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.