Executive the product cost of lamington. The

Executive Summary

 

Estimation and forecast
over profit and loss of a company is a major focus for an organisation because
that determines the extent to which further investments are possible. To
calculate the net worth of profit and loss incurred to a company there are
certain aspects to be considered such as, cost per unit, other associated
costs, cash receivables and final product cost. There are two sections of the
assignment, Part A and B, each consists 3 questions. This assignment deals with
a US Bright business that provided us with a list of activities undertaken for
cravings for cakes and they provided annual cost, annual quantity and activity
driver for each activity. In question (a) of part A which is related to the
Activity Based Costing, we identified the cost drivers of all activities as
well as calculated the cost per unit of each activity driver. In the next
question (b), we shed light on bill of activities and determined the cost per
unit for the items. In the question (c) of the same part, we identified the other
costs which can be added to get the product cost of lamington.

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The further part B, is
related to budgeting. In the question (a) of this part, we explained whether
the change in fee structure and membership plan of the Hawthorne leisure works
will upgrade its potential to plan its cash receipts. In the following question
(b) we highlighted the effects of change in fee structure on the sales revenue
for the next financial year. As the change in cost planning will impact the
next financial year, a thorough detail has been provided here with
calculation’s support on the profitability of the steps. In last question, the
factors considered by HLW while evaluating the new plans were elaborated. It
showed the way in which new membership plan would improve the cash receipt of
the organisation.

 

 

 

 

 

Task A:

 

a.   
Calculate the cost per unit of activities for
the listed activities:

 

Cravings
for Cakes list of Activities

Activity

Activity driver

Activity cost

Annual quantity of
driver

Cost per unit activity
of driver

Prepare Annual Accounts

None Available

5000

Process receivables

No. of Invoices

15000

5000

15000/5000 = 3

Process payables

No. of purchase orders

25000

2500

25000/2500 = 10

Program production

No. of production
schedules

28000

1000

28000/1000 = 28

Process Sales order

No. of sales orders

40000

4000

40000/4000 = 10

Dispatch sales order

No. of dispatches

30000

2500

30000/2500 = 12

Develop and test
products

Assigned directly to
products

60000

Load mixers

No. of batches

14050

1000

14050/1000 = 14.05

Operate mixers

No. of kilograms

45900

200000

45900/200000 = 0.2295

Clean mixers

No. of trays

6900

1000

6900/1000 = 6.9

Move mixture to filling

No. of cakes/pastries

3450

200000

3450/200000 = 0.01725

Clean trays

No. of trays

20000

16000

20000/16000 = 1.25

Fill trays

No. of cakes/pastries

16000

800,000

16000/ 800000 = 0.02

Move to baking

No. of trays

8000

16,000

8000/16000 = 0.5

Set up ovens

No. of batches

50000

1000

50000/1000 = 50

Bake Cakes/Pastries

No. of batches

130000

1000

130000/1000 = 130

Move to packing

No. of trays

40000

16,000

40000/16000 = 2.5

Pack cakes/pastries

No. of cakes/pastries

80000

800,000

80000/800000 = 0.1

Inspect practices

No. of pastries

2500

50,000

2500/50000 = 0.05

 

Table 1: Listed cost per unit on activity drivers
for US Bright

 

From the above-mentioned
scenario, we have found that total cost per unit would be higher that the
expected needs to be the profit making one. The invoice numbers are large in
some cases; it would show increasing profitability and larger amount of payment
receivables in such cases. On the other hand, average cost per unit will be
slightly minimised because there is even distribution of invoice and orders.
However, a higher number of invoices mean more numbers of payment receivables
and if they are not collected within time, the cash flow will be negative.

The total activity
costing of Cravings for Cakes is compiled in a structural format with respect
to each activity associated with it. Along with this, determination of cost per
unit to evaluate total annual quantity that is allocated on the basis of each
cost driver. For example, the overall activity cost was $619,800 which is
derived from adding all the activities for cake listing. Formula for
ascertaining cost per unit = Activity cost / Annual quantity of activity
driver.

b.   
Preparation of bill of activities and its
determinant cost per unit for Lamington

 

Lamington (Batch Size 1000, Annual
Volume 100,000)

Activity

Cost Driver

Activity Cost (S)

Annual Quantity of Activity Driver

Cost Per Unit ($)

Process Receivables

No. of invoices

15000

500 Invoices

15000/500 = 30

Process Payables

No. of purchase orders

25000

200 Purchase Orders

25000/200 = 125

Program Production

No. of production schedules

28000

100 Production Schedules

28000/100 = 280

Process Sales Order

No. of sales orders

40000

400 Sales Orders

40000/400 = 100

Load Mixers

No. of Batches

14050

100 Batches

14050/100 = 140.5

Operate Mixers

No. of Kilograms

45900

30 000 Kilograms

45900/30000 = 1.53

Clean Mixers

No. of Trays

6900

100 Batches

6900/100 = 69

Move mixture to filling

No. of cakes/pastries

3450

30 000 Kilograms

3450/30000 = 0.115

Clean trays

No. of Trays

20000

2000 trays

20000/2000 = 10

Fill trays

No. of cakes/pastries

16000

100 000 cakes

16000/100000 = 0.16

Move to baking

No. of trays

8000

2000 trays

8000/2000 = 4

Set up ovens

No. of batches

50000

100 Batches

50000/100 = 500

Bake cakes/pastries

No. of batches

130000

100 Batches

130000/100 = 1300

Move to packing

No. of trays

40000

2000 trays

40000/2000 = 20

Pack Cakes/Pastries

No. of cakes/pastries

80000

100000 cakes

80000/100000 = 0.8

Dispatch Sales Order

No. of dispatches

30000

500 Sales orders

30000/500 = 60

Develop and Test product

Assigned directly to products

60000

$600 assigned directly to this
product

60000/600 = 100

 

Table 2: Bill of Activity and its determining
factor for Lamington

 

The planning for fee
renovation will be supported in this case because total cost per unit is higher
than expected margin and payment receivables will not disdain the cash flow
circulation. Yet, we can show here an even distribution of invoices which will
surely favourable in doing business for each of the segment in business.

For
Lamington the total annual volume was 100,000 during the start of the fiscal year
and the total cost of this activity rounded off to approximately $82,998
therefore the cost per unit was around 0.83 per activity.

c.    
Other necessary costs for calculating product
cost for Lamington

 

Costs like direct material cost along with
postage and handling cost are to be taken into consideration for evaluating the
total cost allocated to produce Lamingtons. As ascertained by Richards (2017)
after allocating, this will eventually help to calculate the overall product
unit cost per head for that period. This sequential list of activities is to be
performing in terms of producing a unit of services along with its associated
cost for resources consumed. 

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