Question one

Question 1 - The Nostalgic Lamp Company
The Nostalgic Lamp Company manufactures three types of lamp: Mr T., Gloria Gaynor and Donny Osmond models. Production of the lamps are organised into three costs centres. The profit and loss account for the year just ended shows that the Donny Osmond makes a loss and it has been suggested that they may be discontinued.
£000s Mr T Gloria Gaynor Donny Osmond
Sales 500 350 650
Direct Materials 150 80 250
Direct Labour 100 100 250
Variable overheads 50 40 60
Fixed overheads 100 80 110
Totals costs 400 300 670
Profit/loss 100 50 (20)
Questions
1. Define the term ‘cost centre.’ (2 marks)
Cost centre: a department or section of an organisation to which specific costs can be allocated.If a large company spits up into cost centres,various benefits can result.
2. What are the pros and cons of using costs centres in dealing with costs? (4 marks)
pros:It is food for cashflow
cons:
3. From the above schedule of costs and profits:-
a) Calculate the variable cost of producing the each of the three lamps (3 marks)\
1 . 3oo
2. 220
3. 560
b) Calculate the contribution of each of the three lamps (3 marks)
1.100
2.50
3.-20
c) Calculate the total fixed costs (1 mark)
1.100
2.80
3.110
d) Calculate the overall level of profits. (2 marks)
130
4. The Donny Osmond lamp is discontinued. Evaluate the impact on the company’s overall profits.
If the company stop to produce Donny Osmond lamp ,there are some benefits and drawbacks
Benefits:
- They can transfer the labour and material to the other goods which are more popular.
- They can save money and make the loss decrease.
- They can make more the other lamps ,that the profit will increase.
- They can use this money to make some new types of lamp.
Drawbacks:
- If the make Donny Osmond lamp discontinued they will loss some consumer who like this .
- less choice than before.
- They need spend money to train the people who make Donny Osmond lamp before.
- they need think about new idea to produce new type of lamp,the must be waste time and money.