Costing System of Aber Plant

Added on - 25 Sep 2019

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A4awayPerformance Measurement and Management
Table of Contentsa.How to change costing system.................................................................................................2Aber plant.....................................................................................................................................2Falmouth plants 3b.Cost calculation........................................................................................................................3Cost of Gobstandard.....................................................................................................................3Cost of fancypants........................................................................................................................3a.Cost of GobStandard.............................................................................................................4b.Cost of fancypants................................................................................................................4c.Cost of smartphone wallets...................................................................................................4C.Calculation of profitability under each type of briefcase.........................................................5Old system....................................................................................................................................5Alternative system........................................................................................................................5Recommendations........................................................................................................................5D.Calculation of agenda item 1....................................................................................................6Effect on actual performance.......................................................................................................6Cost of GobStandard....................................................................................................................7Cost of FancyPants.......................................................................................................................7Reconciliation of Budgeted and actual gross margin...................................................................8GobStandard.................................................................................................................................8FancyPants...................................................................................................................................8E.Recommendation on producing satchel...................................................................................8F.Reservations regarding the appropriateness of linear allocation of non-unit-level activities toindividual units................................................................................................................................9
a.How to change costing systemThe existing costing system needs to be changed because the extra cost has occurred in both theplants. The Aber plant produces two type of briefcase in which the structure is similar which canbe used under single setup to reduce the costing per unit. Similarly, Falmouth plant also requireschanging the existing cost system because extra cost is occurring in quality assurance andemploying a number of labors which impacts on the profitability.Aber plantThere are two types of a briefcase which are produced by Aber plant, namely, GobStandard andFancyPants. The GobStandard produced standard products, but the new setup is required at everymodification in the briefcase which increases the budget of costing and machine hours ofGobStandard are 4,500 which impacts on the profitability. The second product is FancyPantswhich is a customized product which requires high costing due to change in setup for every newbriefcase.The existing costing system can be changed through using the standard setup in which thebriefcase is prepared in a modified manner, and the modifications are inbuilt in the machinewhich is set up by considering the consumers taste and preference which helps to build standardsetup. The standard setup eliminated the costs of new setup for every modification, and by usingsingle set up the machinery expense will also reduce which helps to increase the profit margin.The standard modified setup helps to produce FancyPants by selecting the options according tothe consumer’s demand which removes the problem of extra costs in setting new setup. Thesingle setup will work because the structure of both the products is similar only the appearance ischanged which will be fulfilled by inbuilt the modification in the setup machines and it helps to
produce the FancyPants in a customized manner by reducing the costing per product. The unitcosting method is recommended because the method is suitable for the industry in which themanufacturing is continued, and units are identical. In this case, the structures of both theproducts are identified, so unit costing method is recommended which helps to reduce the non-valuable cost by managing the cost per unitFalmouth plantUnder this plant specialized product is produced, namely, Smartphone wallets which areproduced through labors without any setup. The quality is assured by assembly line workersbecause the material is manufactured by local manufacturers. The existing costing system can bechanged by selecting the single manufacturer with the least cost and best quality among thevarious manufacturers which helps to reduce the time and cost on checking the quality with theproduction of specialized products. Single setup for assembling helps to reduce the cost and timeof labors by reducing the number of labors required which impacts on the profitability and helpsto provide standard quality products. The single setup helps to improve the quality of the productwhich can't be achieved through handmade work.b.Cost calculationParticularCost of GobstandardCost of fancypantsCost of smartphonewalletsProduction(Units)9,0002,0003,000Material costs54,00014,00024,000Direct labor36,00010,00024,000
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