ASSIGNMENT

Assignment

Assignment

Company Overview

Falcon Cycles is an English bicycle manufacturer based in Brigg, North Lincolnshire. The company can trace its history back over 125 years. In addition to producing bikes under its own name, Falcon produces bicycles under several brand names including Falcon, British Eagle, Coventry Eagle, Townsend, Optima, Boss, Shogun, CBR and the flagship brand, Claud Butler.

The company began in 1880 when Fred Hopper established a cycle repair business in Barton-on-Humber in a former blacksmith's shop. Fred moved from bicycle repairs to manufacture and the business grew. By 1906 F. Hopper & Co. was employing over 400 people, and the company expanded into exporting by 1912 export markets included, Australia, South Africa, India, and Japan. Shortly afterwards the company acquired the Elswick Cycle Company located near Newcastle upon Tyne, and in 1913 its name was changed to "Elswick Hopper Cycle and Motor Company". Then in 1974 Elswick Hopper purchased Wearwell Cycles, a company established prior to the Bicycle Yearbook of 1872, in which they are listed. In 1978 the Falcon Cycle Company was also acquired, and it was operated as a subsidiary company for a period.

Elswick-Hopper Cycles and Falcon Cycles merged in 1982 to become Elswick-Falcon Cycles, prior to the present form of Falcon Cycles limited. Falcon can now trace its heritage back to four of the eldest established cycle manufacturers in Britain "Coventry Eagle Cycles", "Elswick Cycles", "F. Hopper & Co.", and the "Wearwell Cycle Company".The company was acquired by Tandem Group plc in November 1995, with current annual sales in excess of 300,000 bicycles.

Product Cost

There are a variety of reasons why Falcon Cycles classify costs as fixed or variable components. These reasons include price fixing, decreasing costs, profit planning, cost-benefit analysis, cost-volume-profit analysis and budgeting (Horngren, Foster, Datar and Uliana 1999:37). Falcon Cycles may also use different methods to classify cost behaviour, namely managerial judgement, engineering approach, quantitative analysis (such as the high-low method), visual fit and regression analysis (Horngren et al 2003; Drury 2000). (The sources mentioned could also be consulted for the advantages and disadvantages of each method.)

Actual

Budgeted

Variances

 

Sales (9500 gallons)

588500

600000

-11500

Cost of Sales:

 

Direct Materials (37000 kg)

120000

120000

 

Direct labor (49000 hours)

200000

200000

 

Variable Overhead

47000

50000

 

Fixed Overhead

145000

150000

 

512000

520000

-8000

Profit

76500

80000

-3500

Direct labour will probably be a fixed cost for the company as a whole because there are a fixed number of workers who receive a fixed salary every month. Direct labour cost will be assigned to a product and to a customer by multiplying the direct labour rate by the time used, and therefore it will be classified as a variable cost. Direct labour will be fixed with regard to a production department (channel) because it is possible to determine exactly how many workers there are in the department. Rent for buildings is a fixed cost for the company as a whole because the amount is payable, regardless of the production activity. From a product and customer point of view it seems to be a variable cost, as it will be allocated as part as the overhead rate (for example by using direct labour hours as allocation ...