1. Among the papers Sally handed you earlier, you have found some estimated data on a new manufacturing division at Newcastle which is at the final approval stage from EU cosmetic legislation to commence production. The Senior Management Team of the group is currently looking for a suitable accountant for the pre-opening assignments and Sally has been assigned to set up the costing system for the time being. Sally has collated the following information based on her experience with other similar division in the group.

1. This division will produce different beauty products and costs will be allocated to jobs. Like the other existing divisions of the group, the Newcastle division will have five departments- two manufacturing (Processing and Sealing) and three service departments (maintenance, recreation and Estate). Recreation departments overhead costs will be apportioned equally between manufacturing departments. Other service departments costs will be apportioned in the following manner:

	Processing	Sealing	Recreation
Maintenance	40%	50%	10%
Estate	50%	35%	15%

2. For the year to 30^th April, the departments (cost centre) expenses and other relevant information Sally estimated are as follows:

	Total costs ()	Proc	Seal	Main	Can	Estate
Indirect wages	200,000 (approx.)			Living wages 20/21 for above 25 years+ 20% premium	Living wages 20/21 for above 25 years	Living wages 20/21 for above 25 years
Indirect material	300,000	15%	20%	40%	15%	10%
Utility	900,000
Machine depreciation	300,000
Mortgage	600,000
Factory supervisors salary	75,000
Indirect labour hours				10,000	4,000	6,750
Direct material cost	1,500,000	11,500 kgs	3,500 kgs
Machine hours		50,000	80,000	20,000
Floor space (in sq metre)		7,000	5,000	1,000	800	1,200
Direct labour hours	3,000,000	120,000	30,000

Sally is hoping you would prepare a report with a detailed explanation of the available costing system you are planning to use and exhibiting the calculation of manufacturing overhead absorption rate and how that rate will be used to calculate product cost. In your report, you may also include your suggestion for a better costing system and the requirements to implement it in the new division. You are allowed to make up some imaginary information as example to clarify the proposed system. Also, any research findings would be helpful to convince the board of directors.

3. In addition to the above, Sally is asking you to calculate the cost of first order- (J001) to be manufactured in order to conduct testing and get certificates from the compliance authority. The following information has been collected from the operation manager who is working on this pre-opening project.

	Processing	Sealing
Direct material	100 kgs	30 kgs
Direct labour	300 hours	150 hours
Machine hours	120 hours	200 hours

How do the different costing systems you suggested in your report influence cost calculation of J001? Explain their differences as well.

4. Do you believe that the costing system would be entirely different from the above if Newcastle division would produce single, homogeneous product that would flow through a continuous production process? How much would be per unit cost then? You are allowed to make reasonable assumptions and figures to clarify how the new system might work. (Hints: Assume that instead of several health and beauty products, if the division only produces hand sanitizers in 100 ml cosmetic bottles, what would be the costing system? How would you calculate cost per product when the annual manufacturing costs provided in the 3(b) will be incurred for producing 200,000 bottles? Presentation and clarification of tentative cost calculation are key here.) (45 marks)