SA NEPTUNE

Neptune S.A. manufactures two different type of blankets : the JUSTINE model, 100% pure wool, and the
JULIETTE model in acrylic. The two raw materials – woolen thread and acrylic thread – are purchased from
local spinning mills and go through three different production centres at Neptune : weaving, dying and picking.
The picking process is the final one which produces the finished goods. Of course, the company has other
departments : supplies, distribution and general administration.

There is no intermediary stock of work in progress at the exit of the first two workshops so the company only
has stocks of raw materials and finished goods.. Neptune uses an AVCO (full period) system to value its stock
of raw materials and finished goods.

The information concerning the month of November 2014 is given below.

ANNEXE 1
Allocation Table
Costs Supplies Weaving Dying Picking Distribution

Total after secondary

21 000 68 475 34 075 32 475 27 440
allocation

Allocation (or expenses) M of thread Hrs direct

Machine hours Units Produced €s of sales
base purchased labour

Number of allocation (or

expenses) base units

Allocation (€ / unit)

ANNEXE 2
Stocks
Stocks on 01/11/14
Wool thread 10 000 m at 1,60 € / m
Acrylic thread 2 000 m for 2 000 €
JUSTINE blankets 100 at 122,50 € / unit
JULIETTE blankets 200 at 118,75 € / unit

ANNEXE 3
Purchases in November

Woolen thread 60 000 m for 96 000 €

Acrylic thread 40 000 m for 40 000 €

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ANNEXE 4
Production in November
JUSTINE JULIETTE
Consumption wollen thread 33 m/ blanket
Consumption acrylic thread 40 500 m
Direct labour at 15 € / hour 22,50 min / blanket 300 hours
machine hours weaving tissage 350 h 250 h
machine hours dying 143 h 60 h
Production 2 000 units 1 000 units

ANNEXE 5
Sales in November

JUSTINE blankets 1950 at 160 €

JULIETTE blankets 1 100 at 130 €

 Questions :

1. Complete the allocation table.

2. Calculate the cost of raw materials purchased, prepare a stock table for raw materials and determine the
costs of raw materials purchased (note : do not forget to include an allocation of overhead !).
3.Calculate the cost of goods manufactured for the two products and present the stock table for finished
goods (note : you can calculate the cost of goods manufactured on a total basis. Of course, you can also
calculate it on a ‘per unit’ basis if you like – but you don’t have to do this).
4. Calculate the fully allocated cost of goods sold (including distribution costs).
5. Calculate the net income for NEPTUNE on a global basis and for the two different products separately.
Calculate also the net margin (in%) for the two products.
6. Present your conclusions about the profitability of the two products.

Allocation Table
Costs Supplies Weaving Dying Picking Distribution

Total after secondary

21 000 68 475 34 075 32 475 27 440
allocation

Allocation (or expenses) M of thread Hrs direct

Machine hours Units Produced €s of sales
base purchased labour

Number of allocation (or 203 machine

100 000 m 1 050 hrs 3 000 units € 455 000 of sales
expenses) base units hours

€ 0,21 / m € 65,21 / hr € 167,86 / € 10,825 / unit

Allocation (€ / unit) € 0,06 / € of sales
purchased labour machine hr produced

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Purchase of thread : 60 000 + 40 000 = 100 000
Allocation = 21 000 / 100 000 = € 0,21 / m thread purchased

Hours direct labour Justine : (22 ,5 x 2 000) / 60 = 750 h

Juliette : (18 x 1000) / 60 = 300 h
TOTAL HOURS 1 050
Allocation : 68 475 / 1 050 = € 65,21 / hr

