Bordeaux Breweries is one of the main breweries in South West France. The brewery produces five...
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Bordeaux Breweries is one of the main breweries in South West France. The brewery produces five different types of beer. They used to have a very strong position in the region, but in recent years competition has been increasing. As a result, they now want to calculate the possible cost differences between the various brands in order to take on competition in a systematic way. The total production of beer according to budget is 50 million litres per year. There are considerable differences between the five current brands. The main product, Garonne Beer, represents 60% of the total volume and one of the smaller brands, Dordogne Beer, contributes only 10% of the total volume. The brewery has a cost budget shown in Table 1. Of the indirect costs, approximately 25% are variable in the short run. TABLE 1 Cost in € 000's Direct material Direct labour Indirect costs Total costs TABLE 2 Activity Materials handling Production set-ups Garonne Beer 60,000 15,000 The information available is as follows. Indirect costs have been attributed to activities as shown in Table 2. Bottling Quality control Marketing Administration Total indirect costs Cost in € 000's Dordogne Beer Other brands 9,000 3,000 9,000 13,000 40,000 12,000 6,000 20,000 100,000 Cost Driver 31,000 7,000 Purchase orders Set-ups Machine Time Inspection time N° of Brands Capacity Total 100,000 25,000 100,000 225,000 750 1,000 40,000 8,000 10 According to the current budget each brand will perform the following (table 3) activities: TABLE 3 Purchase orders Set-ups Bottling time (hours) Inspection time (hours) Garonne Dordogne Other Brands 250 300 400 350 8,000 2,000 24,000 4,000 The selling price, excluding taxes, for Garonne Beer is € 4.25 per litre and Dordogne Beer is € 4.50 per litre. The other brands are priced between those two levels. Required: As the Bordeaux Breweries accountant prepare the following analysis: ● 150 200 4,000 2,000 (i) Find production costs and profitability per litre of Garonne Beer and Dordogne Beer for each of the three methods. . ● Direct costing • Full absorption costing Full Activity-based costing (ii) Discuss the usefulness of the costing models for each of the following decisions: . Pricing products ● Long-term product mix decisions ● Short-term product mix decisions . Valuation of inventories Introducing new brands Bordeaux Breweries is one of the main breweries in South West France. The brewery produces five different types of beer. They used to have a very strong position in the region, but in recent years competition has been increasing. As a result, they now want to calculate the possible cost differences between the various brands in order to take on competition in a systematic way. The total production of beer according to budget is 50 million litres per year. There are considerable differences between the five current brands. The main product, Garonne Beer, represents 60% of the total volume and one of the smaller brands, Dordogne Beer, contributes only 10% of the total volume. The brewery has a cost budget shown in Table 1. Of the indirect costs, approximately 25% are variable in the short run. TABLE 1 Cost in € 000's Direct material Direct labour Indirect costs Total costs TABLE 2 Activity Materials handling Production set-ups Garonne Beer 60,000 15,000 The information available is as follows. Indirect costs have been attributed to activities as shown in Table 2. Bottling Quality control Marketing Administration Total indirect costs Cost in € 000's Dordogne Beer Other brands 9,000 3,000 9,000 13,000 40,000 12,000 6,000 20,000 100,000 Cost Driver 31,000 7,000 Purchase orders Set-ups Machine Time Inspection time N° of Brands Capacity Total 100,000 25,000 100,000 225,000 750 1,000 40,000 8,000 10 According to the current budget each brand will perform the following (table 3) activities: TABLE 3 Purchase orders Set-ups Bottling time (hours) Inspection time (hours) Garonne Dordogne Other Brands 250 300 400 350 8,000 2,000 24,000 4,000 The selling price, excluding taxes, for Garonne Beer is € 4.25 per litre and Dordogne Beer is € 4.50 per litre. The other brands are priced between those two levels. Required: As the Bordeaux Breweries accountant prepare the following analysis: ● 150 200 4,000 2,000 (i) Find production costs and profitability per litre of Garonne Beer and Dordogne Beer for each of the three methods. . ● Direct costing • Full absorption costing Full Activity-based costing (ii) Discuss the usefulness of the costing models for each of the following decisions: . Pricing products ● Long-term product mix decisions ● Short-term product mix decisions . Valuation of inventories Introducing new brands
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To find the production costs and profitability per litre of Garonne Beer and Dordogne Beer for each of the three methods we will have to perform some calculations for direct costing full absorption co... View the full answer
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Management Accounting
ISBN: 9780730369387
4th Edition
Authors: Leslie G. Eldenburg, Albie Brooks, Judy Oliver, Gillian Vesty, Rodney Dormer, Vijaya Murthy, Nick Pawsey
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