448 ACCOUNTING FOR MANAGERS
Table A3.5 Call Centre Services
Call centre Telemarketing TotalNumber of calls 70,000 25,000
Fee per call £5 £10
Revenue 350,000 250,000 600,000
Less expenses
Staff costs 10 @ £15,000 p.a. 5 @ £22,000 p.a. 150,000 110,000 260,000
Lease costs on telecoms and IT equipment
(shared 50/50)
20,000 20,000 40,000Rent (shared in proportion to staffing:
2/3, 1/3)
80,000 40,000 120,000Telephone call charges 20,000 20,000
Total expenses 250,000 190,000 440,000
Operating profit 100,000 60,000 160,000
What conclusions can you draw about the performance of the two divisions?
This question particularly relates to an understanding of Chapters 9 and 10.Case study 5: Cryogene Corp.
Cryogene is a manufacturer of three products used in genetic biology: Cryod,
Genet and Yogen. The company has just finished its first full year of operations
and has produced its summary Profit and Loss account.
The company is unsure how its products contribute to profitability. The accoun-
tant has produced five versions of a product profitability calculation:
žAbsorption costing based on labour hours.
žAbsorption costing based on machine hours.
žActivity-based costing.
žThroughput accounting.
žTarget costing.
Table A3.6(a) shows the contribution for each of the three products, with overhead
unallocated.
Table A3.6(b) shows product profitability, with overhead allocated first on
labour hours and second on machine hours.
Table A3.6(c) shows product profitability based on activity-based costing
principles.
Table A3.6(d) shows a ranking of products using throughput accounting and
the target return on investments required based on the capital investment that
supports each product.
Assuming that you have been presented with these financial reports, contrast the
five methods of calculating product profitability. What are the assumptions behind
and the limitations of each method? Consider how the information provided in