Financial Accounting Business Report
Report On Product Costing For Dumbellow Ltd
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1. Introduction This report examines various proposals raised by different managers of Dumbellow Ltd. The major issue addressed by these proposals is “how to deal with product Z which is currently resulting in losses and thus pulling down the net profit of the entire product line”. The financial controller proposed a termination of the production of the product while the marketing manager suggested a £1 per unit reduction in the price so as to increase the demand of the product. On the other hand, the managing director thought that a 10% increase in both sales and activity across the board would make a difference. Furthermore, the production manager considered re-organization of production activities and also the use of a cheaper component of product Z. though all these proposals are viable; they have various shortcomings which may outweigh their expected benefit. In addition, a comparison of marginal costing and full costing (absorption costing) is dealt with in this report. The advantages of using marginal costing instead of full costing, in decision making, are discussed. In conclusion, the shortcomings of the analyses of various proposals examined in this report are identified. Recommendations on the best way to handle the case of product Z are also discussed at the end of this report. Key strategies that were recommended include reorganization of the production processes and the termination of the product.
2. Background Information Dumbellow Ltd is a manufacturing company that produces three industrial valves which are incorporated into equipment used in the Oil and Gas industry. The board of Directors of the company is meeting on 3rd of October to discuss the draft budget for the following year, a few months before the start of that calendar and financial year. They are concerned about two issues; the deterioration of product Z in terms
Names:
Instructor:
Course:
Date
1. Introduction This report examines various proposals raised by different managers of Dumbellow Ltd. The major issue addressed by these proposals is “how to deal with product Z which is currently resulting in losses and thus pulling down the net profit of the entire product line”. The financial controller proposed a termination of the production of the product while the marketing manager suggested a £1 per unit reduction in the price so as to increase the demand of the product. On the other hand, the managing director thought that a 10% increase in both sales and activity across the board would make a difference. Furthermore, the production manager considered re-organization of production activities and also the use of a cheaper component of product Z. though all these proposals are viable; they have various shortcomings which may outweigh their expected benefit. In addition, a comparison of marginal costing and full costing (absorption costing) is dealt with in this report. The advantages of using marginal costing instead of full costing, in decision making, are discussed. In conclusion, the shortcomings of the analyses of various proposals examined in this report are identified. Recommendations on the best way to handle the case of product Z are also discussed at the end of this report. Key strategies that were recommended include reorganization of the production processes and the termination of the product.
2. Background Information Dumbellow Ltd is a manufacturing company that produces three industrial valves which are incorporated into equipment used in the Oil and Gas industry. The board of Directors of the company is meeting on 3rd of October to discuss the draft budget for the following year, a few months before the start of that calendar and financial year. They are concerned about two issues; the deterioration of product Z in terms
References: Elliot, B., & Elliot, J., 2004. Financial accounting and reporting. London: Prentice Hall. Goodyear, L. E., 2009. Principles of Accountancy. Cedar Rapids, Iowa: Goodyear-Marshall Publishing. Lewis, M. K., 2001. Islam and accounting. Oxford: Wiley-Blackwell.