Financial Modeling Essay

2218 words - 9 pages

University of Sunderland Bachelor of Arts (Hons) Business and ManagementIntroductionCost model assignment is allocation of consumed resources activities or objects. The purpose of using cost assignment model is to help an organization identify the source and expenditure involved in an operation and the destination of the costs and overhead. This assignment is focus on analysis of cost assignment model. I will start from background of company, study case and two scenarios. In literature review, it will going to discuss about cost, cost assignment model, strengths and weakness of cost assignment model. It also will explain sensitivity analysis of two scenarios. This assignment will be end with conclusion. Calculation of number and formula will be shown at appendix. 2.0 Background of CompanyMerry Land's Chocolate is a factory that process chocolate and sell it out to all world. Merry Land's Chocolate Factory currently offers 4 flavors of chocolates through catalog and gourmet. The company's major cost is that of the direct labour and direct materials; however, the processes of making chocolate and consume a substantial amount of manufacturing overhead cost. The company uses relatively little machine hour.Some of Merry Land's Chocolate are very popular and sell in large volumes, but a few of the newer types sell in very low volumes. Merry Land's prices its chocolate at cost (including overhead) and every flavor of chocolate will sell with the same price that is £50.All product are similar, usually they are produced in production runs of 200 units and sold in batches of 100 units.Currently, production overheads are absorbed using a factory-wide machine hour rate. Total production overheads for period 1 are £ 360,000.Calculation refer to appendix 1 and 2.

Product

Dark Chocolate

White Chocolate

Hazelnut Chocolate

Milk
Chocolate

Total

Cost Per Unit

£

£

£

£

Sales Mix

20

25

20

35

100

Production Units

800

1000

800

1400

4000

Direct Material

45

35

30

25

Direct Labour

25

35

35

25

Machine Hour Per Unit

5

4

4

3

The overheads have been further analyzed as follows:
Costs

£

Cost Driver

Set Up Cost

5250

Number of Production Runs

Stores Receiving

3600

Requisitions Raised

Inspection/Quality Control

2100

Number of Production Runs

Materials Handling & Dispatch

4620

Order Executed

2.1 Scenario 1Merry Land's Chocolate factory have make customer survey to make preparation the quality that have to produce for Valentine day for 4 flavor of chocolate. According to the result of survey, customer first choice of chocolate is milk chocolate, follow by white chocolate, hazelnut chocolate and dark chocolate. Therefore, Merry Land's Chocolate has made decide as table below.

Product

Dark Chocolate

White Chocolate

Hazelnut Chocolate

Milk
Chocolate

Total

Cost Per Unit

£

£

£

£

...

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