MANAGEMENT ACCOUNTING

INDIVIDUAL BUSINESS CASE ANALYSIS

Term 1, Academic Year 2017-2018

Dodrio Doorknob Design Company manufactures expensive brass doorknobs. It has total
assets amounting to ₱2,500,000 and liabilities of ₱1,500,000.

The fixed costs of producing and marketing the doorknob is ₱500,000. The variable costs per
unit are the manufacturing costs (materials, labor and overhead) and marketing costs of ₱400.
The normal selling price of a doorknob is ₱3,000.

After careful study of the production, it was determined that manufacturing overhead was
closely related to material usage. Thus manufacturing overhead to production is allocated
based on pounds of materials used.

The following are the production standards:

Cost /
Input
Doorknob
Direct Material (brass) 0.3 lb at ₱100 / lb ₱ 30.00
Direct Labor 1.2 hrs at ₱200 / hr 240.00
Variable Manufacturing overhead ₱60 / lb x 0.3 lb 18.00

Actual results for July 2017 are as follows:

Production 35,000 doorknobs

Direct Material Purchased 12,000 lb at ₱110 / lb
Direct Materials Used 10,450 lbs
Direct Labor 38, 500 hrs for ₱8,085,000
Variable Manufacturing overhead ₱641,500

As a managerial accountant and business analyst for Dodrio, the undertakings are as follows:

A. Flexible-budget variances. Ascertain whether each is favorable (F) or unfavorable (U) and
recommendations for improvement.

(1) Materials Price Variance ₱_________________

(2) Raw Materials Inventory ₱_________________
(3) Materials Quantity/ Usage Variance ₱_________________
(4) Labor Rate Variance ₱_________________
(5) Labor Efficiency Variance ₱_________________
(6) Variable MOH Rate Variance ₱_________________
(7) Variable MOH Efficiency Variance: ₱_________________

B. Analysis:
(8) How much is the normal contribution margin percentage? _________________
(9) How many units must be sold to break even? _________________
(10) How many units must be sold earn a profit of ₱2 million? _________________
 (11) If 1,500 units are sold, how much is the margin of safety? ₱_____________; _______%;
_____________ units
(12) If 500 units are sold, what is the degree of operating leverage?(round-off to 2 decimal
places)? _________________
(13) If 500 units are sold, what is the ROI? _______%
(14) If the target contribution margin percentage is 80%, what should be the selling price?
₱_________________

C. Special order. An order has been received from an overseas customer for 1,000 units to be
delivered this month. This order would have no effect on the company's normal sales and would
not change the total amount of the company's fixed costs. The variable marketing cost would be
20% less per unit on this order than on normal sales.

Suppose there is ample idle capacity to produce the units required by the overseas customer
and the special discounted price on the special order is at a discounted price of 25% less than
its normal selling price per unit.

(15) By how much would this special order increase (decrease) the company's net operating
income for the month? ₱_________________

1. REQUIRED:
a) Show calculations for the independent situations.
b) Support your answers with qualitative information. Do not forget to include your
references.
c) Write a memorandum to management on findings and recommendations.
2. Format of Written Report:
a) Paper size: 8.5” x 11”
b) Margin: 1” on all sides
c) Font and Font size: Tahoma 11
d) Paragraph alignment: Justified
e) Paragraph spacing: 1.5
f) The cover page template is shown on the next page:

DODRIO DOORKNOB DESIGN COMPANY

An individual Business Case

Presented to the
Accountancy Department
De La Salle University

In partial fulfillment
Of the course requirements
In (name of course Section___)

SUBMITTED TO:
(Name of Faculty)

SUBMITTED BY:
Surname, Given Name, M.I.*
 August __, 2017

3. Deadline of Written Report:

a) MW class: April 20, 2018 (Friday)

4. Rubric/Criteria for Grading:

b) To compute for the 5% team grade, please refer to the syllabus for the rubric.
c) To compute for the individual written group business case analysis grade, the average
peer evaluation grade (refer to Item#6) will be multiplied to the team grade. A sample
computation follows:
Application of ACCTBA3-related tools = 50.00%
Depth of insights = 30.00%
Quality in writing paper = 20.00%
Grade = 100.00%