ACCT 3420 Intermediate Management Accounting

In a memo, please respond to Alan, president of BBCC, on the following issues:

a)Prepare an activity-based costing analysis of each product (The-Bar, Alamonde and Salt-Lick) using the information provided from Exhibit 6 and the 20X7 actual costs incurred (Exhibit 4). The analysis should consist of a partial income statement showing sales and manufacturing costs (including direct materials and
direct labour) for each product, including revised gross margin and gross margin percentage.

 

Because the change in beginning and ending work-in-process and finished goods inventory amounts are negligible, these figures can be omitted from this analysis. (10 marks)
b) Discuss the results achieved in part (a) and explain why the gross margin(s) have changed. Finally, discuss how the activity-based approach provides a better
allocation of costs and a more reliable gross margin. (4 marks)

a) Determine the break-even in sales dollars for the Skinny-Bar product and prepare a variable costing income statement based on the information provided
in Exhibit 1 for actual sales. The income statement must include the cost of direct materials, direct labour, variable manufacturing overhead, fixed manufacturing
overhead, and fixed general and administrative costs. (7 marks)

b) Prepare a lifetime cost analysis of Skinny-Bar and propose a selling price for this new product based on BBCC’s markup policy. The overhead costs, the batch
size, the machine hours per batch, the number of inspections per batch, set up times and the number of product lines should be based on the activity-based
analysis prepared in requirement 1 using the batch size for the The-Bar product.

Direct labour hours per batch is 22.5. Product costs are based on one product line. Lifetime research and development costs are $900,000 for the Skinny-Bar.
Use the activity rates calculated in requirement 1 as well. Compare the proposed price with the selling price set at the time of the initial introduction of this product. Discuss the adequacy of this new proposed price.(11 marks)

a) Prepare an analysis of cash requirements for the following: (21 marks)

• Purchases for the year for BBCC’s most costly source of direct ingredients-vanilla flavouring. Base this on the 20X8 forecast sales, the budgeted costs for BBCC’s three products and BBCC’s paying habits in Exhibit 8. Note: Show all supporting schedules and calculations — include production budget, direct material usage budget — vanilla, direct material purchase budget — vanilla and cash disbursement schedule for vanilla purchase. Round quantities to litres.

• Cash requirements for the systems upgrade. Base this on the budget provided in Table 4 in Exhibit 8 and the consultant’s estimated payments as outlined in the exhibit. Prepare a quarterly cash budget.

b) Comment on cash requirements. Consider that BBCC attempts to keep enough cash on hand per quarter to deal with a maximum cash flow demand of $23,000 for these direct ingredients purchases. Consider how much more cash BBCC will need to have on hand to cover the maximum cash flow demand during a quarter for the information technology project.(3 marks)

Provide management with at least two observations you have made during your work on both projects that can be considered for future analysis.