Cocoa Group ( CG ) manufactures chocolate - based products, including various chocolate bars for well -
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Question:
Cocoa Group CG manufactures chocolatebased products, including various chocolate bars for wellknown private brands. The company has recently been approached by Allmazing, a large national supermarket chain, to submit a quotation for the supply of a specialflavoured milk chocolate bar. Each chocolate bar should weigh grams. However, due to uncertainty of
demand, Allmazing has requested CG to submit a quotation for three different monthly volumes: and bars. CG has, at present, excess capacity on some of its machines to produce a maximum of chocolate bars a month.
The management accountant of CG has been asked to prepare a costing for the chocolate bars required by Allmazing. The accountant has determined that the full cost will consist of four elements: raw materials of per bar, wages for direct labour hired when required of per bar, fixed manufacturing and administration overheads absorbed at of direct labour wages per bar, and packaging cost of per bar. The manufacturing and administration
overheads are forecasted as fixed at per month, unless output drops to bars or below per month, where a saving of per month can be made. An additional per month can be saved if monthly output drops to bars or below. If nothing is produced, all manufacturing and administration overheads will be saved except for per month. If CG sells to Allmazing, the volume produced and sold will be determined by the demand of Allmazing.
The company intends to prepare the quotation based on relevant cost plus of relevant cost as markup The sales manager has suggested that as an incentive to encourage higher volumes of purchase from Allmazing, the markup be reduced by and respectively if and bars are purchased per month.
Required:
a Compute the selling price per bar for each of the three monthly volumes requested by Allmazing. The selling prices should be expressed in and rounded to decimal places.
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b CG produces chocolate cakes for another customer, Sweety Limited. Market research indicates that there will be no demand for cakes if a selling price of is charged. It has also been ascertained that cakes can be sold at a price of The variable cost for the manufacture of a cake is
Required:
Compute the selling price that maximises revenue.
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c The accountant of CG recently read about activitybased management and has managed to convince the board of directors of its benefits. He is now in the process of identifying the major activities within the company but is unsure of how the degree of disaggregation can be determined.
Required:
Propose a set of criteria that can be used to determine the degree of disaggregation of activities within the company.
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d Using the criteria proposed in part c the accountant identified the major activities for the production of chocolate bars. Customers perception of the valueadded of each activity measured on a scale of to ; being nonvalueadded and being an activity regarded as the highest valueadded and the current efficiency of the respective activities has also been identified, and are as follows:
Activities Activity cost Value added scoreOpportunity for improvement
Inspection of cocoa beans High
Cleaning and roasting of cocoa beans High
Breaking and grinding of cocoa beans Low
Mixing of ingredients Low
Chocolate molding Low
Final product inspection High
Packing of final product High
The accountant is aware that due to resource constraints, it would be impractical to analyse all activities concurrently. For a start, he has decided to concentrate on just two activities to identify opportunities for cost reduction.
Required:
Identify the two activities on which the accountant should concentrate his cost reduction efforts on Clearly explain your decision process.
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e In a recent discussion, confusion arose over the use of the term life cycle costing and full cost accounting.
Required:
Explain the difference between life cycle costing and fullcost accounting.
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f In order for sustainable development to take root within organisations, Dillard et al argued for the adoption of the enlightened management approach.
Required:
Explain the difference between the enlightened management approach and the competitive advantage approach.
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Q Total marks
Related Book For
International Marketing And Export Management
ISBN: 9781292016924
8th Edition
Authors: Gerald Albaum , Alexander Josiassen , Edwin Duerr
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