(a) Briefly explain the concept of “throughput accounting”. In which sector is the concept mostly applied?
(b) Assess the advantages of life cycle accounting.
(c) JEMEX LTD is a manufacturing company which has recently experienced an increased competition in the industry it operates. The current selling price per unit is TZS.2,000 and the company is considering to reduce selling price by 20% in order to stimulate sales volume from 150,000 units to 200,000 units. The competitors are also expected to cut prices of the product by 15% to survive in the market. JEMEX LTD wants to earn at least 10% target profit. The following information has been obtained:
|Direct Material cost per unit (TZS)||400||385|
|Direct Manufacturing Labour per unit (TZS)||55||50|
|Direct Machinery costs per unit (TZS)||70||60|
|Direct Manufacturing costs per unit (TZS)||525||495|
|No. of Orders (TZS.160 per order)||22,500||21,250|
|Testing hours (TZS.4 per hour)||4,500,000||3,000,000|
|Unit reworked (TZS.200 per unit)||12,000||13,000|
Other operating costs per unit incurred by the company include: Research and Design TZS.100, and Marketing and Customer Service TZS.260. Manufacturing overheads are allocated using relevant cost drivers.
(i) Calculate target costs per unit and target costs for the proposed volume showing break-up of different elements.
(ii) Prepare Target Product Profitability Statement.