Question 1 (5 marks)
Bonza Handtools Ltd. manufactures a popular power drill suitable for the home renovator. Financial and other data for this product for the last twelve months are as follows:
Sales 20000 units
Selling price $130 per unit
Variable manufacturing cost $50 per unit
Fixed manufacturing costs $400000
Variable selling and administrative costs $30 per unit
Fixed selling and administrative costs $300000.
The directors of Bonza Ltd. want to try to increase the profitability of this product and invited senior staff to suggest how this might be done. Three suggestions have been received.
You have been asked by the Bonza board to comment on each of these three proposals. Draft a report in response to this request. You are not asked to make an outright choice, but rather to analyse the potential strengths and weaknesses. The sales volumes forecast by each staff member should be treated as estimates only and your report should examine the effects of variations in actual sales from these forecasts.
Give figures to support your comments and mention qualitative factors that may also be involved.
Question 2 (5 marks)
The Tassie Company estimates that next year it will manufacture and sell 150000 units of its product. On the basis of that level of activity, it has budgeted for the following costs and prices per unit:
Direct Material Cost $2.50
Direct Labour Cost 3.00
Variable Factory Overhead 1.50
Fixed Factory Overhead 2.00
Manufacturing Cost 9.00
Variable Selling and Administrative Cost 2.00
Fixed Selling and Administrative Cost 1.50
Total Cost 12.50
20% Mark-up 2.50
Selling Price $15.00
The Company has an opportunity to bid for the supply of an additional 40000 units of its product to a government department. No sales commission (variable selling and admin. cost) is involved and no additional fixed costs will be incurred.
Give a reasoned opinion on the level of the bid that should be made in each of the following two circumstances:
(i) The capacity of the Tassie Company’s factory is 200000 units per year.
(ii) The capacity of the factory is only 180000 units per year.
Question 3 (5 marks)
ABC Ltd makes trailers. It receives a special order to produce 350 trailers for a local retail outlet. The order will take 2,100 kg of material that costs $16.10 per kg and will require 1,400 direct labour hours and 525 machine hours. The following are the expected/budgeted annual costs for ABC Ltd:
Direct labour $327,600
Direct labour hours 25,795
Direct materials $193,200
Indirect costs $98,400
Machine hours 9,840
Question 4 (5 marks)
Write around 500 words explaining how segmenting the overheads can help in allocating overhead costs to individual jobs or services. You must support your discussion by real world examples and acknowledge the source of your information (referencing).