Posted: February 8th, 2015

Financial and Management info System

Paper, Order, or Assignment Requirements

 

 

Financial and Management Information Systems

CRN = 35565

 

ASSIGNMENT

(2014 / 2015)

 

Overall Weighting in module = 25%

 

Kauris Ltd

 

 

Date of Issue: 13^th October 2014

 

Date of Submission: 28^th November 2014

 

 

Note:

All answers to be prepared and presented in the answer book provided.

The answer book should then be submitted through Turnitin

 

Kauris Ltd

 

Kauris Ltd is a manufacturing organisation supplying specialised engineered products to a wide range of public and private sector throughout the UK.

 

You are a trainee in the finance office recently recruited by the company.

 

 

Management planning meeting:

 

On the 20^th of every month (or nearest Monday) the business executive management team meets to plan trading and production for the following month.

 

The meeting commences with a review of the sales order book and a determination of the following months product sales volumes. The expected sales volumes inform the production planning process and decisions are made with respect to production resources and closing inventory requirements.

 

The agreed plan is the production schedule document. This is forwarded to the production departmental managers who will examine and compare their available resources against the requirement for production. Any problems (constraints) or other issues arising are reported back to the executive management team who will consider making adjustments to:

 

• The production requirements
• The available resources

 

At the start of the following month, the production process will commence with a view to meeting the objectives of the agreed production (action) plan

 

This process is described by the production planning flowchart (shown below):

 

 

Production Planning Flowchart

 

 

 

 

Continued:

 

The production process:

 

The production process of Kauris Ltd takes place through 3 production departments; machining, painting and assembly.

 

Machining department:

Direct materials are transferred from the direct materials stores to the machining department. These are transformed using direct labour employees and machine processes into machined goods. The total of the prime costs add the fixed production overhead (allocated and / or apportioned) is the total cost of machined goods transferred to the painting department. For the machining department, the direct labour employees are paid at a rate of £12.00 per hour and the variable machine cost is £8.00.

 

 

Painting department:

Incremental direct materials are transferred from the direct materials stores to the painting department. These are combined with the machined goods transferred in and are transformed using direct labour employees and machine processes into painted goods. The total combined costs add the fixed production overhead (allocated and / or apportioned) is the total cost of painted goods transferred to the assembly department. For the painting department, the direct labour employees are paid at a rate of £9.50 per hour and the variable machine cost is £2.50.

 

 

Assembly department:

Incremental direct materials and components are transferred from the direct materials stores to the assembly department. These are combined with the painted goods transferred in and are transformed using direct labour employees and machine processes into saleable finished goods. The total combined costs add the fixed production overhead (allocated and / or apportioned) is the total cost of the saleable finished goods transferred to the finished goods warehouse. For the assembly department, the direct labour employees are paid at a rate of £8.00 per hour and the variable machine cost is £1.00.

 

 

 

The production process is described in the production process flowchart below:

 

 

 

Continued:

 

Production Process Flowchart

 

 

 

 

 

 

 

Note:

 

• The costs of materials movements between departments and internal inspection checks are included in indirect production overheads.

 

• The above flowchart is an outline process only and does not include control decision, documentation raising and filing requirements.

 

 

 

Continued:

 

Goods receiving and locating / storage control process:

 

When goods are received to the business raw materials stores, they are first checked by the store keeper for quantity against a copy of the original purchase order document (this is forwarded to the raw materials stores at the time that the order is place – with all money values removed). If the quantity is incorrect (allowing for approved part – order deliveries) a ‘Quantity rejection note’ is prepared.

 

Goods that are acceptable by quantity are quality inspected for size, weight, colour etc. Where goods are found to be unacceptable by quality, a ‘Quality rejection note’ is prepared. Goods rejected by quantity or quality are located at the ‘Returns room’ ready for return to the supplier.

 

Acceptable goods are initially identified as either ’Steel’ or ‘Wooden’.

 

Steel goods:

 

• Steel goods that are ‘Hinges’ are to be located at ‘StH boxes’
• Steel goods that are ‘Brackets’ are to be located at StB buckets’

 

• If the Steel goods are neither ‘Hinges’ nor ‘Brackets’, they are ‘Handles’. These are further analysed as ‘Front’ or ‘Back’. Handles that are ‘Front’ should be located it the ‘Fh Tub’; otherwise the ‘Back’ handles should be located on the “Side Hook”.

 

Wooden goods:

 

• Wooden goods that are ‘Boards’ should be located on the ‘WBrd shelves’
• Wooden goods that are ‘Baton’ should be located at the ‘WBat stands’

 

• Wooden goods that neither ‘Boards’ nor ‘Baton’, are ‘Blocks’. Wooden ‘Blocks’ are further analysed as either ‘Large’ or ‘Small’. ‘Large Blocks’ should be located on the ‘LgB Pallet’; otherwise the components are to be located in the ‘SmB Drawer’.

 

After goods received have carefully and accurately been located, the store keeper will prepare a ‘goods received note’ (GRN). This will be forwarded to the finance office.

 

Required:

 

Task 1:

Prepare a flowchart to describe the goods receiving and locating / storage control process

 

 

Note:

Your flowchart should be prepared in a good style using the MS Word ‘Insert / Shapes / Flowchart’ facility (see answer book)

 

20 Marks

 

 

Continued:

 

Trading (production and sales):

 

You should assume that today’s date is 18^th November 2014

 

 

Sales:

The company has the following sales orders to be delivered during December 2014

 

Order / product:	Order 2169 ‘Carom’	Order 2170 ‘Horal’	Order 2171 ‘Pecan’
Quantity to be delivered (sales in units)	1,350	2,000	5,400
Selling price (per unit)	£72.00	£45.00	£11.00

 

 

Production:

The production schedule for November 2014 (product quantities and production resources requirement) is shown below.

