Colin Drury, Management and Cost Accounting - Dumbellow Ltd

Dumbellow Ltd
Stan Brignall, Aston Business School
The Board of Dumbellow Ltd are meeting on the 23rd January to discuss the draft budget for 2000/1, some two months before the start of that year. The company produces three industrial valves which are incorporated into equipment used in the Oil and Gas industry. The draft income statement is as follows: Product X £k Sales 100k units at £15 80k units at £25 120k units at £10 Materials Labour Overheads Profit/(Loss) 300 700 225 1225 275 400 800 360 1560 440 1500 2000 1200 480 750 330 1560 (360) 4700 1180 2250 915 4345 355 Product Y £k Product Z £k Total £k

The Board are unhappy with this planned outcome in two respects: they …show more content…
We vera 0,75 could also substitute a cheaper component for Z which would save 75 per unit. Can you please try that and see what it looks like?' Paul replied, 'If I must, but I don't suppose it will do any good.' Before starting his work on revising the budget, Paul reviewed in his mind the following information used in compiling the original budget: 1) all material costs are fully variable 2) the fixed element of labour cost for X, Y and Z is £100k, £160k and £90k respectively 3) the overheads are mixed costs. The fixed element has been absorbed at the rate of £5 per machine hour irrespective of the machines used. The machine time per unit of each of the products is: X Y Z 15 minutes 30 minutes 15 minutes

A week later the Dumbellow Board reconvened to look at the revised budget calculations. Required Write a report to Dumbellow's Board setting out appropriate calculations and making your recommendation as to which course to follow. Your report should cover the following: a) a discussion of the benefits of marginal costing statements for decision-making when compared with full cost statements. b) a statement of total contribution and profit for the original budget and each of the four proposals. c) state any reservations you have about your analyses and recommendation. Are there any other non-financial aspects