Task 4:

1. Re calculate the gross profit (and gross profit margin) if product B is removed from the production and sales schedule.

Note:

It has been established that, if product B was removed from the catalogue, specific fixed cost savings of 9,000 would be made.

4 Marks

1. Draft a memo to David Jones 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

Parker 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:

	Cost	Cost driver	Total cost driver quantity per period	Indirect production overhead recovery rate
Set up costs	8,000	Set ups	250	32.00
Production scheduling	5,000	Set ups	250	20.00
Quality control	7,000	Inspections	700	10.00
Depreciation	4,000	Machine hours	800	5.00
Raw materials storage	2,000	Materials movements	1,000	2.00
Total:	26,000

A further analysis has produced the following indirect production overhead resource required for each product:

Activity Based Resource (Cost driver quantity) Requirement (by product)

Order / product:	Order A	Order B	Order C	Total
Set ups	30	25	15	70
Inspections	700	300	600	1,600
Machine hours	300	200	252	752
Materials movements	600	300	400	1,30

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 Parker 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 Parker 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 (<=100 words). 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.

Booklets that you need to be filled:

Task:

4 a.

Parker Ltd Recalculate gross profit (and margin) if product B is removed (deleted) from the product range (To max 4 marks)

Contributions:	Order A	Order B	Order C	Total
Contribution B/fwd
Less Contribution lost (deletion)
Contribution c/fwd:					A

Fixed costs:	Total
Fixed costs B/fwd
Less fixed costs savings
Fixed costs c/fwd:		B

Adjusted profit (after deletion):
Adjusted profit after deletion (A B)

Reconciliation:	Total
Profit (marginal basis) B/fwd
Less contribution lost
Add fixed costs savings
Adjusted profit (as above) c/fwd:

Task:	4 b.	Memo (To max 7 marks)
To:	Meryl Scott
From:	FMIS student
Date:	27th November 2023
Subject:	Delete product from range (reply)

Yours sincerely

Isse

Task:

5 a.

Parker Ltd Explanation of activity based costing (ABC) (To max 10 marks)

Activity Based Costing (ABC)

Task:

5.b.

Parker Ltd Recalculate gross profit (and margin) after allocating fixed production overheads using an ABC system (To max 6 marks)

Overhead recovery (ABC System)	Order A	Order B	Order C
Driver Qty	Recovery rate	Overhead	Driver Qty	Recovery rate	Overhead	Driver Qty	Recovery rate	Overhead
Set Ups
Inspections
Machine hours
Materials movements
	Total overheads:		Total overheads:		Total overheads:

Profits (Marginal / ABC):	Order A	Order B	Order C	Total
Sales
Less variable cost of sales
Contribution:
Less Fixed costs (ABC)
Profits (Marginal / ABC):
Profit margin on sales (%)

Notes to Marginal / ABC profits (Workings / Observations To max 4 marks):