In this summative assessment, you will be required to do product costing and analyse variances. Moda Products manufacture and distribute body care…

In this summative assessment, you will be required to do product costing and analyse variances.

Moda Products manufacture and distribute body care products to major retail outlets. They use both local and imported ingredients for their products. Mainly, the packing materials, i.e. bottles, caps, jars, applicators etc are imported and filled locally with locally made ingredients.

To fulfil their Christmas commitment, they have decided to produce 18,000 units of a special body lotion. The planned materials costs are divided at 43% for packaging (imported goods) and 57% for filling (local goods). The imported goods add roughly 12% to the product cost in freight, handling and exchange rate. Other overheads are projected as;

Manufacturing/labour: Packaging: Storage/Transportation: Admin overheads: Marketing Overheads: Pilferage/Damage:

$0.12 per unit

$0.04 per unit

$0.06 per unit

$0.10 per unit

$0.08 per unit

2% of the total volume

Fixed Fixed Variable Variable Variable

Company wants a mark up of 35% on its total product cost ex GST, which will be its wholesale price to the retailers.

Using the above data, prepare and compute in an Excel sheet using different tabs of the sheet for each one of the following calculations;

Part A:

  •  Total product cost per unit
  •  Wholesale price per unit
  •  Break-even analysis using appropriate formula for both dollar and unit values
  •  Contribution margin assuming that all the units will be sold
  •  A Static Budget projecting operating income
  • Part B:
  • Further assume that after the production, the total product costs per unit were approximately 13% higher than anticipated. However, the company managed to sell all of its stock at 5% premium price due to market demands. You will;
  •  Calculate actual operating income (Level 0)
  •  Prepare a Static-Budget variance analysis (Level1)
  •  Prepare a Flexible Budget
  •  Prepare Flexible-Budget variance analysis (Level2)
  •  Prepare Sales-Volume variance analysis (Level3)

Assessment Criteria:

The trainee will be assessed on the following criteria for this assessment task;

  •  Costed the product based on the variables provided
  •  Product costing method was consistent with costing principles
  •  Conducted a break-even analysis identifying dollar amount and number of units required to be sold to
  • meet the total costs
  •  Calculated contribution margin using an appropriate formula
  •  Prepared a static budget and variable operating income
  •  Calculated an actual operating income based on the information provided
  •  Conducted a static-budget analysis
  •  Prepared a flexible budget based on the actual outcomes
  •  Conducted flexible-budget variance analysis
  •  Conducted sales-volume variance analysis

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