LO1: Examine cost information within a business.
LO2: Critically analyse methods to reduce costs and enhance value within a business.
LO3: Prepare forecasts and budgets for a business.
LO4: Evaluate performance against budgets within a business
Dysonica is a successful international innovative company based originally in the UK but now operates internationally. It has its products available on the high street as well as selling online. Increased competition has led to many cost-cutting decisions, resulting in manufacturing being moved from the UK.
You work for the company as a trainee management accountant and have been asked to examine the following cost information to classify it according to its behaviour to identify variable costs, fixed costs or semi-variable cost.
Raw materials £15,000
Machinery £1500 per month
Factory and storage rent £18,000 per month
Direct labour £17,500 per month
Utilities £500 per month
Office and sales staff £9,000 per month
Insurance £500 per month
Logistics £3,000 per month
There are three main methods of attributing indirect costs to production units - absorption costing, marginal costing, and activity-based costing (ABC). Use examples to illustrate your answer in the calculation of unit costing using the information provided.
Based on your calculations in task 1 you will need to critically analyse methods available to reduce costs. Discuss the judgments and conclusions drawn from your analysis to underpin your cost reduction strategy clearly outlining the value of your recommendations to the business.
You are to prepare a 12 month forecast/budget for the business up to 30 April 2022. Using the figures below complete a cash flow forecast for Dysonica PLC.
Capital introduced £20,000
Sales estimated at £25,000 in the first month increasing by 40% each month thereafter
Insurance £6000 paid in monthly instalments
Salaries £26,500 per month with an annual 20% pay rise for all employees in November
Raw materials (Cost of purchases) 60% of sales
Miscellaneous £50 per month
Rent £18,000 per month Review at month 6 increased to £25,000 per month
Accountant’s fee £1500 paid in month 1
Utilities £2500 paid quarterly (July, October, January, April)
Telephones £1000 paid quarterly (July, October, January, April)
Vehicles New Van £5000 and new car for manager at £15000 in the first month £200 every month there after
Marketing costs 5% of sales for the first six months increasing from month 7 to 10%
Water 100 per quarter (July, October, January, April)
Logistics £3000 per month increasing by 50% in the 4th month due to an increase in transportation and storage costs in the UK.
Machinery £1500 paid monthly
Based on your cash flow forecast create a 12 month budget to assist Dysonica with future spending, cost reduction and finance management.
The finance director has become increasingly concerned about the costs of manufacturing in the UK. The company imports some electrical items from China. The exchange rate has been falling, resulting in increased costs for these materials. Costing information is being examined for the current year based on your forecasts.
You are to evaluate the performance of Dysonica based on the information in your forecast and budgets (Task 3)
You need to consider the financial/ non-financial implications along with external factors that impact on your cost base.
Clear justifications are needed to support the conclusions and recommendations made in your evaluation.