Read through the information below and answer the questions that follow. Becko Ltd has a production...

 

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Read through the information below and answer the questions that follow. Becko Ltd has a production department that has four major activities: receiving deliveries, handling material, production runs and quality tests. Each of these activities has an identifiable cost driver which is given below as well the estimated volumes for the coming budgetary period. Number of deliveries 140 Number of movements of material 320 Number of production runs 720 Number of quality tests 360 Two other activities in the department are administration and supervision. These two activities, while necessary, are non-volume related i.e. they should be regarded as fixed costs. Budgeted costs for the coming period are given below: Total Charged to £000 £000 40 Administration: £10; Supervision: £30 Management salary Basic wages 20 Receiving deliveries: £5; Material handling: £5; Production runs: £4; Quality tests: £4; Administration: £2 Overtime 10 Receiving deliveries: £4; Production runs: £5; Quality tests: £1 Factory overheads 8 Receiving deliveries: £2; Production runs: £3; Quality tests: £1; Administration: £1.5; Supervision: £0.5 Other costs 2 Receiving deliveries: £0.5; Administration: £1; Supervision: £0.5 80 Becko Ltd have only recently started using activity based budgeting to set the budget for the production department, and several of the staff are still unconvinced about the value of ABB over the approach they used to employ. Until recently, the production department set a traditional annual budget that used figures from the previous year as a starting point. Becko Ltd is increasingly conscious that they need to run a more flexible organisation in response to a more volatile business environment. a. Using a table similar to Table 5.1 in Unit 2 Session 5, produce an activity based budget (ABB) for the coming period that shows: i. total cost for each activity ii. total cost for the production department iii. cost per activity unit. (10 marks) b. Write a persuasive note convincing all production department staff at Becko Ltd of the value of ABB over their traditional method of setting a budget. As part of your answer you need to specifically refer to your table in (a) above to reinforce your argument. (10 marks) Read through the information below and answer the questions that follow. Becko Ltd has a production department that has four major activities: receiving deliveries, handling material, production runs and quality tests. Each of these activities has an identifiable cost driver which is given below as well the estimated volumes for the coming budgetary period. Number of deliveries 140 Number of movements of material 320 Number of production runs 720 Number of quality tests 360 Two other activities in the department are administration and supervision. These two activities, while necessary, are non-volume related i.e. they should be regarded as fixed costs. Budgeted costs for the coming period are given below: Total Charged to £000 £000 40 Administration: £10; Supervision: £30 Management salary Basic wages 20 Receiving deliveries: £5; Material handling: £5; Production runs: £4; Quality tests: £4; Administration: £2 Overtime 10 Receiving deliveries: £4; Production runs: £5; Quality tests: £1 Factory overheads 8 Receiving deliveries: £2; Production runs: £3; Quality tests: £1; Administration: £1.5; Supervision: £0.5 Other costs 2 Receiving deliveries: £0.5; Administration: £1; Supervision: £0.5 80 Becko Ltd have only recently started using activity based budgeting to set the budget for the production department, and several of the staff are still unconvinced about the value of ABB over the approach they used to employ. Until recently, the production department set a traditional annual budget that used figures from the previous year as a starting point. Becko Ltd is increasingly conscious that they need to run a more flexible organisation in response to a more volatile business environment. a. Using a table similar to Table 5.1 in Unit 2 Session 5, produce an activity based budget (ABB) for the coming period that shows: i. total cost for each activity ii. total cost for the production department iii. cost per activity unit. (10 marks) b. Write a persuasive note convincing all production department staff at Becko Ltd of the value of ABB over their traditional method of setting a budget. As part of your answer you need to specifically refer to your table in (a) above to reinforce your argument. (10 marks)

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