A Company That Manufactures And Sells Designer Candlesticks: Accounting Assignment, DCU, Ireland

QUESTION 1:

The following information relates to Burner Limited, a company that manufactures and sells designer candlesticks in Dublin. The owner and managing director of the business, Mr. Burner, has asked for your assistance as a management accountant to advise him in making some decisions and to help with internal accounting calculations. Mr. Burner soon tries to influence your work by suggesting that he would have a preference if your calculations could be altered if necessary to help him with the performance management of staff. He also likes to carry on informal meetings with you at the local pub where he likes to discuss company matters over many drinks late into the night.

Mr. Burner recently intends to carry some renovations to his office that the other directors are not aware of. The renovations will cost €60,000 and he will use a local builder to carry out the work. He intends to pay the builder €10,000 in cash each month from July to December 2021 and he would like it recorded in the cash budget under the heading of “Repairs and Maintenance.”

Outside the pub one Friday night, he told you to put in €1,000 every month in the cash budget for personal entertainment (including drinks in the pub) for himself and he will pay for it using the company credit card. He suggested that you record the payments as “Miscellaneous Expenses” in the same cash budget for July to December 2021.

Mr. Burner has asked you to prepare a monthly cash budget for the 6 months from July to December 2021 for Burner Limited. For large orders, he is happy to give customers two months’ credit.

The following information is relevant for the preparation of the cash budget:

Sales Information:

(a) The selling price of a candlestick is €80.

(b) Quantities sold (in units) on credit will be as follows:

(c) Cash sales are expected to be 1,000 units per month; the remainder is credit sales.

Production Information:

(d) The production cost of the company’s product is €50 made up as follows:
Materials                      €25 per unit
Labour                           €15 per unit
Variable Overhead   €10 per unit

Production quantities (in units) are as follows:

(e) Materials will be paid for two months after they have been purchased.

(f) Labour will be paid in the same month as it is incurred.

(g) Variable overheads will be paid one month after they are incurred.

Other business costs:

(h) A bank Loan of €40,000 is to be repaid in August 2021.

(i) A machine will be bought in October 2021 for €6,000. It will be paid for in January 2022.

(j) Fixed costs are €20,000 every month.

(k) The company is expected to be €36,000 overdrawn in the bank on 1st July 2021.

(l) Light and Heat expenses will be €3,500 each month from July to December 2021.

(m) Rent and Rates expenses will be €20,000 each month from July to October 2021 and will increase by 15% on 1st November 2021.

You are required to prepare a report to the Board of Directors which deals with the points in (a) to (b) below:

(a) Construct an accurate (and ethical) cash budget for Burner Limited for the six-month period July to December 2021 showing clearly the cash at bank position at the end of each month and include a total column.
This budget must be completed using an Excel spreadsheet.

(b) Outline any ethical issues you have identified in this case and explain how they conflict with the ethics that should pertain to the behavior of a management accountant.

QUESTION 2

Gloss Limited makes two different kinds of the table – the Coffee and the Utility. It has three production departments and two service departments. The budgeted overhead costs for 2021 are as follows:

The three production departments are named Department A, Department B, and Department C. The two service departments are named Department X and Department Y. All five departments are in the same factory and further information and budgeted details are
provided below:

Requirement:

(a) Prepare a statement showing the overhead cost budgeted for each department and calculate suitable overhead absorption rates.

(b) The two types of tables are manufactured in the factory. The details of the direct costs and hours required in each production department for one unit of both products is provided as follows:

Coffee Utility
Direct Materials €300 €450
Direct Labour €200 €270
Dept. A 4 Machine Hours 2 Machine Hours
Dept. B 5 Machine Hours 3 Machine Hours
Dept. C 3 Direct Labour Hours 6 Direct Labour Hours

The Coffee table is sold at a margin of 30% and the Utility table is sold at a margin of 40%. Calculate the Selling Price of the Coffee table and the Utility table.