1. You have recently been appointed as management accountant to Bragg Ltd. The company manufactures three...
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1. You have recently been appointed as management accountant to Bragg Ltd. The company manufactures three types of printers. The following details relate to the three products for the production month of June 2021. Product Laser Dot Matrix Ink Jet Output in units Total direct material cost £24,000 Total direct labour cost £16,800 Machine hours per unit 600 500 600 £25,000 £10,500 3 £36,000 £12,600 3 4 The company currently absorbs overheads on the basis of machine hours. The total production overheads for the month were £130,000. The product cost calculated using absorption costing is as follows: Laser Dot Matrix Ink Jet £ £ £ 24,000 16,800 54,744 95.544 159.24 Material Labour Overhead Total cost 25,000 10,500 34,215 69,715 139.43 36,000 12,600 41,058 89,658 149.43 Cost per unit Overhead Absorption Rate: Total production overheads 130,000 Total Machine Hours 5,700* *total machine hours (600x4)+(500x3)+(600x3) = 22.81 per machine hour You are considering the introduction of activity based costing and observe that the production overheads are already captured by each cost centre. An analysis of the £130,000 by the percentage attributable to each department is detailed below. You determine the associated cost drivers for each department and their use by each product, which are also included in the table below. You have been advised that each product passes through two machines. The time taken on each machine is detailed below: Laser Dot Matrix Ink Jet Minutes 145 Minutes Minutes 140 Machine A 100 Machine B 95 240 40 180 80 180 Total minutes Cost type Percentage of Total Overhead Cost (%) 32 Cost Driver Machine A Machine time Machine B Set up Quality Inspection Total 44 10 14 Number of inspections 100 Machine time Number of set ups 1 (continued) Activity level for each product Laser Dot Matrix Ink Jet Total Number of set ups Number of inspections 1,100 4,200 1,900 10,900 1,650 4,800 650 3,400 Required: Note: all calculations can be shown to 2 decimal places a) Calculate the cost per unit of each product using Activity-Based Costing. (10 marks) b) In addition given that Bragg Ltd aim to achieve a 15% sales margin, calculate the selling prices per unit using both the traditional and ABC costing systems and comment on the results. (3 marks) c) The company has an opportunity to lease a machine (machine Z) that would serve the same purpose as Machine A. Machine A was originally purchased for £1,000,000 five and a half years ago. At the time of purchase the assumption was that the machine had an estimated useful life of six years with nil residual value and would be depreciated using the straight line method. Depreciation is charged monthly. The machine could be sold for £100,000. The lease costs of the new machine would be £20,000 per month. Recalculate the cost per unit of each product assuming that the company decides to lease machine Z. Assume the number of units sold, the selling price per unit calculated using ABC and the time taken on each machine remain the (4 marks) same. d) Analyse the impact to Bragg Ltd of leasing machine Z. (3 marks) 1. You have recently been appointed as management accountant to Bragg Ltd. The company manufactures three types of printers. The following details relate to the three products for the production month of June 2021. Product Laser Dot Matrix Ink Jet Output in units Total direct material cost £24,000 Total direct labour cost £16,800 Machine hours per unit 600 500 600 £25,000 £10,500 3 £36,000 £12,600 3 4 The company currently absorbs overheads on the basis of machine hours. The total production overheads for the month were £130,000. The product cost calculated using absorption costing is as follows: Laser Dot Matrix Ink Jet £ £ £ 24,000 16,800 54,744 95.544 159.24 Material Labour Overhead Total cost 25,000 10,500 34,215 69,715 139.43 36,000 12,600 41,058 89,658 149.43 Cost per unit Overhead Absorption Rate: Total production overheads 130,000 Total Machine Hours 5,700* *total machine hours (600x4)+(500x3)+(600x3) = 22.81 per machine hour You are considering the introduction of activity based costing and observe that the production overheads are already captured by each cost centre. An analysis of the £130,000 by the percentage attributable to each department is detailed below. You determine the associated cost drivers for each department and their use by each product, which are also included in the table below. You have been advised that each product passes through two machines. The time taken on each machine is detailed below: Laser Dot Matrix Ink Jet Minutes 145 Minutes Minutes 140 Machine A 100 Machine B 95 240 40 180 80 180 Total minutes Cost type Percentage of Total Overhead Cost (%) 32 Cost Driver Machine A Machine time Machine B Set up Quality Inspection Total 44 10 14 Number of inspections 100 Machine time Number of set ups 1 (continued) Activity level for each product Laser Dot Matrix Ink Jet Total Number of set ups Number of inspections 1,100 4,200 1,900 10,900 1,650 4,800 650 3,400 Required: Note: all calculations can be shown to 2 decimal places a) Calculate the cost per unit of each product using Activity-Based Costing. (10 marks) b) In addition given that Bragg Ltd aim to achieve a 15% sales margin, calculate the selling prices per unit using both the traditional and ABC costing systems and comment on the results. (3 marks) c) The company has an opportunity to lease a machine (machine Z) that would serve the same purpose as Machine A. Machine A was originally purchased for £1,000,000 five and a half years ago. At the time of purchase the assumption was that the machine had an estimated useful life of six years with nil residual value and would be depreciated using the straight line method. Depreciation is charged monthly. The machine could be sold for £100,000. The lease costs of the new machine would be £20,000 per month. Recalculate the cost per unit of each product assuming that the company decides to lease machine Z. Assume the number of units sold, the selling price per unit calculated using ABC and the time taken on each machine remain the (4 marks) same. d) Analyse the impact to Bragg Ltd of leasing machine Z. (3 marks)
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International Business and the New Realities
ISBN: 978-0136090984
2nd Edition
Authors: S. Tamer Cavusgil, Gary Knight, John R. Riesenberger
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