MARGINAL COSTING STATEMENTS SHOWING CONTRIBUTIONS FOR EACH DEPARTMENT

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WHEN ALL DEPARTMENTS REMAINING IN OPERATION Calculate the variable production costs: PARTICUILARS FURNISHING €000 KITCHENWARE €000 RESTAURANT €000 MENSWEAR €000 TOYS €000

Purchase of Resale

400.0

680.0

325.0

229.0

560.0

Non-Management wages

75.0

45.0

101.0

65.0

95.0

Departmental Expenses

21.0

10.0

16.5

5.0

20.0

Sales Promotion Costs

14.0

2.0

0.0

1.0

20.0

TOTAL COSTS: €000

510.0

737.0

442.5

300.0

695.0

Calculate the balances in stock at the ends of the periods:

Schedule of stocks/

FURNISHING €000

KITCHENWARE €000

RESTAURANT €000

MENSWEAR €000

TOYS €000

Opening stock

255.0

63.0

25.5

27.0

197.0

Plus: Purchases

400.0

680.0

325.0

229.0

560.0

655.0

743.0

350.5

256.0

757.0

Less: sales

560.0

980.0

410.0

430.0

680.0

Closing stock

263.0

53.0

25.0

25.5

229.5

Marginal costing statement

Contribution/Profit Statement

FURNISHING €000

KITCHENWARE €000

RESTAURANT €000

MENSWEAR €000

TOYS €000

TOTAL OF STORE€000

Sales Revenue

560.0

980.0

410.0

430.0

680.0

3060.0

Purchases for Resale

400.0

680.0

325.0

229.0

560.0

2194.0

Opening stock

255.0

63.0

25.5

27.0

197.0

567.5

Plus: Departmental Expense

21.0

10.0

16.5

5.0

20.0

72.5

Sales Promotion Costs

14.0

2.0

0.0

1.0

20.0

37.0

Less: Closing stock

263.0

53.0

25.0

25.5

229.5

596.0

Total Variable Costs for each Department

427.0

702.0

342.0

236.5

567.5

2275.0

Contribution

133.0

278.0

68.0

193.5

112.5

785.0

Less: Fixed costs

Fixed overheads

Non Management Wages

75.0

45.0

101.0

65.0

95.0

381.0

Less: Other Costs

412.0

Profit

58.0

233.0

-33.0

128.5

17.5

(-) 8.0

WHEN THE RESTAURANT DEPARTMENT IS CLOSED -

Marginal costing statement

Contribution/Profit Statement

FURNISHING €000

KITCHENWARE €000

MENSWEAR €000

TOYS €000

TOTAL OF STORE€000

Sales Revenue

560.0

980.0

430.0

680.0

2650.0

Purchases for Resale

400.0

680.0

229.0

560.0

1869.0

Opening stock

255.0

63.0

27.0

197.0

542.0

Plus: Departmental Expense

21.0

10.0

5.0

20.0

56.0

Sales Promotion Costs

14.0

2.0

1.0

20.0

37.0

Less: Closing stock

263.0

53.0

25.5

229.5

571.0

Total Variable Costs for each Department

427.0

702.0

236.5

567.5

1933.0

Contribution

133.0

278.0

193.5

112.5

717.0

Less: Fixed costs

Fixed overheads

Non Management Wages

75.0

45.0

65.0

95.0

280.0

Less: Other Costs

412.0

Profit

58.0

233.0

128.5

17.5

25.0

Hence, the Contribution and Profit Department wise as well as of overall Stores is as under:-

When all Departments is in Operation, then - Contribution and Profit for each Department and that of Store overall is:- (IN €000)

FURNISHING KITCHENWARE RESTAURANT MENSWEAR TOYS OVERALL

Contribution - 133.0 278.0 68.0 193.5 112.5 785.0

Profit - 58.0 233.0 -33.0 128.5 17.5 (-) 8.0

When Restaurant Department is Closed, then - Contribution and Profit for each Department and that of Store overall is:- (IN €000)

FURNISHING KITCHENWARE MENSWEAR TOYS OVERALL

Contribution - 133.0 278.0 193.5 112.5 717.0

Profit - 58.0 233.0 128.5 17.5 25.0

SOLUTION (2):

Due to the rising pressure in the multilateral trading system of Traditions Ltd. according to the grapevine inconsistent requirements of an open trading system and quest of policy objectives through environmental and labour standards - new issues is to be resolved. This depicts that even standards which are not bigoted, can have discriminatory consequences in a market characterized by deliberate interface between firms.

The financial and Non-financial consequences of closing the Restaurant Department is outlined as under:-

FINANCIAL CONSEQUENCES:

On closure of Restaurant Department, the Store on overall have a net gain of € 25000.0, this would however provide the way to the Traditions Ltd to overcome its loss on running the Restaurant department and book profit on its account.

This would boost up the sales forecast of the Traditions Ltd.

