1) As the production manager sees no alternative use for the paper, this means that it would not be replaced; as a result scraping the earnings made from stock - £5000.
2) The full cost of the ink bought must be charged to the cost of the leaflets, due to the surplus ink being inaccessible - in terms of not being able to be sold or used.
3) The staff (direct) are presently employed, which means the cost of their wages are reclaimed from the consumer. Prior to relocating the customers to work on the leaflets, the capability of the work to carry this cost needs to be established.
4) The overtime premiums for the additional hours worked on weekends are precisely created by the programme efforts - the publication and printing of leaflets-, which must be capable to withstand this extra cost.
5) In regards to the utilisation of unskilled labour, we can deduce that there is no added expenditure related to it. Again, there is no added cost as the 50 hours of paid time off, is capped by the 125 hours of idle time, which is paid for too.
6) The variable overhead is the additional expenditure.
7) In regards to the printing aspect of the leaflets, the variable costs and overhead related to operating the printing press have been handled with. Secondly, the supplementary improvement necessary is, consequently, the hidden contribution identified to the 200 printing press hours for the leaflets.
8) Fixed production expenses are not linked to the additional cash flows thus should be disregarded.
NB: The cost of approximating time can be seen as an insignificant cost, seeing as it has
been incurred earlier. As it doesn’t require any additional capita...
... middle of paper ...
...us on instead of looking at all of them. This process is known as ‘management by exception’. It involves managers concentrating particularly on variances that are deemed important.
iv) Divisional managers of the mining division do not manage the central services costs. Having said that, despite the divisional manager not being able to oversee these costs there is a case for incorporating them as non-controllable costs in the divisional performance report. A good explanation for this is that if divisional managers are made conscious of these costs this might motivate them, in turn placing strain on the central service staff to manage these costs more efficiently; especially as they’re adverse. It is important to note, that divisional managers must be made aware that they are not liable for any non-controllable expenses, shown in the divisional performance report.
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