Question 3

Cambran Ltd. manufactures a number of different products and has recently employed Kath Houghton as its management accountant. Kath is currently looking at the various products and processes within Cambran Ltd. to increase profitability, as a measure to try to avoid redundancies.

Kath has identified 4 areas of that she would like to look at first and she has asked you to provide her with the following information.

a. Cambran Ltd. manufactures 3 components Alpha, Bravo and Charlie, on its new machine which has 60,000 hours available, with the 3 components being used to produce Crimp which is a relatively new product and Cambran Ltd. are trying to grow their market share.

Cambran Ltd. has orders for 6,000 units of each component, from relatively established customers and Kath is determined not to let these customers down. Components from other producers can be sourced and Cambran Ltd. are satisfied with the quality of these replacements and confident that they can buy them in if necessary.

The following information has been produced:

Each unit takes the following machine hours to make one unit of each component:

Alpha: 3 hours Bravo: 5 hours The variable cost per unit of component is:

Alpha: 50 Bravo: 55

The buy in purchase cost of each component is: Alpha: 56 Bravo: 60

Charlie: 6 hours Charlie: 52 Charlie: 70

In order to maximise their profits how many units of each component should the company produce or buy in?

(7 marks)

b. Cambran Ltd. is considering using the services of a payroll bureau to pay its employees. Currently the employee timesheets are collected by Steve, a member of the finance department, who then enters the information into a payroll software package. He is also responsible for office administration and training in the budgeting department. The total annual cost of employing Steve is 27,000 p.a.

The concern is that there isnt enough time to collect the timesheets and process them, in order to have the payslips ready by Friday afternoons. It has been calculated that 5 hours of

d.

Steves seven and a half hour day is needed to collect the timesheets and then enter them into the payroll software; he usually only has about 7 hours a week for this job.

Steve uses a scanner to enter in the information. The scanner is rented at a cost of 46 per month, with no minimum rental period. The printer used to print out the payslips is also rented at a cost of 55 per month, the agreement was for 48 months and was signed 2 months ago. The subscription for the payroll software is 75 per month, renewed on a yearly basis.

The payroll bureau has proposed an annual contract at a cost of 6,000 a year. Cambran Ltd. have asked other users of the bureau and they have all confirmed their satisfaction with its service.

Based on this cost information should Cambran Ltd. outsource its provision? Identify 3 qualitative factors it should also consider.

(8 marks)

c. Cambran Ltd. also produce, the Crockett, which has been in production for a number of years, and to date 521 units of the Crockett have been produced. The budget for the next quarter is showing the production of 71 units of the Crockett. If the 1st ever unit took 150 hours and an 80% learning curve applies:

i. Calculate the total labours hours needed for the production of 71 units of the Crockett ii. Calculate the average labour time per unit

(5 marks)

Note: the learning co-efficient of 80% is -0.322

Cambran Ltd is considering using Standard Costing. Identify the 4 types of standard the company could choose and explain the effects the choice of standard would have on any

variances calculated.

(10 marks)

Total:30 marks