The Traditions will then have an effective control over the departmental expense and non management wages as well, since it would save huge costs in respect of Stores Manager and Chef (Claude) being related only to the Restaurant Business of Traditions Ltd.

As the Restaurant Department at present level is Contributing € 68000.0 towards the Overall contribution in minimizing the deficit, which then comes to € - 8000.0. On closure of the Restaurant department the Traditions Ltd will have to give up the contribution of € 68000.0

NON-FINANCIAL CONSEQUENCES:

Since some of the recipes of the Restaurant were famous in the city and attracts publicity to the Traditions Ltd, it will then do not occur to the Store on its closure.

The Chef now Restaurant Manager, Mr. Claude has secured publicity due to his win in a potato-sculpting competition has also raised the sales level of the Traditions Ltd which will be affected on closure of the Restaurant.

Reduction in the employee strength.

Lesser resistance to change.

Thus, these consequences may occur for the Traditions Ltd on closure of its Restaurant business.

SOLUTION (3):

In relation to the following issues problems may arise for Samantha on being adopting her new role of Management Accountant of the Traditions Ltd :-

Determining the cost of providing a service or making a product for the Stores.

Decision in regard to profit planning and formalizing the plans into budgets and thereby assisting the management.

Determine the Cost behavior and how profit will change as sales and purchase volumes change.

In comparison of actual costs and financial results with budgeted costs and results.

Providing cost and sales information to management necessary to make a decision relating to financial plan.

Problems may occur for efficiently handling the revenue prospects on ascertaining the Cost-benefit approach.

Different ideas and methods should have to be employed for the Behavioral and technical considerations

Different costs for different purposes - In this issue problem may occur when costs are to be allocated respectively for the purposes specified.

Effectively analyzing the revenue from products and customers in order to assess product and customer profitability.

Ensuring timely product deliveries by recording and reporting Stores current quality and timeliness levels and by analyzing and evaluating the costs and benefits- both financial and non-financial entailing in faster customer service.

In taking decisions for choosing among available alternative and making predictions for the future.

The main factors which would influence the design and implementation of Management Information System for Traditions Ltd. :-

Organizational Factors :

Management Support -

There is a rigorous need of Management cooperation in the design and implementation of the MIS; as such no any step can be moved forward without the consent of management. Also, an innovative idea and planning is very important for setting up of an effective MIS. Thus, the owners are required to provide their essential views for the implementation of MIS in Traditions Ltd.

Organizational resources -

Organization is the planned coordination of the activities of more than one person for the achievement of a common purpose or goal. It is accomplished through the division of labor and function and is based on a hierarchy of authority and responsibility. Some organizational tools are used to communicate the structure, the purpose, and the methods used to accomplish the shared work of the organization's members.

The main resources that are to be placed immense care while implementing the MIS are, People, material, equipments, etc

Organizational Size -

It is being considered as an important predictor of MIS innovation adoption. Though, pragmatic results on the rapport between them have been distressingly mixed and inconsistent.

Technological Factors:

Cost Effectiveness -

Comparison of relative costs and relative effectiveness of alternative extension delivery methods

Perceived Benefits -

The information use is determined by which costs and benefits a decision-maker expects from such use. The balance of perceived costs and benefits can be called the appeal of the MIS to the user. The benefits of information use can be related to whether decision-makers perceive the information to meet an information need.

Perceived Usefulness -

The degree to which a person believes that using a particular system would enhance his or her job performance. Perceived usefulness of a MIS create an attitude about the MIS, influencing decisions of whether to adopt the MIS, further it is shaped by external factors unique to the situation.

Perceived richness -

Environmental Factors:

External Pressure -

The MIS activity in relation to the immense stress and pressure experienced by nonprofits seeking to balance their budgets, market and deliver services consistent with their mission, manage human resources, advocate for policy changes and funding, and promote interagency collaboration and political coalitions.

Competitive Intensity

SOLUTION (4):

As Samantha, we could approach in the following manner for setting up a budgetary planning and control system for the store "Traditions Ltd" :-

Strategic and long range Plan

Long-Range Sales Forecast

Sales Budget - This involves a realistic sales forecast. Methods for sales forecast includes:-

Sales force opinions

Market Research

Statistical Methods

Mathematical Models

Production Budget - It is expressed in quantitative terms and is being geared to the sales budget. The duties of a production manager includes:-

Analysis of Plant Utilisation.

Work-in-progress Budget.

Inventory Budget -

The material usage budget is in quantities

Profit Plan

Cash Budget - It summarises monthly receipts and payments. Hence, it highlights monthly surpluses and deficits of actual cash.

Balance Sheet Budget

Capital Expenditure Budget

The behavioural Problems that might encounter for Ms. Samantha in relation to Traditions Ltd on implementation of Budgetary Plans are:-

Budget system may cause animosity and poor enthusiasm.

Variances are regularly due to altered circumstances, poor forecasting, etc

Considerable difficulties in setting appropriate levels of attainment may arise.

This should not be relied upon as a substitute for good management.

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