IM23 Intermediate Analysis of costs by behaviour for decisio

IM2.3 Intermediate: Analysis of costs by behaviour for decision-making. The Northshire Hospital Trust operates two types of specialist X-ray scanning machine, XR1 and XR50. Details for the next period are estimated as follows: Machine XR1 XR50 Running hours 1100 2000 Variable running costs excluding plates) 27500 64000 Fixed costs 20000 97500 A brain scan is normally carried out on machine type XR1: this task uses special X-ray plates costing £40 each and takes four hours of machine time. Because of the nature of the process, around 10 per cent of the scans produce blurred and therefore useless results Required: (a) Calculate the cost of a satisfactory brain scan on machine type XR1. (7 marks) (b) Brain scans can also be done on machine type XR50 and would take only 1.8 hours per scan with a reduced reject rate of 6 per cent. However, the cost of the X ray plates would be £55 per scan. Required: Advise which type should be used, assuming sufficient capacity is available on both types of machine 8 marks) CIMA Stage 1 Cost Accounting

Solution

Assumption: Sufficient capacity is available for both:

a) The total number of scans that can be done on XR1:

Total hours/ Hours consumed per scan i.e: 1100/4= 275 Scans

Since the wastage is after the scans are done so the plates consumed will not be reduced by 10%.

Total cost of Plates shall be: 275*40= 11,000

Variable running costs shall be 27,500

Fiexed Costs shall be = 20,000

Therefore total cost shall be : 58,500

Total reports generated shall be 275 less 10% on account of wastage. Therefore the reports generated correctly would be 247.50.

Hence the cost per report shall be = 58,500/247.50

Ans; 236.37

b) The total number of scans that can be done on XR50:

Total hours/ Hours consumed per scan i.e: 2000/1.8= 1,111.11 Scans

Since the wastage is after the scans are done so the plates consumed will not be reduced by 6%.

Total cost of Plates shall be: 1,111.11*55= 61,111.05

Variable running costs shall be 64,000

Fiexed Costs shall be = 97,500

Therefore total cost shall be : 222,611.05

Total reports generated shall be 1,111.11 less 6% on account of wastage. Therefore the reports generated correctly would be 1,044.44.

Hence the cost per report shall be = 222,611.05/1044.44

Ans; 213.139

Advise: Type XR50 shall be used as it is cheaper cost wise.