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The expansion of the product line will involve a range of fillings, glazing and toppings

Task 1

At present Dina produces ring doughnuts and since every item is identical, she is charging overheads simply by dividing the total forecast overheads by her total forecast output. Her estimated total production for the year is 615 batches Dina makes 3 batches early morning for her deliveries She estimates the direct cost of making 3 batches of doughnuts to be: Oil £37.40 Dough mix £41.00 Yeast £3.00 Page 5 of 6 Below are the forecast overhead costs for the period: Administrator salary £16000 Dina’s salary £22000 Machine insurance £1750 Rent £4850 Van Insurance £800 Power £900 Using this basis for your costing, calculate the production cost per doughnut of her current output (10 marks)


Task 2 Dina has had requests for a larger range of products, including jam doughnuts, and a range of toppings and glazing. To accommodate this change in production she realises she will need a more sophisticated costing system. She asks your advice, and you decide to set up an absorption costing system. Complete an overhead analysis for the production process using mixing, shaping, proofing, frying and cooling as production cost centres and administration and storage as service cost centres. Dina’s salary is to be apportioned equally between the production cost centres. The secondary apportionment of storage costs is shared equally between all the production cost centres and administration. Administration is split between the production cost centres in the ration of 3:2:2:2:1. (25 marks)


Task 3 Calculate appropriate overhead absorption rates for each of the production cost centres based on the information that most of the process is done by machine with only frying and cooling being done by hand (10 marks)


Task 4 Dina makes doughnuts in batches of 400, each batch requires 2 hours in mixing, 30 minutes in shaping, 15 minutes in proofing and a total of 1 hour in frying. Only a small number are fried at a time, for just a couple of minutes each. They are then placed on trays for a total of 30 minutes to cool Using the direct cost per unit from task one and the overhead absorption rates from task three, calculate the absorption cost per batch and per doughnut. (20 marks)


Task 5 If Dina employs an absorption costing system, then she will encounter the problem of under and over absorption of overhead at the end of a period. As she has not studied cost accounting in detail, this is a new concept for her. Write to Dina explaining what under and over absorption means, and the possible reasons for it occurring (10 marks)


Task 6 The expansion of the product line will involve a range of fillings, glazing and toppings. This will not only have implications for costing but also for stock holding. Using the classifications of Raw Materials, Work in Progress and finished Goods, detail he particular stock control problems relating to each of these types of inventory for the production process described above. (15 marks) For presentation and use of spreadsheets (10 marks) (total 100 marks)

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