Order / product:	Order 2169 ‘Carom’	Order 2170 ‘Horal’	Order 2171 ‘Pecan’
Quantity to be produced	1,500	2,500	6,000
Note: At 1st November 2014 there will be no opening inventory of finished goods       Resources requirement for production:   Direct costs (variable costs):
Order / product:	Order 2169 ‘Carom’	Order 2170 ‘Horal’	Order 2171 ‘Pecan’
Machining department:				Totals
Incremental materials cost	£2,230	£2,300	£6,200	£10,730
Direct labour hours (total)	450	350	200	1,000 hours
Machine hours (total)	1,200	800	500	2,500 hours
Painting department:
Incremental materials cost	£2,140	£5,710	£5,460	£13,310
Direct labour hours (total)	340	660	1,000	2,000 hours
Machine hours (total)	1,200	1,000	800	3,000 hours
Assembly department:
Incremental materials cost	£2,100	£5,260	£8,800	£16,160
Direct labour hours (total)	850	720	930	2,500 hours
Machine hours (total)	750	350	400	1,500 hours

 

 

Continued:

 

Fixed indirect production overheads:

 

Indirect production overheads are fixed (unaffected by production activity levels) at £72,000 per month. This value has been allocated and apportioned to the 3 production departments as follows:

 

Production department:	Machining	Painting	Assembly	Total
Fixed costs (allocation / apportionment)	£25,000	£32,000	£15,000	£72,000

 

 

Bases for absorption:

 

• Machining department = Machine hours
• Painting department = Direct labour hours
• Assembly department = Direct labour hours

 

Note:

The quantity for absorption basis (for each production department) should be established using the total departmental resources requirement shown in the tables above.

 

 

 

Required:

 

Task 2:

Prepare (for each product and in total) the following planned values:

 

1. Prime costs

15 Marks

 

 

1. Total (full) costs of production

20 Marks

 

 

1. Finished goods closing inventories / cost of sales

12 Marks

 

 

1. Gross profits (and gross profit margins)

6 Marks

 

 

Note to task 2:

The requirement of task 2 should be established using and absorption costing system (as described in the production process flowchart).

 

The total task 2 mark above, includes marks allocated to short descriptive notes to workings (<=100 words – see answer book).

 

These notes should be ‘short explanatory notes’ that will serve to define the terminology used and explain the workings (and results / outcomes) to a colleague who does not work in the finance office.

 

Continued:

 

Required

 

Task 3:

Prepare the following planned values:

 

1. Contribution and contribution / sales ratio (for each product and in total) and the gross profit (in total only – see note)

 

10 Marks

 

 

1. Prepare a reconciliation to explain the difference between the total gross profits established using an absorption costing system (task 2 d.) and a marginal costing system (task 3 b.)

 

12 Marks

 

Note to task 3 a. & b.:

The requirement of task 3 should be established using a marginal costing system (where direct costs are classified as variable and indirect production overheads are classified as fixed)

 

The total task 3 mark above, includes marks allocated to short descriptive notes to workings (<=100 words – see answer book).

 

These notes should be ‘short explanatory notes’ that will serve to define the terminology used and explain the workings (and results) to a colleague who does not work in the finance

 

 

 

Continued:

 

Carol Redbud, the company sales manager has commented that product ‘Pecan’ is not performing well and the company profits would increase if this product was removed from the range

 

Task 4:

 

1. Re – calculate the gross profit (and gross profit margin) if product ‘Pecan’ was removed from the production and sales schedule

 

Note:

It has been established that, if product Pecan was removed from the catalogue, specific fixed cost savings of £10,000 would be made

6 Marks

 

 

1. Draft a short memo to Carol in reply to her comment (with clear explanatory supporting reasons to a non – accountant)

10 Marks

 

 

Note:

Your memo should be prepared in a good style (see answer book) and show effective skills in written communication (information qualities).

 

Continued:

 

The finance office (cost and management accounts) recently performed an ‘activity – based’ production systems analysis for the fixed production overheads. The result is the table below:

 

	Cost £	Cost driver	Total cost driver quantity per period	Indirect production overhead recovery rate £
Set up costs	27,000	Set ups	200	135.00
Production scheduling	10,000	Set ups	200	50.00
Quality control	18,000	Inspections	2,400	7.50
Depreciation	10,500	Machine hours	7,000	1.50
Raw materials storage	6,500	Materials movements	3,250	2.00
Total:	72,000

 

A further analysis has produced the following indirect production overhead resource required for each product:

Activity – Based Resource Requirement (by product)

 

	Carom	Horal	Pecan	Total
Set ups (Set – up)	100	50	50	200
Inspections	1,750	250	400	2,400
Machine hours	3,150	2,150	1,700	7,000
Materials movements	1,450	800	1,000	3,250

 

Task 5:

 

1. Explain ‘Activity – Based Costing (ABC)’ as an alternative to full absorption costing and discuss the potential benefits that ABC might bring to production and information systems of Kauris Ltd

 

Note:

Your written explanations should be effectively communicated and should include notes on:

• The reasons for the development of ABC
• The ‘Activity – Based’ concept
• The process of an ABC system development
• The potential benefits (if any) you feel could be achieved by the introduction of an ABC system for Kauris Ltd

15 Marks

 

1. Recalculate the gross profits (by product an in total) after allocating fixed production overheads to products using an activity – based system

18 Marks

 

The task 5 b. mark include marks allocated to short descriptive notes to workings (<=100 words). These notes should be ‘short explanatory notes’ that will serve to identify (observe) the effects on each product (and total) profit caused by the ABC system allocations.