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ACT507 Accounting For Managers

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Question:

Rita Arthurs, the sales manager is discussing the possible outcome of the forthcoming election with Paulo Farmer, the production manager.She noted that if one of the major political parties wins the election and forms government, there is a strong possibility that alternative energy sources such as wind-generated electricity may no longer be as actively supported by the new government as is the case under the current government. Rita’s primary concern is that the current market for alternative power generation equipment is already volatile and subject to significant uncertainty. Paulo is also concerned about his plans to build the new highly automated manufacturing facility on the land to be purchased in February.
 
This new manufacturing facility will enable him to manufacture, in-house, the major two parts he is now purchasing for assembly and to significantly automate the assembly process that is currently somewhat labour intensive.His projections for the new facility indicate a reduction in direct material and direct labour costs of 25% but that his fixed manufacturing overheads are likely to increase by 50%due to the increased investment in production capacity.
 
Write a brief report addressing Rita’s concerns, using some of the concepts covered in chapters (15, 16, 17, 20, 22, 23) in this unit,AND the information provided from the completion of Part A of this assignment, and any additional calculations using the existing data that you feel are relevant. Your report should also include a discussion of the impact of Paulo’s intended investment in new manufacturing capacity. Support your report with relevant calculations.Note that you should restrict yourreport to those concepts specifically covered in chapters 16, 17, 20 and more generally in chapters 22 and 23 , and not discuss the current political situation, environmental issues, or the marketing of alternate energy sources etc. or other interesting but otherwise irrelevant issues.

You are required to provide a report of approx 500 words or less (excluding attachments and references), accompanied by relevant calculations, in MS Word, MS Excel and/or PDF format (or combination). Using a Report style is recommended but not compulsory.At the end of the budgeting period, Paulo Farmer, the production manager is reviewing the actual outcomes (in particular the direct materials and direct labour) and comparing these to the budget that was originally produced (in Part A).

The following data related to the actual results recorded after the end of the quarter by Wittgenstein Pty Ltd, and are provided in the assignment data sheet:
• Actual Sales Volume for the quarter.
• The actual volume of direct materials used during the quarter (for each part).
• The actual cost of the direct materials used during the quarter (for each part).
• The actual direct labour hours used during the quarter.
• The actual cost of direct labour used during the quarter.

Paulo is confused by the outcomes. He is aware that the budget that was created before the start of the quarter was a well-considered and constructed estimate, and he did not expect that the actual outcomes would be exactly as forecast. However he is finding it difficult to understand the reasons for the differences.

Required:
Prepare a brief report to assist Paulo determine what might have caused the differences between the original budget and the final actual outcomes. Speculations of the causes are sufficient, provided they are supported by relevant calculations taken from the data provided, and the budget produced in Part A,. These calculations should be included in, and referred to, in your report.Restrict your discussion to the changes related to direct materials and direct labour. As Paulo is aware that budget estimates may be inaccurate at the time of budget preparation, do not include this particular cause of difference in your report.
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