Question 1

Question 1 - The Nostalgic Lamp Company

The Nostalgic Lamp Company manufactures three types of lamp: Mr T., Gloria Gaynor and Donny Osmond models. Production of the lamps are organised into three costs centres. The profit and loss account for the year just ended shows that the Donny Osmond makes a loss and it has been suggested that they may be discontinued.

£000s	Mr T	Gloria Gaynor	Donny Osmond
Sales	500	350	650
Direct Materials	150	80	250
Direct Labour	100	100	250
Variable overheads	50	40	60
Fixed overheads	100	80	110
Totals costs	400	300	670
Profit/loss	100	50	(20)

Questions

1. Define the term ‘cost centre.’ (2 marks)

2. What are the pros and cons of using costs centres in dealing with costs? (4 marks)

3. From the above schedule of costs and profits:-

a) Calculate the variable cost of producing the each of the three lamps (3 marks)

b) Calculate the contribution of each of the three lamps (3 marks)

c) Calculate the total fixed costs (1 mark)

d) Calculate the overall level of profits. (2 marks)

4. The Donny Osmond lamp is discontinued. Evaluate the impact on the company’s overall profits.

(10 marks)