General assignment writing guidelines
1.This assignment must be completed individually.
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Philip Limited And Target Costing (45 Marks)
Philip Limited assembles and sells many types of radio. It is considering extending its product range to include digital radios. These radios produce a better sound quality than traditional radios and have a large number of potential additional features not possible with previous technologies (station scanning, more choice, one touch tuning, station identification text and song identification text etc.) A radio is produced by assembly workers assembling a variety of components. Production overheads are currently absorbed into product costs on an assembly labour hour basis. Philip Limited is considering a target costing approach for its new digital radio product. A selling price of £44 has been set in order to compete with a similar radio on the market that has comparable features to Philip Limited’s intended product.The board have agreed that the acceptable margin (after allowing for all production costs) should be 20%.
Cost information for the new radio is as follows:
Component 1 (Circuit board)- these are bought in and cost £4.10 each. They are bought in batches of 4,000 and additional delivery costs are £2,400 per batch.
Component 2 (Wiring)- In an ideal situation 25 cm of wiring is needed for each completed radio. However, there is some waste involved in the process as wire is occasionally cut to the wrong length or is damaged in the assembly process. Philip Limited estimates that 2% of the purchased wire is lost in the assembly process. Wire costs £0.50 per metre to buy. Other material- other materials cost £8.10 per radio.
Assembly labour- these are skilled people who are difficult to recruit and retain. Philip Limited has more staff of this type than needed but is prepared to carry this extra cost in return for the security it gives the business. It takes 30 minutes to assemble a radio and the assembly workers are paid £12.60 per hour. It is estimated that 10% of hours paid to the assembly workers is for idle time. Production overheads- recent historic analysis revealed the following production overhead data: Total Production overheads hours Month 1 £620,000 Month 2 £700,000 Total assembly labour 19,000 23,000 Fixed production overheads are absorbed on an assembly hour basis based on normal annual activity levels. In a typical year 240,000 assembly hours will be worked by Philip Limited.
A. Briefly describe the target costing process that Philip Limited should undertake. (6 Marks)
B. Explain the benefits to Edward Limited of adopting a target costing approach at such an early stage in the product development process. (8 Marks)
C. Calculate the expected cost per unit for the radio and identify any cost gap that might exist. (26 Marks)
D. If there is any cost gap in part C above, what actions could/should be taken by Philip Limited to close that gap? (5 Marks)
Foxpro And Environmental Management Accounting (20 Marks)
FoxPro is a pharmaceutical company trying to decide whether to continue with the production of one of its drugs. On economic grounds, the decision to continue manufacture is marginal; however, in the light or recent high-profile corporate scandals linked to environmental disasters, FoxPro is particularly anxious to make an informed decision based mainly on the environmental effects of continued production.
Following up on a review of its operations and various reports from its Operations Director, FoxPro’s management accountant has identified the company’s main environmental costs as follows: - Waste disposal - Water consumption - Energy consumption - Transport and travel
A. Explainhowthecostslistedaboveariseandwhatcontrolmeasurescould be implemented by FoxPro in order to manage them. (10 Marks)
B. Brieflydescribefourmanagementaccountingtechniquesforthe identification and allocation of environmental costs. (10 Marks)
PACMAN (35 Marks)
Pacman, a manufacturer of computer games, has developed a new game called PACMAN LIVE. This is an interactive 3D game and is the first of its kind to be introduced to the market. Pacman is due to launch PACMAN LIVE in time for the peak selling season. Traditionally Pacman has priced its games based on standard manufacturing cost plus selling and administration cost plus a profit margin. However, the management team of business has recently attended a computer games conference where everyone was talking about life cycle costing and market- based pricing approaches. The team has returned from the conference and would like more details on the topics they heard about and how they could have been applied to the PACMAN LIVE.
A. DiscussLifecyclecostingandhowitcouldhavebeenappliedto PACMAN. (5 Marks)
B. Discuss the market- based pricing strategies that should have been considered for the launch of the PACMAN LIVE and recommend a strategy that should have been chosen. (20 Marks)
C. ExplainbrieflyeachstageintheproductlifecycleofthePACNMANLIVE and consider ONE issue that the management team will need to consider at each stage. (10 Marks)