Practice questions:
Four years ago. your Uncle Mike set up a small manufacturing company. Aphrodite Showers. in Cyprus which manufactures shower screens.
There are two models:
- the Paphos. which is the standard model.
- and the Nicosia. the deluxe model.
Both models are made from frosted glass and have an aluminium frame and fittings. The standard model has plain glass and silver satin finish to the frame and fittings. The deluxe model has an attractive design on the glass and a polished gold finish to the frame and fittings.
Once a year your Uncle Mike comes back to spend Christmas with you and your family.
This year. knowing that you are studying management accounting on your course. he asks for your advice. He explains that despite a buoyant market and excellent sales figures. his profits have been very disappointing and he wants to embark on a cost-cutting exercise. After discussions. you find that he does not operate a standard costing system and does not seem to know what it is. However. he is very keen to learn and as he is only staying a few days. asks you to write to him in Cyprus with full details. He also invites you to visit him for a holiday during the summer.
Write your Uncle Mike a letter explaining the advantages of a standard costing system. how it can be implemented and the information he can expect to obtain.