Loss

HBC110N (Sem 1, 2010)

Some clarifications on assignment case study on Berkshire:

The big picture:

1. Why are you having to write the report for the Directors? - map out a plan of what you need to do to come up with recommendations.

2. In the requirements you are given a series of calculations to undertake:

(i) read your lecture notes/textbook to find out how to do these calculations

(ii) what information will you have after calculating these figures - how will it help you with recommendations.

General matters:

Q2 For this part of the report you don’t have to provide calculations (this doesn’t require any number crunching), just give opinion/recommendations about the costing system - lecture for topic 5 covers this area - full/total costs and the issues around cost allocation.

When measuring profitability/contribution to profit you can assess if from an accounting profit (exhibit 2) or from a contribution margin i.e. the amount the individual series are contributing to fixed costs with leftover being profit.

Obviously the accounting profit is impacted by the allocation of indirect costs to the series.  You are able to look at Exhibit 2 and work out what might be an allocated cost - if you look at the costs below the gross profit there appears to be a pattern - more costs given to the series with higher revenue - looks like a volume driver – what’s the potential problem with this - how does this impact on using accounting profit as a measure of profitability.

Financial matters:

Q2 Net sales price is $2.424 (refer exhibit 2).

Q3 is asking you to work out the breakeven for 1999 and 2000 using the actual sales mix achieved. Remember breakeven for multiple products = fixed costs / weighted average contribution margin. The full year costs for fixed are not given - therefore you will need to make an assumption - you could use the given budgeted costs multiplied x 2; given actual costs multiplied x 2; or assume the same total fixed costs as for 1999.

Q4 This...