Scenario

Dysonica is a successful international innovative company based originally in the UK but now operates internationally. It has its products available on the high street as well as selling online. Increased competition has led to many cost-cutting decisions, resulting in manufacturing being moved from the UK.

Task 1

You work for the company as a trainee management accountant and have been asked to examine the following cost information to classify it according to its behaviour to identify variable costs, fixed costs or semi-variable cost.

Raw materials 15,000

Machinery 1500 per month

Factory and storage rent 18,000 per month

Direct labour 17,500 per month

Utilities 500 per month

Office and sales staff 9,000 per month

Insurance 500 per month

Logistics 3,000 per month

There are three main methods of attributing indirect costs to production units - absorption costing, marginal costing, and activity-based costing (ABC). Use examples to illustrate your answer in the calculation of unit costing using the information provided.

Task 2

Based on your calculations in task 1 you will need to critically analyse methods available to reduce costs. Discuss the judgments and conclusions drawn from your analysis to underpin your cost reduction strategy clearly outlining the value of your recommendations to the business.