财政预算

Question 1

Matteck produce specialised components for the telecoms industry. They have been asked to produce a component for one of their customers. You have been supplied with the following budgeted information.

Department Fixed Overheads Labour Hours Machine Hours

Machining £440,000 40,000 22,000

Finishing £300,000 60,000 2,000

The following information relates to Overhead costs:

a Within each department, Production Overheads are absorbed following basis:

Machining Department — Machine Hours

Finishing department — Labour Hours

b Administration Overheads are 10% of Prime Cost

c Selling and Distribution Overheads are 20% of Production Cost

Specific details regarding the new Job are as follows:

on the

i Reference Number = MAT2604

ii The job will require two types of Direct Materials –Material S and Material Q. the product will require 110 kg of material S and 75kg of material Q.

iii Material S costs £10 per kg and material Q costs £9 per kg

iv The job will require the following Direct Labour:

Machining Department — 70 hours @ £9.50 per hour

Finishing department — 90 hours @ £8.50 per hour

v In the Machining Department, the order will require 80 hours’ machine time.

vi For this specific job, the company will have to hire a special tooling machine for one month— the cost of this hire is £500 for three months. The minimum hire period is three months.

vii The company requires a mark up of 20% on all orders

You are required to:

Prepare an Operating Statement for the job, using the above information, showing clearly the Total Cost, Profit and Selling Price.

Question 2

The special order for product MAT2604 was very successful. So successful that the customer has offered to buy 50 extra units of MAT2604 if Matteck would be willing to sell them for £8,000 per unit on this order.

Management are considering this offer. Due to recent economic conditions it is possible that they would have to reduce the prices of their products by 10% to remain competitive. However in order to meet the deadlines required of this order they would have to reorganise the production process as follows:

The finishing department would require extra labour of 10 hours per unit to complete this job in time, this is due to a minor design change requested by the customer. In order to process this order Matteck has managed to negotiate discounts with its supplier of £1.5 per kg of material S and 15% discount on material Q. This discount is only available if Matteck accept this order. Matteck have two months remaining on the hire period of the tooling machine used in the original production of MAT2604, this is sufficient time to complete this order.

Matteck is considering the following options:

a Decline the order and reduce the selling price by 10%.

b Accept the order and pay overtime in the production department for the additional hours at premium of one third.

c Accept the order but divert the labour required from another product (BHE1707). This would result in a lost contribution of £14,000 from BHE1707 and the requirement to absorb additional fixed overheads in the machining department of £3,000 and £2,000 in the finishing department.

d Subcontract the project to a third party who would be willing to produce the product for £5,000 per unit, however, Matteck would still be required to pay the fixed non-production overheads per unit.

Note — Assume all overheads are fixed.

You are required to:

i Using the above information, prepare a marginal cost statement, analyse the three courses of action. The statement should clearly show the effect of the changes on contribution and profit.

ii Produce a report to the management of Matteck advising them of your recommendations and provide justifications for them.