Financial Performance Management

Financial Performance
Management (Online Exam)

TABLE OF CONTENTS
QUESTION 1..................................................................................................................................3
a) Calculation on the basis of labour cost ...................................................................................3
b) Computation of cost per unit on the basis of activity based costing approach........................4
c) Evaluation of better technique.................................................................................................5
d) Discussion of sensitivity analysis that helps managers to cooperate with uncertainties.........6
QUESTION 2...................................................................................................................................6
(a) calculation of variances for the last month.............................................................................6
(b) Discuss the problems with the current system of calculating and reporting variances .........8
for assessing the performance of the production manager...........................................................8
QUESTION 3...................................................................................................................................9
Zero-Based Budgeting (ZBB) and Incremental Budgeting (IB) are quite different from each
other.............................................................................................................................................9
REFERENCES..............................................................................................................................11

QUESTION 1
a) Calculation on the basis of labour cost
Lipstick Lip-balm Lip-gloss
Units 30000 35000 3000
Revenue 660000 910000 72000
Material Cost 150000 350000 30000
Labour Cost 450000 350000 30000
Overhead Costs 124698.795 96987.952 8313.253
(Based on Labour Hours)
724698.795 796987.952 68313.253
Net Profit/ Loss -64698.795 113012.048 3686.747
Cost per unit 24.16 22.77 22.77
Total Cost per unit Lipstick Lip-balm Lip-gloss
Selling Price 22 26 24
Cost per unit 24.16 22.77 22.77
Profit/Loss per unit -2.16 3.23 1.23
Calculation of
Absorption rate based
on labour hours
Setup Costs 120000
Receiving Costs 30000
Despatch 15000
Machining 65000
Total 230000

1.3855421687
Total Labour Hrs 166000
Overhead Cost 230000
Overhead Absorption
Rate 230000/166000
(Based on Labour Hours) 1.3855
Lipstick Lip-balm Lip-gloss
Total Labour Hours 90000 70000 6000
Absorption Rate 1.3855 1.3855 1.3855
Overhead Costs 124698.80 96987.95 8313.25
b) Computation of cost per unit on the basis of activity based costing approach
Cost per unit using the
ABC Costing
Cost Drivers
Cost Pools Cost Drivers
Setup Costs 120000 25 Production runs (10+14+1)
Receiving Costs 30000 22 purchase costs (10+10+2)
Despatch 15000 50 deliveries (20+20+10)
Machining 65000 272000 machine hours
(120000+140000+1200
0)
Total 230000
Cost per set up 4800
Cost per receiving 1363.64
Cost per delivery 300
Cost per machine hour 0.2390