OPERATIONS AND FINANCE

MANAGING OPERATIONS AND FINANCE [ACC4003-N]

SCENARIO, MAY 2012 EXAMINATION

[Instructor's Name]MANAGING OPERATIONS AND FINANCE [ACC4003-N]

SCENARIO, MAY 2012 EXAMINATION

Question 1 (a)

 

 

cost per unit

Best Quotation

component

Sales

Material

Labour

Machine

Total Cost

£ per unit

 

Units

£

£

£

£

£

A

3,000

74

8

5

87

95

B

5,000

54

6

10

70

75

C

2,500

50

16

5

71

72

D

4,500

90

30

25

145

175

Machine overhead is based on machine utilization and the sales units are not exceeding machine capacity therefore, it has no impact over the decision.

Whether the firm buys or makes the product, in either situation the firm has to bear the fixed cost. So, the fixed cost is irrelevant in this decision. After the comparison of both the costs it is clear that the firm should make the products itself.

Question 1 (b)

Budget

Sales

Per unit cost

CGS

Units

£

£

3,000

94

282000

5,000

72

360000

2,500

75

187500

4,500

150

675000

Total

15,000

391

1504500

Question 1 (c)

Sales

Per Unit Price

Total Revenue

Total Variable Cost

Contribution Margin

Units

£

£

£

£

3,000

100

300,000

282000

18,000

5,000

80

400,000

360000

40,000

2,500

70

175,000

187500

-12,500

4,500

180

810,000

675000

135,000

Total

15,000

430

1,685,000

1504500

180,500

Question 2 (a)

Budget

Price (£)

Demands (Units)

Total Cost

20

12000

240000

19

15000

285000

18

20000

360000

17

30000

510000

16

35000

560000

15

45000

675000

14

50000

700000

13

55000

715000

Question 2 (b i)

Break Even Per Unit =

Fixed Cost

Price-Variable Cost

=

56000

15 - 10

=

3723.333333

Question 2 (b ii)

sales =

variable cost +

fixed cost +

profit

15Q =

10 +

56000 +

14000

15Q =

70010

Q =

70010/15

Q =

4667.333333

Question 2 (b iii)

Budget

Revenue

70010

Variable Cost

10

Contribution Margin

70000

Fixed Cost

56000

Profit

14000

Question 3(a)

Budget

Budget is a formal proclamation of the financial assets set aside for completing particular exercises in a given period of time. It encourages to co-ordinate the exercises of the group. An illustration could be a promoting budget or sales budget.

Advantages of Budgeting

There are various advantages of budgeting:

Compels management to mull over the future, which is presumably the most exceptionally noteworthy offer of a budget and control framework. Constrains management to look ahead, to set out natty gritty arrangements for accomplishing the targets for each and every department, operation and (in a perfect business world) each supervisor, to suspect and give the organisation reason and bearing.

Promotes correspondence and coordination.

Clearly outlines regions of burden. Needs supervisor budget centres to be made answerable for the accomplishment of budget targets for the operations under their private control.

Provides groundwork for performance appraisal (variance analysis). A budget is fundamentally a yardstick in opposition to which real exhibition is measured and evaluated. Control is furnished by examinations of real outcomes in opposition to budget arrangement. Flights from budget can then be examined and the explanations behind the contrasts might be partitioned into controllable and non-controllable components.

Enables medicinal activity to be taken as shifts develop.

Motivates agents by taking an interest in the setting of budget.

Improves the assignment of rare assets.

Economises management time by utilizing the management by exemption rule.

Disadvantages of Budgeting

Budgets might be perceived as force apparatuses infringed by management, consequently bringing about unfavourable labour relations or incorrect record-keeping.

Departmental clash comes up owed to debates over asset designation and sections charging one another if targets are not achieved.

It is challenging to conciliate personal/individual and corporate objectives.

Waste might roll out as administrators take in the view, "we would be advised to spend it or we will lose it". This is frequently coupled with "realm raising" so as to improve the notoriety of a division (http://www.fao.org).

Managers could overestimate expenses with the goal that they should not be attacked in the future might as well they overspend.

Question 3(b)

Memorandum

Date: 4 May 2012

To: Chairman

From: XYZ

Subject: Marginal costing and Absorption Costing

Marginal Costing

Marginal costing is the accounting framework in which variable costs are charged to cost units ...