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Bateman Barbeque Limited Bill Bateman, the president of Bateman Barbeque Limited (BBL), sat in his office early on June 2, 2014, reviewing the financial statements of BBL for the fiscal year ended May 31, 2014. The results for the year were both a shock and a disappointment. Mr. Bateman had called Carla Wong, CPA, an independent consultant, to meet him in his office. When Carla arrived, Mr. Bateman described his concerns. “I don’t know what went wrong last year. Everybody kept telling me that we were selling more barbeques than we thought we would and I knew from attending the trade shows that the sales of barbeques throughout the province were increasing. When I saw the statements for last year, I couldn’t believe the drop in profits. “This company began in 1908. My grandfather used to make farm implements and sled runners; my father produced mostly trailers. I’ve dabbled in a few product lines like iron fencing and staircase railings, but, for the last five years, we’ve concentrated solely on barbeques. Sales were slow at first and there were many producers in the market. But we have a good sales force and things have been steadily improving for the last two years. In 2013, we achieved record profits.” “However, 2014 has been very disappointing. In addition to profits dropping, we have lost some of our management team. The sales manager took early retirement last month, the production manager is in the hospital for major surgery, and the accountant quit after we discussed the kind of information I felt he should be providing. He kept telling me that everything was running smoothly. Boy, was he wrong! “I called you here this morning because I need some help in understanding what went wrong last year. I want to be sure that similar mistakes are not made in the future. Although, I’ve filled the sales and production manager positions, I need to ensure they are using appropriate management techniques. Therefore, I need some answers quickly. Here is the statement of budgeted and actual results (Exhibit 1). I was also able to dig up a statement of standard costs (Exhibit 2) that was prepared last year plus some market and job-cost data the accountant had prepared before he left (Exhibit 3). The standard costs are an accurate reflection of what it should cost to make either of the barbeque models.” “To get a better sense of what is going on, you will need to speak with the new Sales Manager, Patricia Bee, who was promoted from Sales Supervisor and to the Production Supervisor, Jeff Redfern, who is filling in for the Production Manager while he recovers from surgery. Both Patricia and Jeff have been working here for ten years and are very familiar with all aspects of our operations. As well, it would be helpful to meet with the Human Resources Manager, Karen Stone, who will be able to fill you in on employee hiring and wage issues.” 2 Exhibit 1 Bateman Barbeque Limited Static Budget and Actual Results For the Year Ended May 31, 2014 Static Budget Basic Deluxe Total Sales Volume (in units) 4,500 5,500 10,000 Sales revenue $ 1,350,000 $ 4,400,000 $ 5,750,000 Variable costs Direct materials 315,000 1,045,000 1,360,000 Direct labour 405,000 1,320,000 1,725,000 Overhead 202,500 660,000 862,500 Selling and administration 67,500 220,000 287,500 Total variable costs 990,000 3,245,000 4,235,000 Contribution margin $ 360,000 $ 1,155,000 1,515,000 Fixed Costs Manufacturing 750,000 Selling and administration 132,500 Total fixed costs 882,500 3 Operating income $ 632,500 Actual Results Basic Deluxe Total Sales Volume (in units) 7,200 4,800 12,000 Sales revenue $ 2,340,000 $ 3,360,000 $ 5,700,000 Variable costs Direct materials 486,000 820,800 1,306,800 Direct labour 748,800 1,190,400 1,939,200 Overhead 374,400 595,200 969,600 Selling and administration 108,000 192,000 300,000 Total variable costs 1,717,200 2,798,400 4,515,600 Contribution margin $ 622,800.00 $ 561,600.00 1,184,400 Fixed Costs Manufacturing 780,000 Selling and administration 139,500 Total fixed costs 919,500 Operating income $ 264,900 Exhibit 2 4 Bateman Barbeque Limited Unit Cost Standards For the Year Ended May 31, 2014 Basic Deluxe Barbeque Barbeque Direct materials Standard quantity per unit 70kg 190kg Standard price per kilogram $1.00 $1.00 Direct Labour Standard quantity per unit 6 hours 16 hours Standard rate per hour $15.00 $15.00 Variable overhead Standard quantity per unit 6 hours 16 hours Standard rate per hour $7.50 $7.50 Variable selling and admin. rate per unit $15.00 $40.00 Exhibit 3 Bateman Barbeque Limited 5 Market and Job-Cost Data For the Year Ended May 31, 2014 Market Data Expected total market sales of barbeques 100,000 units Actual total market sales of barbeques 133,333 units Summary of Job Costs Basic Deluxe Total Units of barbeques produced 7,200 4,800 12,000 Direct Materials Actual quantity used in kilograms 540,000 912,000 1,452,000 Actual price per kilogram $ 0.90 Direct Labour Actual direct labour hours worked 46,800 74,400 121,200 Actual rate per hour $ 16.00 Actual variable overhead allocated on the basis of direct labour hours $ 374,400 $ 595,200 $ 969,600 6 1. Calculate standard contribution margin and actual contribution margin for each model. 2. Prepare a flexible budget and calculate the variances from static to flexible (volume variance) and actual to flexible (efficiency variance) for each model and in total. 3. Calculate variances for direct materials price variance and direct materials usage variance (in total and for each model). 4. Calculate direct labour rate variance and direct labour usage variance for each model. 5. Calculate variable overhead spending variance and usage variance (for each model and in total). 6. Variable selling and administration variance (total). 7. Fixed selling and administration variance (total). 8. Fixed manufacturing variance (total). 9. Sales revenue variances for each model separately and in total for the following: a. Selling price variance b. Volume variance c. Sales mix variance 10. Industry volume variance 11. Market share variance In addition to examining the financial records as provided in the case, your investigation should also include information gained from meetings with the Sales Manager, Production Manager and Human Resources Manager. The meetings have been recorded and are located in the Project File Folder – click on the icon for each position to hear their verbal explanation. The information provided by the meetings should be used in conjunction with the variance analysis to provide comprehensive analysis and recommendations for BBL.

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Bateman Barbeque Limited

1. Standard contribution margin and actual contribution margin for each Barbeque
(i) Standard contribution margin
Contribution Margin per Unit = Revenues per unit - Variable Expenses per Unit
Basic Barbeque
Contribution Margin per Unit = ($1,350,000 / 4,500) - ($990,000 / 4,500)
Contribution Margin per Unit = $300 - $220 = $80
Deluxe Barbeque
Contribution Margin per Unit = ($4,400,000 / 5,500) - ($3,245,000 / 5,500)
Contribution Margin per Unit = $800 - $590 = $210
(i) Actual contribution margin
Basic Barbeque
Contribution Margin per Unit = ($2,340,000 / 7,200) - ($1,717,200 / 7,200)
Contribution Margin per Unit = $325 - $238.50 = $86.50
Deluxe Barbeque
Contribution Margin per Unit = ($3,360,000 / 4,800) - ($2,798,400 / 4,800)
Contribution Margin per Unit = $700 - $583 = $117...
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