Problem
Businesses should ensure they price their goods and services reasonably to retain competitive advantage. An accurate method of costing is important as it can assist a business to determine a fair price for their final product.
With the above in mind, the CEO of GoGo Airlines has provided you with the following information:
Total Overheads = £200,000
Total Machine Hours = 100,000
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Product:
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Vegan Meal:
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Non-vegan Meal:
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Units of Production
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300,000
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450,000
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Material Cost per meal
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£10
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£12
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Labour Cost per meal
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£8
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£10
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Machine Hours per meal
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1/30
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1/5
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|
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% Overheads
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Set-up Costs
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20
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Inspections
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60
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Delivery costs
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20
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Vegan Meal:
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Non-vegan Meal:
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Total:
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Set ups
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100
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500
|
600
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Inspections
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500
|
200
|
700
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No. of Deliveries
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400
|
800
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1200
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You are required to calculate the unit costs of the vegan and non-vegan meals using:
1. Traditional costing using machine hours as the basis of allocation of costs and
2. ABC system
In addition, you are also required to:
1. Discuss the importance of accurate costing in supporting the financial decision process
2. Compare the traditional costing system to the ABC system and
3. Recommend, with reasons, which of the two costing systems is most appropriate for the airline sector