Business Management Techniques - Assignment Example

Business Management techniques TASK ONE ABC costing Solution Statement of new investment Operating cost of new asset/week £6500 Rate of production/hr 60units Direct material £22 Normal working hours per/day 8hrs A) Workings for 5 working days per week Statement of costing per unit £ Rate of production/day (60x8hrs) 480units Operating cost of new asset/ (6500/5) 1300 Direct material/day (22x8hrs) 176 Cost of production/unit(1300+176)/480 3.075 b) Workings for 7 working days per week Statement of costing per unit £ Rate of production/day (60x8hrs) 480units Operating cost of new asset/ (6500/5) 928.57 Direct material/day (22x8hrs) 176 Cost of production/unit(928.57+176)/480 2.3 Assumption operating cost is fixed per week TASK TWO (LO 2.2) Measure the impact of changing activity levels on engineering business performance. Solution Manual data switch Automatic data switch Total Production volume 1500 500 2,000 Direct Material’s cost £20/unit £30/unit £50/unit Total cost of material used £30,000 £15,000 £45,000 Overheads Allocation of Overhead costs as per the data Activity base Manual data switch(£) Automatic data switch(£) Total (£) Set-up cost/unit No. Set up 15,000 15,000 30,000 Manufacturing costs/unit No. Of units produced 2,000 5,000 7,000 Assembly cost/unit No of assembly points 1,000 2,000 3,000 Packaging/unit No. Of units 3,000 1,000 4,000 Despatch/delivery/unit No. of tonnage 6,000 2,000 8,000 Total 27,000 25,000 52,000 Total costs Quantity of allocation base Cost of product £57,000 ÷ 15,000units £38 per units £40,000 ÷ 500 units £80 per unit Activity based costing entails assigning of resources to the activities and also activities to cost based on consumption estimates. Comparison of traditional costing and Activity based costing Traditional type of costing depended on the subjective calculation of a proportion of over head cost on to direct cost to attain a total production cost. This type of costing relied on some basic steps that are cost accumulation within a non production/ production departments. It also allocates non production cost to the department concerned (Sekhar, 125). The method of costing do allocates costs based on a single volume measure that is direct labor hours and machine hours hence the method does not meet accuracy standards in allocation of costs. This means that this system of costing is inaccurate in relation to increasing over head cost. This has made Activity based costing to become an alternative replacement to the traditional method in allocation of cost (Drury, 70). Advantages of Activity based costing Costing accuracy is the main advantage of this type of activity. Companies allocate cost simply to the products that involve production activities. Hence this activity helps in eliminating allocation of costs that are irrelevant to the product. Other benefits of this type of activity to the business include easy understanding of cost for inside administration, the potentiality to facilitate benchmarking and a better appreciative of overhead costs. This system of costing also supports the management performance and the scorecard. Besides these, this type of costing does integrate well with programs put in place for continuous improvements by the company (Drury, 120). Although this method is widely used by companies in allocating its cost, the challenging part is the implementation. Putting into practice this kind of costing system within a company involves considerable resources. This can be a disadvantage for businesses with inadequate funds. Another challenge of using this costing method is that it can be misinterpreted. Based on our scenario of production of manual and automatic data, we can identify various issues arising. For instance a decrease in production volume from 1500 to 500, the cost of direct material increased from €20@unit to €30@unit, a clear indicator that the costing of this is very accurate. Under the activity based production analysis of the company, we can see differences in the packaging and delivery cost. For instance in manual data packaging cost per unit is 300@€10/unit while that of automatic is 100@€10/unit and that of delivery is 300@€20/unit compared to 100@€20/unit. One can notice a decrease in cost (Drury, 140). The impact of changing all the company products from manual to automatic will be mainly proper allocation of costs to the activities involved. The actual business performance will reflect the actual costing of goods and services. As discussed above, the differences that occur between the packaging and delivery is due to activity based costing. Work Cited Drury, Colin. Management and Cost Accounting. London: Thomson Learning, 2008. Print. Sekhar, G V. S. Business Policy and Strategic Management. S.l.: I K International Publi, n.d.. Print. Read More