Bokco is a manufacturing company. It has a small permanent workforce but it is also relian

Bokco is a manufacturing company. It has a small permanent workforce but it is also reliant on temporary workers, whom it hires on three-month contracts whenever production requirements increase. All buying of materials is the responsibility of the company’s purchasing department and the company’s policy is to hold low levels of raw materials in order to minimise inventory holding costs. Bokco uses cost plus pricing to set the selling prices for its products once an initial cost card has been drawn up. Prices are then reviewed on a quarterly basis. Detailed variance reports are produced each month for sales, material costs and labour costs. Departmental managers are then paid a monthly bonus depending on the performance of their department.

One month ago, Bokco began production of a new product. The standard cost card for one unit was drawn up to include a cost of $84 for labour, based on seven hours of labour at $12 per hour. Actual output of the product during the first month of production was 460 units and the actual time taken to manufacture the product totalled 1,860 hours at a total cost of $26,040.

After being presented with some initial variance calculations, the production manager has realised that the standard time per unit of seven hours was the time taken to produce the first unit and that a learning rate of 90% should have been anticipated for the first 1,000 units of production. He has consequently been criticised by other departmental managers who have said that, ‘He has no idea of all the problems this has caused.’


(a) Calculate the labour efficiency planning variance and the labour efficiency operational variance AFTER taking account of the learning effect. Note: The learning index for a 90% learning curve is –0·1520 (5 marks)

(b) Discuss the likely consequences arising from the production manager’s failure to take into account the learning effect before production commenced. (5 marks)


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  • 发布时间:2018-11-21
ALG Co is launching a new, innovative product onto the market and is trying to decide on the right launch price for the product. The product’s expected life is three years. Given the high level of costs which have been incurred in developing the product, ALG Co wants to ensure that it sets its price at the right level and has therefore consulted a market research company to help it do this. The research, which relates to similar but not identical products launched by other companies, has revealed that at a price of $60, annual demand would be expected to be 250,000 units. However, for every $2 increase in selling price, demand would be expected to fall by 2,000 units and for every $2 decrease in selling price, demand would be expected to increase by 2,000 units.A forecast of the annual production costs which would be incurred by ALG Co in relation to the new product are as follows:Required:(a) Calculate the total variable cost per unit and total fixed overheads. (3 marks)(b) Calculate the optimum (profit maximising) selling price for the new product AND calculate the resulting profit for the period.Note: If P = a – bx then MR = a – 2bx. (7 marks)(c) The sales director is unconvinced that the sales price calculated in (b) above is the right one to charge on the initial launch of the product. He believes that a high price should be charged at launch so that those customers prepared to pay a higher price for the product can be ‘skimmed off’ first.Required: Discuss the conditions which would make market skimming a more suitable pricing strategy for ALG, and recommend whether ALG should adopt this approach instead. (5 marks)
Lesting Regional Authority (LRA) is responsible for the provision of a wide range of services in the Lesting region, which is based in the south of the country ‘Alaia’. These services include, amongst other things, responsibility for residents’ welfare, schools, housing, hospitals, roads and waste management.Over recent months the Lesting region experienced the hottest temperatures on record, resulting in several forest fires, which caused damage to several schools and some local roads. Unfortunately, these hot temperatures were then followed by flooding, which left a number of residents without homes and saw higher than usual numbers of admissions to hospitals due to the outbreak of disease. These hospitals were full and some patients were treated in tents. Residents have been complaining for some years that a new hospital is needed in the area.Prior to these events, the LRA was proudly leading the way in a new approach to waste management, with the introduction of its new ‘Waste Recycling Scheme.’ Two years ago, it began phase 1 of the scheme and half of its residents were issued with different coloured waste bins for different types of waste. The final phase was due to begin in one month’s time. The cost of providing the new waste bins is significant but LRA’s focus has always been on the long-term savings both to the environment and in terms of reduced waste disposal costs.The LRA is about to begin preparing its budget for the coming financial year, which starts in one month’s time. Over recent years, zero-based budgeting (ZBB) has been introduced at a number of regional authorities in Alaia and, given the demand on resources which LRA faces this year, it is considering whether now would be a good time to introduce it.Required:(a) Describe the main steps involved in preparing a zero-based budget. (3 marks)(b) Discuss the problems which the Lesting Regional Authority (LRA) may encounter if it decides to introduce and use ZBB to prepare its budget for the coming financial year. (9 marks)(c) Outline THREE potential benefits of introducing zero-based budgeting at the LRA. (3 marks)



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