Reference no: EM131489697

COSTING TECHNIQUES

1. The firm of Rowlands Plc makes pipe flanges and the works has two departments, fabrication and finishing. There exist, as well as tradesmen and labourers, supervisory staff. The following overheads need to be apportioned between its two departments.

	£	Basis for apportionment
Supervision salaries	42 000
Canteen costs	1200
Factory rates	7000
Insurance	930
Machinery maintenance	2800
Energy supply	7550
Factory building maintenance	875	Factory floor area

(a) From the list shown below complete the column ‘Basis for apportionment'. As an example, Factory Buiding maintenance is apportioned on the basis of factory floor area.

- Floor Area
- Number of employees
- Amount used
- Number of job repair cards completed
- Number of claims in last 10 years.

(b) The following information is needed to enable the apportionment of overheads:

	Fabrication department	Finishing dept
Floor areas in m2	10 000	4000
Number of employees	40	20
Electricity in kW h	42 640	10 660
Number of maintenance cards	20	8
Number of insurance claims	2	1

Complete TABLE 1 showing the apportionment of the overheads to each department.

Overhead	Basis of apportionment	Fabrication Dept	Finishing Dept	Total
Supervision salaries
Canteen cost
Factory rates
Insurance
Machinery maintenance
Energy supply
Factory maintenance

TABLE 1

2. (a) State why a ‘What if' analysis may not be appropriate for a risk analysis.

(b) Complete the following steps in a ‘what if ' analysis for the introduction of a ‘just in time'* form of production materials supply to a car production unit.

- Explanation of the Activity
- Area of interest
- Sub-systems.

(*‘Just in time' is a method of ordering and delivery of stock parts employed by a company, where the company has delivered on a regular, often daily, basis only enough parts for a short period of production. Thus capital that would otherwise be tied up in large stockpiles of production materials is released and cost of storage is avoided.)

(c) Complete TABLE 2 by the generation of:

- ‘What if' questions
- and solutions to potential problems.

What if	Immediate consequence	Ultimate consequence	Recommendations	Subsystems

TABLE 2

(d) State briefly what the analysis shows as a major disadvantage when there is only a sole supplier and what can be done to overcome it.

3. (i) What is the purpose of marginal costing?

(ii) Why cannot all of a firm's production be on a marginal cost basis?

4. A company manufactures a portable electric generator. In a financial year it sold a total of 850 generators at a price of £350 each. The variable costs were £200 per generator and the fixed costs were £60 000. Determine:

- total sales revenue
- profit obtained
- break even point in terms of sales and sales income.