Cases
Practical case
Ferronord SAS (a fictitious entity) manufactures cast-iron radiators in a single plant. In the second quarter of 20X2, a breakdown of the main furnace sharply reduced production. You are preparing, for the year ended 31 December 20X2, the calculation of the production cost of the radiators manufactured during the year and the entries to recognise them in inventories.
Your assignment
Analyse the costs of the year, determine the allocation basis for fixed production overheads, calculate the fixed overheads allocated and unallocated, the production cost of the radiators and the financing element of the cast iron purchased on deferred settlement terms, record the entries and measure the impact on the financial statements. One document is not useful.
Work on this file as you would in practice: read the situation, open the documents, sort the useful information, then carry out the work requested. The solution is revealed once you submit.
Intermediate level: help remains available, on demand.
Method
File checklist
5 documents: open each one to read it.
Document 1Table
Management accounting report 20X2: materials consumed 600,000 (including the cast iron purchased on 2 January 20X2, measured at 200,000); direct labour 320,000; variable production overheads (furnace energy, supplies) 80,000; fixed production overheads (depreciation of the plant and equipment, maintenance, factory management) 500,000; production for the year 40,000 radiators, all held in inventories or sold after 31 December 20X2.
The figures of the documents, gathered for your work.
| Item | Value | Found in |
|---|---|---|
| Materials consumed | €600,000.00 | |
| Direct labour | €320,000.00 | |
| Variable production overheads | €80,000.00 | |
| Fixed production overheads | €500,000.00 | |
| Actual production 20X2 | 40,000 units | |
| Normal capacity of the plant | 50,000 units | |
| Abnormal scrap due to the breakdown | €30,000.00 | |
| Storage of finished goods | €25,000.00 | |
| Head office administrative costs | €90,000.00 | |
| Design costs of a special series for a customer | €20,000.00 | |
| Interest on the bank overdraft | €12,000.00 | |
| Price paid on deferred terms | €206,000.00 | |
| Price on normal credit terms | €200,000.00 | |
| Recommended retail price | €95.00 |
Not every document matters: identify those that affect the accounting treatment.
Part 1 · Classification · Analysis
Sort each document: does it affect the accounting treatment?
Drag each item into its category, or tap the category under the item.
Management accounting report 20X2
Memo from the production director
Schedule of other costs
Cast iron purchase agreement on deferred settlement terms
Extract from the sales catalogue
9 tasks in the order of the file. Calculations, entries and effects on the financial statements are marked; written answers are self-assessed against the solution.
Task 1Analysis
Which costs do you include in the cost of the radiators and which do you recognise as expenses?
Task 2Calculation
Which allocation basis do you use for fixed production overheads?
Part 1 · Calculation
Which allocation basis do you use for fixed production overheads?
Task 3Calculation
Calculate the fixed production overheads allocated to the radiators.
Part 1 · Calculation
Calculate the fixed production overheads allocated to the radiators.
Task 4Calculation
Calculate the unallocated fixed production overheads.
Part 1 · Calculation
Calculate the unallocated fixed production overheads.
Task 5Calculation
Calculate the production cost of the radiators and the total cost recognised in inventories.
Part 1 · Calculation
Calculate the production cost of the radiators and the total cost recognised in inventories.
Result: Total cost recognised in inventories
Task 6Calculation
Calculate the financing element of the cast iron purchase.
Part 1 · Calculation
Calculate the financing element of the cast iron purchase.
Task 7Journal entries
Record the entries for the year.
Part 1 · Journal entry · Journal entries
Entry 1 of 2
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Line 3
Line 4
Line 5
Line 6
Part 2 · Journal entry · Journal entries
Entry 2 of 2
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Task 8Effects on the financial statements
What is the impact of these entries on the financial statements?
Part 1 · Classification · Analysis
State the direction of the effect on each financial statement aggregate.
Financial position (balance sheet)
Profit or loss
Other comprehensive income
Equity
Part 2 · Calculation · Analysis
Quantify the effect on the aggregates concerned.
Result: Amount of the effect — Equity
Task 9Conclusion
Write the conclusion.
Your working draft for this file: points noted, leads, intermediate calculations.
Saved on this device only; never graded.
Complete every item of the file to submit it (0 / 12).
Document this file
These working papers use the data and results of this case.
Normative references