M5 OAES Assigned Questions Read the Success on the OAES document for full instru
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M5 OAES Assigned Questions
Read the Success on the OAES document for full instructions about how to use this system.
Assigned questions for Module 5 are:
Q17-3a: How do increases/decreases in costs and/or prices effect each of the variances in standard costing?
Q17-3b: How do increases/decreases in production labor effect each of the variances in standard costing?
Q18-1: What is the difference between Kaizen costing, target costing, and life cycle costing?
Q18-2: Trans PLC estimates that a new product will sell in sufficient quantities to justify its manufacture at a selling price of £175. The company needs to invest £5 million to produce a quantity of 10,000 of these new products per year and requires a return on that investment of 12% per annum. The current prediction is that the product will cost £140 to manufacture. How should Trans reengineer its costs to achieve the target selling price and target rate of return?
Q18-3: SkinTan’s top five customers generate sales revenue of £950,000 per annum. Each generates a different gross margin as a consequence of price negotiations that have been carried out over several years. Because of their location, each customer incurs different distribution expenses. Sales commissions are paid at the rate of 6% on all sales. Fixed costs are customer specific, covering salaries of sales and office staff who service each customer. The following table shows the information for each of the top customers for the previous year.
Sales
250,000
250,000
200,000
150,000
100,000
Gross margin %
30%
25%
21%
37%
39%
Distribution expenses
30,000
14,000
25,000
12,000
6,000
Fixed costs
30,000
25,000
16,000
15,000
10,000
Carry out a customer profitability analysis and make recommendations in relation to any future strategies SkinTan should take in relation to its top customers.
Sales
250,000
250,000
200,000
150,000
100,000
Gross margin %
30%
25%
21%
37%
39%
Distribution expenses
30,000
14,000
25,000
12,000
6,000
Fixed costs
30,000
25,000
16,000
15,000
10,000
Explanation / Answer
17(3)a.Standard costing is a method of substituting an expected cost for an actual cost in the accounting record.The periodically recorded variance tells the difference between the actual and expected cost.The purpose of using stadard costing is that ther are number of applications that consumes time to collect actual cost so standard cost is used as close approximation to actual cost.
17(4)b. Standard costing is used for pricing decisions and cost control even when the budget is not prepared. Any increase or decrease in labour cost in a manufacturing company will help to understand the variance between standard and actual cost and help to control over cost.
18(1)kaizen:1. Its a cost reduction system.2.It is applied to products that are already in production phase.
target costing:1.It aims atreducing lifecycle cost of new products 2. It is applied when products are under development phase.
lifecycle costing:1.it is selection of alternatives that impact both present and future cost 2.It helps to determine the most cost effective option among different alternatives available which is appropriate to implement in the process.
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