Reference no: EM131077423

1. Robust Laptops Co (RL) makes laptop computers for use in dangerous environments.

 

The laptops are individually specified by customers for each order and pricing has been on a production cost plus basis with a mark-up of 45%.

 

Traditionally the company has adopted an absorption costing system based on labour hours in order to calculate the production cost per unit.

 

The Management Accountant of the company is planning to switch to Activity Based Costing (ABC) system.

 

Financial and other information for the year ended 31 December 2014

 

Volume (units)	23,800
Labour time per unit	3 hours
No of minutes on calls to customer	899,600
No of purchase orders raised	21,400
No of components used in production	618,800

 

	£000
Direct variable costs:
Material	40,650
Labour	3,879
Packaging and transport	2,118
Subtotal	46,647

 

	£ 000
Overhead costs:
Customer service	7,735
Purchasing and receiving	2,451
Inventory management	1,467
Administration of production	2,537
Subtotal	14,190

 

Order 11784
Units ordered			16
No of minutes on calls to customer			1,104
No of purchase orders raised			64
No of components used in production			512
Administration of production (absorbed as general overhead)			3 labour hours per unit

 

Direct costs for this order:	£
Material	27,328
Labour	2,608
Packaging and transport	1,424
Subtotal	31,360

 

Required:

 

Determine the selling price per unit for the Order 11784 under (i) absorption costing and (ii) Activity Based Costing (ABC).

 

 

2. Telecoms At Work (TAW) manufactures and markets office communications systems. During the year ended 31 May 2015 TAW made an operating profit of £30 million on sales of £360 million. However, the directors are concerned that products do not conform to the required level of quality and TAW is therefore not fulfilling its full potential in terms of turnover and profits achieved. The directors are also considering the use of value chain for performance management at TAW.

The following information is available in respect of the year ended 31 May 2015:

 

(1) Production data:

 

Units manufactured and sold	18,000
Units requiring rework	2,100
Units requiring warranty repair service	2,700
Design engineering hours	48,000
Process engineering hours	54,000
Inspection hours (manufacturing)	288,000

 

(2) Cost data:

 

Design engineering per hour	96
Process engineering per hour	70
Inspection per hour (manufacturing)	50
Rework per communication system reworked (manufacturing)	4,800
Customer support per repaired unit (marketing)	240
Transportation costs per repaired unit (distribution)	280
Warranty repairs per repaired unit (customer service)	4,600

 

(3) Staff training costs amounted to £180,000 and additional product testing costs of £72,000.

(4) The marketing director has estimated that sales of 1,800 units were lost as a result of public knowledge of poor quality at TAW. The average contribution per communication system is estimated at £7,200.

Required:

Prepare a cost analysis which shows actual prevention costs, appraisal costs, internal failure costs, external failure costs and opportunity costs for the year ended 31 May 2015.

 

3. ENT Entertainment Co (ENT) is a large, diversified entertainment business based in Singland. The company's objective is the maximisation of shareholder wealth for its family owners. It has four divisions:

1. Restaurants
2. Cafes
3. Bars
4. Dance clubs

Recently, ENT's board has employed consultants who have recommended that they should perform a Boston Consulting Group (BCG) analysis to understand whether they have the right mix of businesses. A business analyst has prepared information on each division as shown in the table below.

 

Revenues (Sm)	Actual	Actual	Forecast	Forecast
	2013	2014	2015	2016
Restaurants
ENT	54	56	59	62
Market sector	10,752	10,860	10,968	10,968
Cafes
ENT	31	34	41	47
Market sector	3,072	3,348	3,717	4,051
Bars
ENT	349	342	336	336
Market sector	9,984	9,784	9,491	9,206
Dance clubs
ENT	197	209	219	241
Market sector	1,792	1,900	2,013	2,195

 

Singland, the economy is generally growing at about 2% per annum. The restaurant, cafe and bar sectors are all highly fragmented with many small operators. Consequently, a market share of more than 3% is considered large as that is comparable to the share of the largest operators M each sector. There are fewer small late night dance club operators and the market leader currently holds a 15% market share.

Required:

Perform a BCG analysis of ENT's business.