HND Project

Topics: Net present value, Variable cost, Costs Pages: 34 (7420 words) Published: October 16, 2014


CONTENTS PAGE

PROCEDURES
The main point of research was to make an accurate decision for buying or hire purchase the CNC Laser machine. This was dependent on replies from the companies on requesting the quotes, but unfortunately no email was received. Below is attached the confirmation of sending one of the emails. CTR Lasers 

Thank you Hanna Jurkowska for your contacting us: 04/04/2014 04:04:04 pm

Dear Hanna Jurkowska ,

Thank you for your feedback. We will contact you shortly.

Your email was: haniajurk@gmail.com

Thank you

CTR Lasers
In the research has been also involved: reading numbers of books, as much as, various numbers of sources gained from the internet. This helped in preparing cost statements, functional budgets, cash and master budget. Also the research of new finance for the purchase of CNC Laser machine has been done on the various websites, and finally the best offer of a loan was accepted and introduced to the project. The loan and repayments are specified as follows:

The loan will be taken for a 60 months with 5% interest rate. That will give a monthly payment of £2,358.90

THE ANALYSIS OF THE CASE STUDY SCENARIO
The scenario of a case study shows a successful ‘Ergodesign LTD' medium size company, which is a manufacturer of specially designed office furniture. The company's design team designed a new, high quality and ergonomic chair for people with posture, neck or back related problems. The prototype of this chair has been already produced and tested and it obtained positive feedbacks on the quality and safety and overall performance. The most important aspect of this scenario is that the company already has an offer from the wholesaler, which is willing to pay £195 for each chair and also guarantee sales of 1,800 units for the first year, and that gives 150 chairs per month. From the preliminary research the company will be able to produce 40 chairs per week, what gives a total amount of 160 units per month. The amount of 94% produced chairs being sold on the monthly basis. That also means that stock turnover period will be high, and the company still will retain the stock of finished goods in case of any idle time, or if production will not be able to work at full capacity. Sales in year two and three will also expected to increase by 20% per annum, and also for the foreseeable future demand from other wholesalers will increase. As the scenario indicates that beyond year three the demand for 'Multi-level Chair' will level off, that indicates that in the future might be needed some improvements and produce more advance chair. A new CNC laser cutting machine will be required to purchase in the beginning of the project to avoid the subcontracting of cutting aluminium for the frame. The new machine cost is £125,000 and will be depreciated over 10 years, and also cost of the maintenance will be provided at 5% of the capital cost per year. There will be requirement to hire two additional production workers for a machining and assembly, but any other work might be carried by existing workers. NUMERICAL DATA AND RESEARCH FINDING

COST STATEMENTS
1. COST STATMENT - ACTICITY BASED COSTING
The Ergodesign plans to expand their production to a new product called "Multi-level Chair", and Managing Director needs to make a decision if the company can achieve a high enough profit from this contract. The first calculation must be prepared is the COST STATEMENT based on Activity Based Costing, as the company already uses this method. In comparison to this method also need to be produced and evaluated a Standard Cost Statement. As we can notice the ABC cost of overheads are much higher than it was calculated over the standard absorption costing, and that might be crucial in making the decision about costing in the company. The principal of Activity Based Costing (ABC) is to breakdown the overheads into their constituent elements....
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