DELCATTY DESIGN COMPANY

A Group Business Case

Presented to the Accountancy Department
De La Salle University

In Partial Fulfillment of the

Course Requirements in
Management Accounting (ACCCOB3) K39
2nd Term, AY 2020-2021

Submitted to:
Ms. Yvette Perez

Submitted by:
CAGAYAN, Benjamin Mario O.
CRUZ, Lorenzo Miguel B.
NAMOL, Melanie Grace V
VILLENA, Daimler Sebastian G.

Submitted on:
June 5, 2021
MANAGEMENT ACCOUNTING: GROUP BUSINESS CASE ANALYSIS
Term 2, Academic Year 2020-2021

Delcatty 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 ₱250,000. The variable costs per
unit are the manufacturing costs (materials, labor and overhead) and marketing costs of ₱500
per unit. The normal selling price of a doorknob is ₱2,200.

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:

Input Cost/Doorknob

Direct Material (brass) 0.3 lbs. At P117/lb. P 35.10

Direct Labor 0.75 hrs. At P200/hr. 150.00

Variable Manufacturing
P60/lb x 0.3 lb. 18.00
Overhead

ACTUAL results for July 2017 are as follows:

Production 35,000 doorknobs

Direct Material Purchased 10,550 lb. at P120/lb.

Direct Material Used 10,400 lbs.

Direct Labor 26,225 hrs. For P5271,200

Variable Manufacturing Overhead P641,500

As a managerial accountant and business analyst for Delcatty, 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 P___31,200_U_______

(2) Raw Materials Inventory P ____18,000 ______

(3) Materials Quantity/ Usage Variance P_____11,700_F______

(4) Labor Rate Variance P___26,200 U_______

(5) Labor Efficiency Variance P_____5,000 F_______

(6) Variable MOH Rate Variance P___17,500 U________

(7) Variable MOH Efficiency Variance P_____6,000 F_______

B. Analysis: For interim solutions, use 5 decimal places (d.p.)

(8) ______77.27_____% is the normal contribution margin percentage (round-off to 2 d.p.)
(9) ______147______ units must be sold to break even.
(10) _____1,324______ units must be sold to earn a profit of P2 million
(11) P____2,316,600____;_____87.75_____%;_____1,053_______ units - the Margin of
Safety (Mos) if 1,200 units are sold
(12) ____1.50___________ Degree of Operating Leverage (DOL) if 500 units are sold
(round-off to 2 d.p.)
(13) ___49.77%____________% ROI if 500 units are sold (round-off to 2 d.p.)
(14) P______2,266.67_________ Unit Selling Price if target contribution margin percentage
is 75% (round-off to nearest peso)

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? P__450,000_decrease_______