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Tools for Business Decision Management Makers_5

Tham khảo tài liệu 'tools for business decision management makers_5', khoa học xã hội, kinh tế chính trị phục vụ nhu cầu học tập, nghiên cứu và làm việc hiệu quả | 174 CHAPTER 5 COSTING AND PRICING IN A COMPETITIVE ENVIRONMENT Product costs are computed on a blanket business-wide overhead-rate basis using a labour-hour method. Prices as a general rule are set based on cost plus 20 per cent. The following information is provided Lo Mid Hi Material cost unit 25 62.5 105 Direct labour hours per unit 1 2 1 1 Budget production sales units 20 000 1 000 10 000 The budgeted overheads for the business amount to 4 410 000. Direct labour is costed at 8 an hour. The business is currently facing increasing competition especially from imported goods. As a result the selling price of Lo has been reduced to a level that produces a very low profit margin. To address this problem an activity-based costing approach has been suggested. The overheads are examined and these are grouped around main business activities of machining 2 780 000 logistics 590 000 and establishment 1 040 000 costs. It is maintained that these costs could be allocated based respectively on cost drivers of machine hours material orders and space to reflect the use of resources in each of these areas. After analysis the following proportionate statistics are available in relation to the total volume of products Lo Mid Hi Machine hours 40 15 45 Material orders 47 6 47 Space 42 18 40 Required a Calculate for each product the full cost and selling price determined by 1 the original costing method 2 the activity-based costing method. b What are the implications of the two systems of costing in the situation given c What business strategic options exist for the business in the light of the new information INTRODUCTION In this chapter we consider the role and nature of budgets. We shall see that budgets set out short-term plans that help managers to run the business. They provide the means to assess whether actual performance has gone as planned and where it has not to identify the reasons for this. It is important to recognise that budgets do not exist in a vacuum they are an .