Advanced management accounting

ASB 3507   Assignment

Pingit plc produces components which it sells to the shipping industry. Mr. Hannah, 

the managing director, is always looking for ways to control the costs and improve 

performance .

Pingit plc recorded the following actual results for Product Savynav for the last month:

Product Savvy

2,100 units produced and sold for £14.50 per unit

Direct material L10

1,050 kg costing £1,680

Direct material L17

1,470 kg costing £2,793

Direct labour

525 hours costing £3,675

Variable production overhead

£1,260

Fixed production overhead

£4,725

Standard selling price and cost data for one unit of Product Savynav is as follows.

Selling price

£15.00

Direct material L10

0.6 kg at £1.55 per kg

Direct material L17

0.68 kg at £1.75 per kg

Direct labour

14 minutes at £7.20 per direct labour hour

Variable production overhead

£2.10 per direct labour hour

Fixed production overhead

£9.00 per direct labour hour

At the start of the last month, 2,130 units of Product Savvy were budgeted to be produced . No stocks of raw materials are held. All production of Product Savvy is sold immediately to a single customer under a just-in-time agreement.

Required:

Prepare an reconciliation statement that reconciles budgeted profit with actual profit for Product Savvy for the last month. You should calculate variances in as much detail as allowed by the information provided.                                        (40%)

Discuss how the operating statement you have produced can assist managers in 

controlling costs and how this may differ for variable production costs from fixed production costs.                                                                                              (25%)

Mr.Hannah has recently heard about Activity Based Costing (ABC) but is unsure what it is and whether Pingit plc could adopt this. You, as the new management accountant, have been asked to provideMr.Hannah with information on ABC, so that he can make a decision whether to introduce it into the company.  Your answer should include an explanation of ABC, what the method is intended to do, a comparison with the traditional method and whether it would affect your calculations in part (a).  (You do not need to recalculate part (a)).                   (35%)

p(7)

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