Understanding different types of costs & budgets to control operations

On successful completion of this module students will be able to:

• Understand the different types of costs and their relevance to pricing decisions.
• Understand the role and prepare budgets to control operations.
• Analyse capital investment decisions, including carrying out a risk assessment, using appropriate accounting ratios.
• Analyse and compare internal and external performance indicators and the role of pricing on performance.

Assignment 1: Case Study

LO 1. Understand the different types of costs and their relevance to pricing decisions.

LO 2. Understand the role and prepare budgets to control operations.

This assignment is divided into two parts: Part A and Part B. You are required to complete both the parts to achieve LO1 and LO2 of the module.

Maxwell Ltd. makes and sells a single product which sells for £100 per unit and which has Direct Material cost of £45 and per unit Direct Labour cost of £30. Total Fixed costs are expected to be £ 125,000 for the year. Budgeted sales for the year are 60,000 units. You are required to:

• Calculate the Contribution per unit
• Calculate Breakeven Point in units and Breakeven Sales.
• Calculate Margin of Safety as a percentage of budgeted sales.
• Calculate the Breakeven Units if Maxwell Ltd expects a profit of £100,000 during the current year.
• Prepare a memo to your Financial Manager explaining the importance of classifying cost as Fixed cost, Variable cost and Semi variable cost and their relevance to pricing decisions.

Further, Maxwell ltd. also produces a single product, Leather Jacket, and the following financial information are provided.

Assuming that the sales prices and variable costs per unit are as budgeted and that fixed overhead expenditure is the same as budgeted, show the amount of profit, using absorption costing and marginal costing. 20 Marks

Part B

Star Plc is a UK based company manufacturing and selling Sweets. The company operates a standard costing system and analysis of variance is made every month. During the current period, the company produces and sells 12,000 units.

The fixed overhead expense budgeted is £15,000.

Actual fixed overhead expense is £13,000.

Using the case scenario, you are required to:

• Demonstrate an understanding of the role of Budgets in controlling the operations of a business.
• Calculate Material Price variance, Material Usage variance, Labour Rate variance, Labour Efficiency variance and Fixed Overhead Expenditure variance and comment on each variance.

All components will have been submitted, and the remaining criteria will be as noted for the 80%+ marking band. However, in one or two areas, the submission will be open to minor criticism.

• A good factual and conceptual understanding of the different types of costs and their relevance to pricing decisions
• A very good understanding of the role of the budget.
• A very good budget preparation to control operations.
• Mostly accurate methods of calculation with minor errors in answers
• Minor mistakes in the English language
• There may be some minor mistakes in presentation or referencing.

All components will have been submitted, and the remaining criteria will be as noted for the 60-69% marking band. However, there will be some gaps in knowledge and analysis.

• A basic level of factual and conceptual understanding of the different types of costs and their relevance to pricing decisions
• A basic level of understanding of the role of budget.
• Limited knowledge of budget preparation to control operations.
• Noticeable errors in calculations producing some inaccurate answers.
• Noticeable errors in the English language
• The submission has a few major flaws.
• A few important sections are missing.
• Inadequate calculation and incorrect answers
• Major language and referencing errors
• The submission has a large number of major flaws.
• The most important sections are missing.