A friend of yours is experienced in fitting doors to both domestic and business buildings, and is now consideringsettingupasmallmanufacturingbusinesstoproducearangeofinternaldoorsofstandardsizes for the domestic house market. Knowing how important a 'good' costing system is, your friend paid for a meetingwithanaccountanttofindoutwhattypesofcostingsystemsexistandwhichmightbeappropriate for the potential new business. The accountant was somewhat general in the advice given, and referred to traditionaloverheadcosting,standardcosting,and activity-basedcosting,butwithoutgoingintodetail.The accountant then said that if your friend wanted more detailed information, they would have to pay for a moredetailedreport.Yourfriendisreluctanttopaythehigh feetheaccountantwishestocharge. Knowing that you have been studying AFM020 Management Accounting Frameworks, your friend has asked you for advice regarding the three systems the accountant referred to.

Yourfriendhasprovidedyouwiththefollowing information:

1. There will be three types of doors in the range of doors, each with a standard specific size: small, medium and large.
2. Eachdoorwillbemadeofcompressedwoodchippingsandthematerialsareviewedbyyourfriendas being 'expensive', and thus avoiding waste of materials during production must be avoided as far as possible.Additionally,thequalityofthechippingspurchasedisveryimportantaslow-qualitychippings cause greater waste and can cause expensive delays to the production process. A small door should use5kgs(fivekilograms)ofchippings,amediumdoorshoulduse6kgs(sixkilograms)ofchippingsand a large door should use 7 kgs (seven kilograms) of chippings.
3. Thewoodchippingmaterialsneedtobestoredfornolongerthanninety-six(96)hoursinastoreroom whichwillbekeptataconstanttemperature,poweredbyanelectriccoolingunit.And,asyourfriend points out, electrical energy costs are expensive!
4. Each door will be manufactured using an expensive specialist automated pressing and moulding machine, followed by being cut to the respective standard size using a specialist cutting machine - again, expensive - operated by production staff. The automated pressing and moulding machine requireproduction stafftodonomorethanfeed astandardisedsizeof quantityof woodchippingsin at one end of the machine and remove the finished door from the other end of the machine. This automated process should take thirty (30) minutes for each type of door. The cutting process should take fifteen (15) minutes for each type of door and is labour intensive.
5. The production process will require two supervisors and six staff involved. Their total wages and salaries will be fixed, with no staff member being paid by the hour but instead on an annual salary basis. Training is very important as i) feeding too much or too little chippings into the automated pressingandmouldingmachinewillcauseproductiondelaysandmoremachineset-ups,andii)cutting must be precise - and with sharp blades involved, any injuries to staff could be traumatic.
6. To minimise production process costs, the pressing and mould and cutting operations should, in principle, haveas few set-ups as possible,as 'downtime' -when the process is not operating, results in i) expensive materials not being used, and ii) staff being paid for doing little or no work.
7. Production will take place in a building rented by the new business. The building will include an administration office with two staff members involved in i) purchasing logistics and ii) invoicing customers and ensuring those invoices are issued quickly and then paid quickly.(As a new business collecting money from customers - and quickly, is essential.) The payroll function will be outsourced to a specialist company.
8. The electrical energy cost for the production machines and for the building space will be invoiced in one total bill by the energy supply company on a monthly basis.
9. The total annual insurance bill will comprise insurance for each of building insurance, machinery insurance, and staff insurance.

1. The business will be operating in a very competitive market place and profit margins will be 'lower rather than higher'.

Required

Provideadocument which:

1. Identifies and explains the nature, purpose, characteristics and strengths and limitations of each of i) a traditional overhead costing system, ii) a standard costing system, and iii) an activity-based costing system. (In responding to this part of the Requirements, you should go beyond the core module material and draw upon and reference at least three business reports and/or accountancy body reports and/or scholarly articles).