ACCT1064 Cost Analysis and Organisational Decisions
INSTRUCTIONS TO CANDIDATES
• Duration of the assessment: 24 hours from the start of your scheduled tutorial time
• Group leader to submit your answer booklet via Course Canvas site
• Attempt ALL parts of the question
• Requirements: Form a group [no less than three (3) and no more than four (4) students] to answer these questions.
Kajaria is a manufacturing business which makes a product in two models: Model M1 and model M2. Details of the two products are as follows:
Particulars Model M1 Model M2
Annual sales 12,000 units 10,000 units
Number of sales orders 200 125
Sales price per unit $75 $70
Direct material cost per unit $9 $9
Direct labour hours per unit 2 hours 2.5 hours
Direct labour rate per hour $9 $9
Special parts per unit 15 20
Production batch size 75 units 500 units
Set-ups per batch 5 3
Other relevant information is as follows:
Particulars Amount ($) Cost driver
Setup costs 86,000 Number of setups
Material handling costs 54,000 Number of batches
Special part handling costs 57,000 Number of special parts
Invoicing 30,875 Number of sales orders
Other overheads 114,750 Direct labour hours
A customer has indicated an interest in placing a large order for either model M1 or M2 and the sales manager wished to try to sell the higher priced model M1.
(a) Calculate the profit per unit for each model using activity-based costing.
(b) Identify which product the sales manager should try to sell based on the information provided by your analysis. If there is a loss-making product, then advise the relevant information that the management needs to consider in taking any decision in relation to the loss making product.
(15 + 5 = 20 marks)
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