Question: Laptop Tablet Accessories Selling Price per unit SAR9,100.00 SAR1,000.00 SAR600.00 Direct Materials SAR 230 SAR 20 SAR 50 Number of direct materials per unit (Units) 23 3 n/a Direct Labour hour cost per hour SAR 100 SAR 40 SAR 70 Sales commission per item sold SAR 1020 SAR 100 SAR 15 Variable manufacturing overhead per unit SAR 234 SAR 27 SAR 23 Number of labour hours per unit (Hours) 25 7 3 Budgeted sales per month (Units) 100 350 500 Additional Information:
a) The company bought specialised equipment 1 year ago which cost SAR90,000. The useful life of this equipment is 10 years. Depreciation is allocated to manufacturing overhead expenses and is absorbed equally by the laptop and tablet division.
b) Other costs: Production manager annual salary SAR 234,000, annual selling costs SAR 120,000 general expenses per month SAR 32,000, annual fixed manufacturing overhead (excluding depreciation) SAR15,000 per month. These costs are apportioned as follows; 60% relates to laptops, 30% relates to tablets and 10% relates to accessories.
c) Company policy is to maintain closing inventory for finished goods and closing inventory of direct materials for laptops at a % of following months production/ materials requirements as outlined below. All other months is maintained at 20% for finished goods and 15% for direct materials. The finished goods inventory in December 2015 was 30 units and direct materials was 300 units. January February March Finished Goods 20% 25% 30% Direct Materials 15% 20% 25%
d) Cash collections on sales are as follows: 50% in the month of sale and 50% in the month following sale Receivables at the end of December 2015 were SAR 30,000
e) Cash payments on purchases are as follows: 60% in the month of purchase and 40% in the following month Payables at the end of December 2015 were SAR 60,000 All other expenses are paid in the month incurred.
f) The closing cash balance in December 2015 was SAR 1,500,000. It is company policy to maintain cash at SAR100,000 or above at the end of each month. The company are due to receive SAR1,050,000 from an investor in March.
g) The company have access to a 5% bank loan of SAR 800,000. Interest will be paid at the end of each quarter. The loan will be repayable at the end of the year.
h) The company paid a dividend of SAR 5,000 in February 2016.
Requirement: Your group has been employed as the management accountants for Technovate Ltd and have been asked to prepare a report to the board of directors outlining the following:
a) Using the information above, advise the company on the following:
• Which product line is performing the best?
• Calculate the the break-even point in sales value for each product line.
• If the selling price of laptops is increased to SAR 10,900 per unit, what will be the increase in overall profit for the company.
• What level of sales (value) and units must the company achieve to make an annual profit on laptops of SAR 40,000 (using the current selling price).
• Using the original information presented, draw a CVP graph outlining the costs, breakeven point and profit and loss area for Technovate Ltd and comment on the overall performance of the company.
b) Using the information above, prepare the master budget for the laptop division only for the quarter ending March 2016. Show the total for each month and the quarter total.
c) The company are considering dropping any loss making divisions. Advise the company whether this strategy makes sense and if yes, which division they should consider dropping. Include in your answer, any other factors they should consider, before making a final decision.
d) The company are considering implementing a balanced scorecard system. Outline how this could be implemented in this company giving at least five performance measures for each perspective. Include in your answer the advantages and disadvantages of traditional budgeting and advise the company on whether you believe it is a good decision to implement ‘the balanced scorecard' system in this company.