Cost Classification and Processes

Task 1 (1,000 words – 40% weighting)

Ribble Limited is a small manufacturing and assembly business producing plastic components for use in the automotive industry. Attention has been drawn to the fact that one of the plastic components could be outsourced at a price lower than the cost of manufacture. As the companys Management Accountant, you have been requested by the Production Director as to what action and/or decision should be taken.

He has indicated that your report should focus on the analysis of decisions and judgements and, in particular:
a)Define the meaning of a cost
b)Explain how cost classification can be developed and be relevant to decision making and control; and
c)Distinguish between and explain:
i)Variable and fixed costs
ii)Direct and indirect costs
iii)Product and period costs

Required:
Prepare a report for the production director of Ribble Limited which meets the terms of reference set out by him.

Task 2 (500 words – 20% weighting)

In the manufacturing business of Ribble Limited, a major part of their prime costs is the use of direct materials. As a supplementary report, you have been tasked with providing a procedure for the recording, controlling and accounting of material costs.

Required:

a)Identify the activities to control the ordering, delivery and storage of materials and create a
flow chart to reflect the sequence.
b)Provide, in tabular format, the documentation (type, originator, destination and use) required for the procedures involved in material control.

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