You are working as a final year apprentice in a small engineering company. Your supervisor is pleased with the investigations you completed into ways that your company could gain a competitive advantage. Your supervisor has now asked you to investigate reasons why an enginecring organisation would wish to control costs, so they can be considered in your organisation. To do this, your supervisor wants you to find out about the different types of costs that an engineering organisation will encounter, and ways in which these costs could be controlled. After you read carefully the accompanying case study at the end of the assignment that includes financial information about an engineering organisation which produces engineering products. Then you are going to investigate a) how an engineering organization allocates costs; and b) the ways in which costs can be controlled within an engineering onganization. You will also use activity-based costing to identify any influences associated with the engineering activitics. You should then: - Investigate and report on the reasons why engineering organisations want to analyse and control costs, including how decision making can be influenced. - Use the case study to research the costs associated with producing a product. You should investigate how costs are allocated to individual activities, including direct costs, indirect costs, variable costs, semi-variable costs, fixed costs and general/administration costs. - You should then use the case study to complete and record an iterative activity-based costing exercise to generate an activitybased cost model for engineering. This costing exercise should include five stages: 1) identifying activities: 2) assigning resource costs to activities; 3) identifying outputs; 4) assigning activity costs to outputs ; and 5) assigning activity cost pools. - Produce ABC model for a given case study. Model will include enginecring activities, assign these activities to cost types. - Finally, you should reflect on the results of your activity-based costing exercise, by: a) explaining how costs are categorised; b) identifying those cost areas that have the greatest impact on the profitability of the product that you have investigated; and c) evaluating the reasons for producing an activity-based cost model, d) explain how ABC model used to improve profitability. A research and problem solving project to explore the costs associated with engineering activities and to complete an activity-based cost model for a product. The company is thinking of expanding production of type (B) because it makes higher profit. And stop production of (A) as a result of its lower profit. Before taking this decision, the company needs you to build an ABC model to make sure that they are taking the true decision. The company has 4 indirect cost pools: 1. Machines setup activity with $560,000 total cost 2. Purchase orders activity with $340,000 total cost 3. Quality control activity with $360,000 total cost 4. Machines maintenance activity with $540,000 total cost. \begin{tabular}{|l|l|l|} \hline & \multicolumn{1}{|c|}{(A)} & \multicolumn{1}{|c|}{(B)} \\ Needs & \multicolumn{1}{|c|}{Needs} \\ \hline Total direct material cost & $1,350,000 & $510,000 \\ \hline Total direct labour cost & $750,000 & $210,000 \\ \hline Number of setups & 4,500 setups & 2,500 setups \\ \hline Number of purchasing orders & 1,000 order & 700 order \\ \hline Number of inspections & 5,000 inspection & 4,000 inspection \\ \hline Number of machine hours & 16,000 hrs & 11,000 hrs \\ \hline \end{tabular}
