Sales volume (units) 20,000 100,000 80,000 200,000

Sales ratio (unit) 1 5 4

selling price per unit 25 15 8
Sales ratio (in £) 18.94% 56.82% 24.24% 100.00%
Costs per unit data
variable costs
Material 10 8 4
Labor 12 5 3
Contribution per unit 3 2 1
Contribution ratio (C/s ratios) 12.00% 13.33% 12.50%
Fixed costs 255,000
BE calculations
Total contribution 60,000 200,000 80,000 340,000
Weighted average CM per unit 1.70 12 marks given for student
Or (using contribution per mix) 3 10 4 17
1.7
BE in units 150,000 3 marks
BE units for each product 15,000 75,000 60,000 150,000 2 mars per product
BE in sales pounds 375,000 1,125,000 480,000 1,980,000 4 marks

Using contribution ratio (%)

weighted contribution % 2.27% 7.58% 3.03% 12.88% 2 marks for each calculation
BE in sales pounds 1,980,000 2 marks
Or
Sales revenue per bundle (mix) 25 75 32 132 3 marks
contribution per bundle (mix) 3 10 4 17 3 marks
Contribution ratio (% of sales) 12.88% 2 marks
BE sales 1,980,000 2 marks

calculate units to achieve profit of 119,000

Targeted profit 119,000
Total contribution needed 374,000 1 mark
Total units to be sold 220,000.00 1 mark
Number of each product to be sold 22,000.00 110,000.00 88,000.00 220,000.00 1 mark per product
12 marks given for student using either ways

2 mars per product

2 marks for each calculation

1 mark per product

 Budget Actual Variance Budgeted rates
Volume (units) 10,000 12,800 2,800 F

Materials 105,000 132,000 27,000 A Materials

Other direct material costs 4,700 5,800 1,100 A Other DM
Direct labour 135,000 145,000 10,000 A FDL
Production overheads 96,000 105,600 9,600 A VOH
Head office recharge 26,000 32,000 6,000 A Head office rech
Total 366,700 420,400 53,700 A

Budget Flexible Actual Variance F/A Analysis of the total Production o

Volume (units) 10,000 12,800 12,800 - Volume (units)
Costs (£)
Materials 105,000 134,400 132,000 (2,400) F
Other direct material costs 4,700 6,016 5,800 (216) F
Direct labour 135,000 142,000 145,000 3,000 A
Production overheads 96,000 117,720 105,600 (12,120) F
Head office recharge 26,000 26,000 32,000 6,000 A
Total 366,700 426,136 420,400 (5,736) A
8 marks 1 mark for each variance calculated with correct F or

Briefly comment on the benefits of flexed budget

students need to point out at least 3 advantages of flexed/flexible budget that had been already addressed text book or other
 10.5
0.47
110,000 VDL 2.5
2.4 FOH 87,000
26,000

ysis of the total Production overheads (fixed cost changes when vol exceeds 11,000 units)
8,000 10,000 12,000
91,200 96,000 115,800

alculated with correct F or A

ddressed text book or other learning resources

 B300 T500
Selling price per unit £140.00 £99.00
Direct materials per unit £72.00 £53.00
Direct labor per unit £24.00 £12.00
Direct labor-hours per unit 2 1
Estimated annual production 20,000 80,000
Estimated manufacturing OH 1,980,000
Estimated total direct labor hours 120,000

Traditional cost assignment based on direct labor hours

overhead application rate (per direct LH) 16.50 1 mark
Allocated overhead (per unit) 33.00 16.50 2 marks
Total unit cost £129.00 £81.50 1 mark
Profit per unit £11.00 £17.50 1 mark
Profit margin 7.86% 17.68% both product are profitable (2 marks)

Activit-based costing
overhead assignment
Estimated Expected activity B300 T500
Activities and Activity Measures Activity rate
Overhead Cost
B300 T500 Total total unit cost total unit cost Total
Supporting direct labor (direct labor-hours) £ 783,600 40,000 80,000 120,000 £ 6.53 £261,200.00 £13.06 £522,400.00 £6.53 £783,600.00
Batch setups (setups) £ 495,000 200 100 300 £ 1,650.00 £330,000.00 £16.50 £165,000.00 £2.06 £495,000.00
Product sustaining (number of products) £ 602,400 1 1 2 £ 301,200.00 £301,200.00 £15.06 £301,200.00 £3.77 £602,400.00
Other £ 99,000 NA NA NA NA NA NA NA NA NA
Total manufacturing overhead cost £ 1,980,000 £892,400.00 £44.62 £988,600.00 £12.36 £1,881,000.00
3 marks Total unit cost £140.62 £77.36
5 marks 5 marks

comment on profit using ABC information

Profit per unit -£0.62 £21.64
Profit margin -0.44% 21.86%
1 mark 1 mark
3 marks B300 is not as profitable as the company thinks, in fact it is making a loss and its costs are subsidized by the profit made by T500
T500 is more profitable than was thought, its profit margin is approximately 22% not 17.68% as reported under traditional costing system
why traditional differs from ABC cost assignments (8 marks - 4 for each of point below)
The traditional and activity-based cost assignments differ for two reasons. First, the traditional system assigns all £1,980,000 of manufacturing overhead to products. The ABC system assigns only $1,881,000 of
manufacturing overhead to products. The ABC system does not assign the £99,000 of Other activity costs to products because they represent idle capacity costs.
Second, the traditional system uses one unit-level activity measure direct labor hours, to assign all overhead to the B300 and T500 product lines. Whilst the overhead costs of these products were driven by factors other than direct labor hours, at different rates

What to improve performance (5 marks)

a couple of managerial initiatives can be taken, for example
Marketing staff can (i) push the T500 productor (ii) raise the price of the B300.
Operation management should reconsider current production planning to increase the batch sizes of B300 production, currently an average of only 200 units of B300 are produced per production run that is so expensive in comparison with that of T500