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Product A B C
QUESTION 2
K K K K
The Marketing Director believes that customers will be prepared to pay K500 for a solar
panel but the Financial Director believes this will not cover all of the costs throughout
the lifecycle. The investment in special equipment will be depreciated over the four (4)
year period.
Required
i. Calculate the cost per unit looking at the whole life cycle and comment on the
suggested price.
iii. Briefly explain the THREE (3) characteristics that make target costing a
challenge to implement in Service Industries.
B) You have been given the following cost estimates which have been prepared based
on the proposed product specification.
Manufacturing cost K
Non-manufacturing costs
Marketing 815
Distribution 325
The target profit margin for the game is 25% of the proposed selling price
Required
i. Calculate the target cost of the new game and the target cost gap.
ii. Suggest TWO ways of how a company can close the target cost gap.
QUESTION 3
QUESTION 4
The operating statement relating to the latest financial year of Hercules Manufacturing
limited is as follows:
K’000
The variable production overheads component for the current output was K20 per unit.
The has a company’s full production capacity is 30,000 units available.
Required:
a) Calculate the contribution per unit and the margin of safety in units for the latest
financial year.
b) Draw and label a simple Break-Even graph to reflect the current status of
operations at the company.
c) The general manager considered that full capacity could be reached if the selling
price were cut by 10%.In addition; the direct material cost would be reduced by
5% following a minor modification of specification of the product and has asked
you to prepare an operating statement to show the contribution and profit.
QUESTION 5
The following analysis of factors of production and related costs and resources
requirement has been provided relating two products Q and T.
Product Q T
Product
Demand in Units
Q
100,000
T
200,000
Resources Usage/Unit
Selling Price/unit (K) 10 20
Labour Hours
Contribution/unit(K) 0.5 3 0.25
Required:
i. Identify the limiting factor for the company
ii. Calculate the maximum total contribution due to the limiting resource.
iii. Explain how this approach is beneficial to managers.
QUESTION 6
DC direct Limited is a manufacturing firm and produces four unique products. The
budgeted production output and costs for a given period is tabulated below for your
analysis.
Products A B C D
Additional information:
Overheads are absorbed on the basis of machine hours. Direct labour cost per hour is
K5, and information on the TOTAL overhead costs is as follows:
Total 28,000
Required:
i. Calculate the product costs using Absorption costing and Activity Based Costing.