Response to the following :
Question 1(calculation based):
The directors of Bloggs plc have been analyzing the performance of one of its subsidiary companies CJ Components Ltd. In an attempt to win over key customers in theirindustry and to increase its market share, CJ has decided to charge a price lower than its normal price for TD463 when selling to the key customers who are being targeted.
Details of component TD463's standard costs are as follows:
Component TD463
Batch size 200 units
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Machine
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Machine
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Machine
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Group 1
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Group 7
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Group 29
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Assembly
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Costs
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(£)
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(£)
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(£)
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(£)
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Materials (per unit)
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42.00
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24.00
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----
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5.00
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Labour (per unit)
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3.00
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2.20
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1.00
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2.00
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Variable overheads (per unit)
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1.10
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1.24
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1.20
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0.62
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Fixed overheads (per unit)
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5.00
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4.00
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2.00
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1.28
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51.1
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31.44
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4.20
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8.90
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Setting-up costs per batch
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of 200 units
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£20.00
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£16.00
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£8.00
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a) Compute the lowest selling price (assume the company uses a variable costing system) at which one batch of 200 units could be offered, and critically evaluate the adoption of such a pricing policy
b) The company is also considering the launch of a new product, component TDX589, and has provided you with the following information:
Standard cost per box
Variable cost (£) 6.20
Fixed cost (£) 1.90
8.10
Market research forecast of demand:
Selling price (£) 13 12 11 10 9 9
Demand (boxes) 5000 6000 7200 11200 13400 13400
The company only has enough production capacity to make 7000 boxes. However, it would be possible to purchase product TDX589 from a subcontractor at £7.90 per box for orders up to 5000 boxes and £7.55 per box if the orders exceed 5000 boxes.
Prepare and present a computation which illustrates which price should be selected in order to maximise profits.
c) Where production capacity is the 'limiting factor', critically explain the ways in which management can increase it without having to acquire more plant and machinery.
Question 2(calculation based):
BV Ltd operates a standard marginal cost accounting system. Information relating to product X, which is made in one of the company departments, is given below:
Standard marginal
Product cost
Product X Unit (£)
Direct material
6 kilograms at £4 per kg 24
Direct labour
1 hour at £12 per hour 12
Variable production overhead * 3
39
* Variable production overhead varies with units produced
Budgeted fixed production overhead, per month: £102,000.
Budgeted production for product X: 20 000 units per month.
Actual production and costs for month 6 were as follows:
Units of X produced 18,800
(£)
Direct materials purchased and used: 113 500kg 442 650
Direct labour: 17 800 hours 223 000
Variable production overhead incurred 57500
Fixed production overhead incurred 108 000
831150
You are required to:
a) Prepare a columnar statement showing, by element of cost the:
(i) original budget;
(ii) flexed budget;
(iii) actual;
(iv) total variances;
b) Subdivide the variances for direct materials (price and usage) and direct labour (wage rate and efficiency) shown in your answer to a) (i)to(iv) above to be more informative for managerial purposes.
c) Identify the possible causes of the labour and material variances calculated in the above.
Question 3:
Critically evaluate the topic of measuring relevant costs and revenues from different decision making situations as below:
1. Special selling price decisions.
2. Product-mix decisions when capacity constraints exist
3. Decisions on replacement of equipment.
4. Outsourcing (Make or buy) decisions.
5. Discontinuation decisions.