,000 20,000 130,000 174,000 Overheads (£) 60,000 42,000 120,000 222,000 Total Costs 144,000 128,000 394,000 666,000 Profit / (Loss) (£) 36,000 22,000 106,000 164,000 Actual results for second half of 2020 Silver Gold Platinum Total Sales (units) 9,000 4,500 7,000 Sales revenue (£) 202,500 168,750 700,000 1,071,250 Raw materials (£) 67,500 74,250 201,600 343,350 Direct labour (£) 27,000 22,500 182,000 231,500 Overheads (£) 66,000 45,750 163,200 274,950 Total Costs 160,500 142,500 546,800 849,800 Profit / (Loss) (£) 42,000 26,250 153,200 221,450 Required: Prepare the following workings, analysed by product, based on the above information: Calculate fixed and variable overheads using the high/low method. Marginal cost card showing selling price, variable costs, and contribution per unit for each product. Contribution per unit of scarce resource and your decision for ranking the product to be produced first based on the highest contribution. 4.1 Prepare a budgeted production schedule and a marginal cost income statement (analysed by product) for the first half of 2021 assuming that the Gold contract Prepare budgeted production schedule and a marginal cost income statement (analysed by product) for the first half of 2021 assuming that the Gold contract Advise the company what action should be taken based on your analysis. sub parts to be solved (4.2,4.3,4.4)
Continental Engineering Ltd manufactures three types of ceramic coffee percolator; the Silver, Gold and the Platinum models. The maximum market demand and resource requirements of each of these products are shown below.
The percolators are made from an advanced heat-resistant material that gives the firm a competitive advantage. An email from the purchasing manager has informed you that, because of a problem with the supplier, it should be assumed that the half year’s supply of this special material is limited to 90,000kg.
Continental operates on a just-in-time production (JIT) method so that opening and closing inventory levels are zero.
The sales director has already accepted an order for 5,000 Gold percolators that, if not fulfilled, would incur a financial penalty of £10,000. This order is included in the Gold’s maximum market demand figure.
Continental’s directors need to know whether they should go ahead and satisfy the contract and then prioritise production in the normal way or whether it should consider breaching the contract and incurring the penalty.
Budgeted data for the first half of 2021
|
|
Silver |
Gold |
Platinum |
|
Maximum demand |
10,000 |
15,000 |
8,000 |
|
Heat resistant material per unit |
2 Kg |
5 Kg |
6 Kg |
Actual results for first half of 2020
|
|
Silver |
Gold |
Platinum |
Total |
|
Sales (units) |
8,000 |
4,000 |
5,000 |
|
|
Sales revenue (£) |
180,000 |
150,000 |
500,000 |
830,000 |
|
|
|
|
|
|
|
Raw materials (£) |
60,000 |
66,000 |
144,000 |
270,000 |
|
Direct labour (£) |
24,000 |
20,000 |
130,000 |
174,000 |
|
|
60,000 |
42,000 |
120,000 |
222,000 |
|
Total Costs |
144,000 |
128,000 |
394,000 |
666,000 |
|
|
36,000 |
22,000 |
106,000 |
164,000 |
Actual results for second half of 2020
|
|
Silver |
Gold |
Platinum |
Total |
|
Sales (units) |
9,000 |
4,500 |
7,000 |
|
|
Sales revenue (£) |
202,500 |
168,750 |
700,000 |
1,071,250 |
|
|
|
|
|
|
|
Raw materials (£) |
67,500 |
74,250 |
201,600 |
343,350 |
|
Direct labour (£) |
27,000 |
22,500 |
182,000 |
231,500 |
|
Overheads (£) |
66,000 |
45,750 |
163,200 |
274,950 |
|
Total Costs |
160,500 |
142,500 |
546,800 |
849,800 |
|
Profit / (Loss) (£) |
42,000 |
26,250 |
153,200 |
221,450 |
Required:
- Prepare the following workings, analysed by product, based on the above information:
- Calculate fixed and variable overheads using the high/low method.
- Marginal cost card showing selling price, variable costs, and contribution per unit for
each product.
- Contribution per unit of scarce resource and your decision for ranking the product to
be produced first based on the highest contribution.
4.1
- Prepare a budgeted production schedule and a marginal cost income statement (analysed by product) for the first half of 2021 assuming that the Gold contract
- Prepare budgeted production schedule and a marginal cost income statement (analysed by product) for the first half of 2021 assuming that the Gold contract
Advise the company what action should be taken based on your analysis.
sub parts to be solved (4.2,4.3,4.4)
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