Task 3:

Prepare the following planned values:

a.Contribution and contribution / sales ratio (for each product and in total) and the gross profit

(in total only - see note)

7 Marks

b.Preparing an reconciliation to explain the difference between the total gross profits established using an absorption costing system (task 2 d.) and a marginal costing system (task 3 a.)

7 Marks

Note to task 3 a. & b.:

The requirement of task 3 should be established using a marginal costing system where:

All direct costs are classified as variable

All indirect production overheads are classified as fixed

The total task 3 mark above, includes marks allocated to short descriptive notes to workings

These notes should be 'short explanatory notes' that will serve to define the terminology used and explain the workings (and results) to a colleague who does not work in the finance office.

Catherine Smith, the company sales manager has commented that product 'Sun' (Order 1102) is not performing well and the company profits would increase if this product was removed from the range.

Task 4:

a.Re - calculate the gross profit (and gross profit margin) if product 'Sun' is removed from the production and sales schedule.

Note:

It has been established that, if product 'Sun' was removed from the catalogue, specific fixed cost savings of 12,800 would be made.

4 Marks

b.Draft a memo to Catherine Smith in reply to his comment (with clear explanatory supporting reasons to a non-accountant).

7 Marks

Note:

Your memo should be prepared in a good style and show effective skills in written communication and 'quality of information' aspects

Fabien Ltd - continued:

The finance office (cost and management accounts) recently performed an 'activity - based' production systems analysis for the fixed production overheads. The result is the table below:

Task 5:

1. Explain 'Activity - Based Costing (ABC)' as an alternative to full absorption costing and discuss the potential benefits that ABC might bring to production and information systems of Fabien Ltd

Note:

Your written explanations should be effectively communicated and should include notes on:

The reasons for the development of ABC

The 'Activity - Based' concept

The process of an ABC system development

The potential benefits (if any) you feel could be achieved by the introduction of an ABC system for Fabien Ltd

10 Marks

1. Recalculate the gross profits (by product an in total) after allocating fixed production overheads to products using an activity - based system

10 Marks

The task 5 b. mark include marks allocated to short descriptive notes to workings. These should be 'short explanatory notes' that will serve to identify (observe) the effects on each product (and in total) profit caused by the ABC system allocations.

The information in the pictures graphs and charts.

Fabien Ltd - continued: Required Task 3: Prepare the following planned values: a. Contribution and contribution / sales ratio (for each product and in total) and the gross profit (in total only - see note) 7 Marks b. Prepare a reconciliation to explain the difference between the total gross profits established using an absorption costing system (task 2 d.) and a marginal costing system (task 3 a.) 7 Marks Note to task 3 a. & b.: The requirement of task 3 should be established using a marginal costing system where: All direct costs are classified as variable All indirect production overheads are classified as fixed The total task 3 mark above, includes marks allocated to short descriptive notes to workings (