Colin Drury, Management and Cost Accounting - Anjo Ltd

Anjo Ltd
Lin Fitzgerald, Warwick Business School and Anne Deakin, Centaur Metals
Background Anjo Ltd was established in 1986 by two brothers, Andrew and Jonathan Bright. They saw a market for providing accessories in the home to accommodate the new era of home entertainment, such as television cabinets, record stands, hi-fi cabinets, tape cassette racks and more recently video and CD racks. Andrew and Jonathan have retired from the business and Andrew's son, Michael, now runs the business. Michael introduced the use of regular management team meetings in an effort to ensure shared aims and objectives by improved information flows. In addition he introduced the current system of standard marginal costing and budgeting, and agreed with the accountant that for internal reporting stock was to be valued at standard marginal cost. Quarterly meetings for the management team are held where the variances arising between actual results and budgeted results are reviewed and any problems or new ideas can be explored. Michael is becoming concerned that in recent meetings the various managers seem to have become more defensive about their own position and are not considering the company as a whole. The five members of the management team are: The Management Accountant The Production Manager The Buying Manager The Sales Manager The Chairman of the Company, (Michael) One of the products that Anjo currently produces is a CD rack. It produces these to two specifications aiming at different markets; a veneered version which is sold through a catalogue, and a deluxe version which is sold through High Street furniture shops. The latter is currently one of the company's best sellers and the company is keen to maintain market share in this product. Production Process Most of the products are made from bought in components which are assembled by the production department. Production and sales of the CD storage racks have shown consistent growth over the past few years with the deluxe version becoming more popular in recent times. The CD storage racks consist of an outer shell fitted with an inner plastic coated rack. The production processes are the same for both versions of the storage rack. They are distinguished by the materials used for the outer casting. Ash veneered chipboard is used for the catalogue version and mahogany for the deluxe version. Both products use the same type of plastic rack insert. The company has a commitment to local suppliers and currently all purchases of ash veneer, mahogany and plastic racks are bought locally. Budgeting System Michael, along with the accountant introduced the system of standard marginal costing so that budgets may be prepared and variance analysis readily carried out. At the start of the budget period the Accountant sends a memo to each department detailing the planning parameters for the period. Departments respond with their outline proposals. There follows a period of negotiation after which the finally agreed departmental proposals are circularised and Michael receives a copy of the full Master Budget. Progress against budget is discussed at the quarterly management meetings. In preparation for these meetings the Accountant compares the actual results for the period with the planned budget and produces a variance analysis statement. Departmental managers receive details of the variances relating to their own departments and are invited to provide explanations at the management meeting

Colin Drury, Management and Cost Accounting - Anjo Ltd

for any variances that may have arisen. A full copy of the variance report is sent to Michael who also attends the quarter end meetings. In recent meetings the Accountant has begun to feel that each department holds him/her responsible for their shortcomings and is anxious to ensure that no blame is placed on the accounting role. Further Information Appendix 1: Budgeted Sales and Standard Cost information for the CD Racks Appendix 2: Actual Results for the quarter to 30 April 2000

Required

1. Using the information provided produce a variance analysis statement reconciling the
budgeted profit figure to the actual profit figure for the quarter. All relevant variances should be calculated.

2. Prepare a presentation to your seminar group based on the budget and actual results for the
quarter. Your presentation should be conducted as a Board meeting. Each member of the group should assume the role of one of the members of the management team. Your seminar leader will provide additional notes for individual members of the team. The chairperson must control the meeting and invite the accountant to present the variance analysis reconciling actual profit with budgeted profit. Comments need to be invited from other members of the management team to explain the variances - there may well be some conflict - and questions invited from the rest of the Board members i.e. the other groups in the room.

3. After the presentation meeting you are required to produce a summary of key points from the
meeting to include and explanations for the variances produced and Agreed Action points. This summary should be on one side of A4 and given to your seminar tutor within 24 hours of the meeting.

Appendix 1: Budgeted Sales and Standard Cost information for the CD Racks
Budgeted Sales & Production Budget information for the quarter to 30 April 2000 Veneered 1300 75 1300 Wood 1500 200 1500

Sales Units Sales Price Production Units There are no stocks held at the beginning of the period. Standard Costs per unit Ash Veneered Chipboard CD Rack

Veneered Chipboard (0.5 sheet @ 30.00 per sheet) Rack Insert Labour (3 hours @ 4.00 per hour)

15.00 5.00 12.00

Colin Drury, Management and Cost Accounting - Anjo Ltd

Packaging (1 kilo @ 7.50) Variable overheads Total Variable Cost Mahogany CD Rack

7.50 9.00 48.50

Wood (9 feet @ 5.00 per foot) Rack Insert Labour (5 hours @ 4.00 per hour) Packaging (1 kilo @ 7.50) Variable overheads Total Variable Cost Additional Information Variable Costs Variable costs are charged on a labour hour basis Fixed Costs Fixed costs for the quarter are expected to be 35,000 Stocks There are no opening stocks

45.00 5.00 20.00 7.50 15.00 92.5

Appendix 2: Actual Results for the quarter to 30 April 2000

Veneered Sales Units Sales Price Production Units Raw materials Used Veneer Wood Racks Packaging 1000 70 1000 Wood 1700 210 1700

700 sheets @ 28.00 per sheet 15500 feet @ 6.50 per foot 2700 @ 3.00 per rack 2800 kilos @ 7.60 per kilo

Labour 12000 hours @ 5.00 per hour Variable Costs Variable Costs for the quarter 36,000 Fixed Costs Fixed Costs for the quarter 40,000