Machine hours 143 + 60 = 203 h

Allocation 34 075 / 203 = €167,86 / machine hour

Production 2 000 + 1 000 unit = 3 000 units produced

Allocation 32 475 / 3 000 = € 10,825 / unit produced

Units sold 1 950 + 1 100 units = 3 050 units sold

Allocation 27 440 / 3 050 = € 9 / unit sold

Sales (1950 x 160) + (1100x130) = 455 000

COST OF RAW MATERIALS PURCHASED : APPLY THE ALLOCATION : AN EXTRA LAYER OF

COST IS ADDED TO THE RAW MATERIALS

Woolen Thread Acrylic

Quantity Unit Total Quantity Unit Total
Cost Cost
Direct Cost
Purchase price 60 000 1,60 96 000 40 000 1 40 000
Allocation

Supplies allocation 60 000 0,21 12 600 40 000 0,21 8 400

TOTAL 60 000 1,81 108 600 40 000 1,21 48 400

COST OF RAW MATERIAL CONSUMED : STOCK TABLE : SIMPLIFIED VERSION

WOOL THREAD Units Unit price Total

Beginning Stock 10 000 1,6 16 000

Purchased 60 000 1,81 108 600

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 TOTAL AVAILABLE 70 000 1,78 124 600

Consumed 66 000 1,78 117 480

End Stock 4 000 1,78 7 120

ACRYLIC THREAD Units Unit price Total

Beginning Stock 2 000 1,0 2 000

Purchased 40 000 1,21 48 400

TOTAL AVAILABLE 42 000 1,20 50 400

Consumed 40 500 1,20 48 600

End Stock 1 500 1,20 1 800

Cost of raw materials consumed : wool thread € 117 480 and acrylic thread € 48 600. The table gives me this
total by summing up the exit column. Notice that in both cases cost of raw materials consumed is higher than
cost of raw materials purchased (reduction of stock).

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COST OF GOODS MANUFACTURED

JUSTINE JULIETTE
Quantity U. Cost Total Quantity U. Cost Total
Direct Costs

Raw materials
consumed 66 000 1,78 117 480 40 500 1,20 48 600

Direct labour hours 750 60 45 000 300 60 18 000

Allocations

Weaving
750 65,21 48 907,50 300 65,21 19 563
Dieing
143 167,86 24 004 60 167,86 10 072
Picking
2 000 10,825 21 650 1 000 10,825 10 825
TOTAL
2 000 128,52 257 041,5 1 000 107,06 107 060

COST OF GOODS SOLD : STOCK TABLE FINISHED GOODS

JUSTINE Units Unit price Total

Beginning Stock 100 122,50 12 250

Purchased 2 000 128,52 257 042

TOTAL AVAILABLE 2 100 128,23 269 292

Consumed 1 950 128,23 250 056

End Stock 150 128,23 19 236

JULIETTE Units Unit price Total

Beginning Stock 200 118,75 23 750

Purchased 1 000 107,06 107 060

TOTAL AVAILABLE 1 200 109,01 130 810

Consumed 1 100 109,01 119 909

End Stock 100 109,01 10 901

FULLY ALLOCATED COST (in French ‘cout de revient’).

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 JUSTINE JULIETTE
Quantity U. cost Total Quantity U. Cost Total
Direct Costs

FULL COGS 1 950 128.23 250 056 1 100 109.01 119 909

Allocations

DISTRIBUTION 312 000 0.0603 18 814 143 000 0.0603 8 623

TOTAL 1 950 137.88 268 870 1 100 116.85 128 532 186

ANALYTICAL RESULT (COST OF SALES ACCOUNTING)

JUSTINE JULIETTE
Quantity UPrice Total Quantity UPrice Total

SALES 1 950 160,00 312 000 1 100 130 143 000

FULL COST PRICE 1 950 (137.88) (268 870) 1 100 (116.85) (128 532)

NET RESULT 1 950 22.12 43 130 1 100 13.15 14 468

Total result = 43 130 + 14 468 = € 57 598

Global profit margin = 57 598 / 455 000 x 100 = 12,65%

Globally Neptune makes a small profit : a positive margin of 12,65%. However, the full cost price shows that
the Juliette product is significantly less profitable than the Justine one. Of course, we have to be careful in
taking decisions from this point. Deciding whether to make more of Justine and less of Juliette is a more
complicated questions (which we will look at in the rest of this course).

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