Memorabilia Mementos Ltd. (MM) is an internationally trading geek brand with multiple lines of products. This year
Question:
Memorabilia Mementos Ltd. (MM) is an internationally trading ‘geek’ brand with multiple lines of products. This year three of their products in their main line of t-shirts have been flagged for a routine review of costs for February 2022.
Typically, MM uses Traditional costing techniques based on Machine Hours to distribute its overheads between products. However, they are questioning if this is the best method to continue with based on this analysis.
They provide you with the following product information for February 2022:
‘I demand a trial by combat.’ T-shirts
Number of Units | 14,000 |
Selling Price | £12.00 |
Direct Material Usage (Code): | |
Cotton | 2m |
Elastic | 0.3m |
Decoration | 0.8m |
Direct Labour Hours | 0.8 |
Units per Machine Setup | 100 |
Hours in each Machine Department: | |
Department A | 0.6 |
Department B | 0.2 |
Department C | 0.2 |
Units per Quality Inspection | 100 |
‘Who wants to be king?’ T-shirts
Number of Units | 13,000 |
Selling Price | £7.50 |
Direct Material Usage (Code): | |
Cotton | 1m |
Elastic | 0.3m |
Decoration | 0.5m |
Direct Labour Hours | 0.5 |
Units per Machine Setup | 200 |
Hours in each Machine Department: | |
Department A | 0.2 |
Department B | 0.1 |
Department C | 0.2 |
Units per Quality Inspection | 100 |
‘Easy peasy, lemon squeezy.’ T-shirts
Number of Units | 14,000 |
Selling Price | £10.00 |
Direct Material Usage (Code): | |
Cotton | 2m |
Elastic | 0.3m |
Decoration | 1m |
Direct Labour Hours | 0.5 |
Units per Machine Setup | 100 |
Hours in each Machine Department: | |
Department A | 0.8 |
Department B | 0.1 |
Department C | 0.1 |
Units per Quality Inspection | 100 |
Costs of the Company
Material Costs
Materials are supplied by the main factory’s supplier in bulk. They have agreed to keep their prices fixed until April 2022.
The current rate for materials is as follows:
Material Code | Cost per Metre. |
Cotton | £1.20 |
Elastic | £0.10 |
Decoration | £0.25 |
Labour Costs
Direct Labour is £8.50 per hour.
Managers are paid a fixed salary of £30,000 per annum. There are four managers assigned to work with these products.
Couriers handle the deliveries of supplies and products from the factory to both the storage unit and the customers. The couriers are paid a fixed salary of £15,000 each, there are two couriers currently working associated with these products.
Office staff are currently paid a fixed salary of £18,000 a year and there are two handling these products within the office building.
Machine Department Costs
The following costs are the total estimates for the month in the Machine Departments:
Activity | Estimated Cost |
Set Up Machines | £2,000.00 |
Machining | £7,000.00 |
Inspections | £4,000.00 |
Building Costs
MM has three different and separate buildings, a factory, a storage facility, and a main office space. All costs have already been broken down to their relevant amounts based on floor space required for the products under review. All equipment was bought in bulk to secure a bulk purchase discount and all equipment depreciates in a straight line over 10 years, this is also considered the expected lifespan of the equipment. Each building’s costs are as follows:
Factory Costs:
Annual Rent | £60,000.00 |
Equipment Purchase Price | £60,000.00 |
Year of Equipment Purchase | 2014 |
Storage Costs:
Annual Rent | £24,000.00 |
Equipment Purchase Price | £1,200 |
Year of Equipment Purchase | 2013 |
Office Costs:
Annual Rent | £2,400 |
Equipment Purchase Price | £1,800 |
Year of Equipment Purchase | 2019 |
Inhouse Costs
MM Ltd has one service department in the main factory to maintain the machinery in the machine departments. This service department has estimated £20,000 of annual costs associated with these products, plus an extra £4,000 for the machine in the back corner of the factory has begun to stall mid-production a couple of times a week.
Outsourced Costs
MM has a standing contract with Marketing Ltd. for their marketing needs. The associated costs of the contract for these products are agreed on a yearly basis for £24,000. Currently their renewal is due in May. The contract is for the yearly amount to be paid equally per month.
MM also outsources their HR requirements with HR Needs Ltd. Annually this costs MM £144,000, however, only one quarter of this cost is considered applicable to these products. The contract is for the yearly amount to be paid equally per month.
Additional Considerations
Target Profit should be 10% of each Product’s Sale Value.
An analysis of the raw data of your assigned business for February 2022. Please note that some of the figures are quoted in months and others in years. You should be calculating PER MONTH. Complete your analysis using the business’s typical method for allocating overheads. Calculate:
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