The paper "Activity Based Costing - Saga Plc" is a great example of a finance and accounting assignment. Saga Pc aims at assembling three types of motorcycle in a particular factory: 50cc Sunshine, 250cc Roadster and 1000cc Fireball. The company sells motorcycles all over the world. In order to cope up with the market demand for cars, Saga Plc has invested more in new technological innovations and has reduced investment by downsizing the workforce. After obtaining financial data from the accountants, the profit of Saga Plc is calculated by applying two methods: the existing method used by the company and activity-based costing.
The following data are provided by accountants: Annual output Annual direct labour (hours) Selling Price (£ per unit) Raw material cost (£ per unit) Sunshine 2000 2,00,000 8,000 800 Roadster 1600 2,20,000 12,000 1,200 Fireball 400 80,000 16,000 1,800 Total 4000 units The actual sales of the company with respect to three vehicles: Sales of each vehicle Sunshine Roadster Fireball Sales (unit sold) 400 300 100 Sales price £ 8,000.00 £ 12,000.00 £ 16,000.00 Actual annual sales £ 3,200,000.00 £ 3,600,000.00 £ 1,600,000.00 The purchase orders are taken as the total units of each type of motorcycles sold. The above table thus highlights the total sales amount of each type of motorcycle. According to the existing method of calculating profit, the following are the result of the profit of each type of motorcycle. The calculation of variable cost: Variable cost Sunshine Roadster Fireball Raw material cost per unit £ 800.00 £ 1,200.00 £ 1,800.00 Total units sold 400 300 100 Total variable cost £ 320,000.00 £ 360,000.00 £ 180,000.00 The above table highlights the calculation of variable cost.
Here the raw material cost is regarded as the fixed cost of the business. The total variable cost for manufacturing three motorcycles is £ 860,000. In this case, the direct labour is regarded as the fixed cost of manufacturing the motorcycles.
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