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Business systems Babatunde Onaola - Identify and use planning, control methods in conjunction with an engineering project.

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BUSINESS SYSTEMS BABATUNDE ONAOLA (P3) Identify and use planning, control methods in conjunction with an engineering project Use of planning methods in conjunction with an engineering project A Gantt chart is a well planned relationship of activities over a period of time during an engineering project This shows how the designed box and CD labels where tracked during the progress of this project. Use of control methods in conjunction with an engineering project This is a typical example of a software engineering company.Quality control is a feature of all process activities. Very often the bulk of the testing effort is directed at the end product, even though we know that the correction of defects is more cost effective if they're fixed earlier in the process. Quality control must be based and adapted to the development processes defined by the organization. (P5)Use basic costing techniques used in Engineering Absorption Costing: This is one method of determining the total cost of a given product by a process of allocation, apportionment and absorption. Make-up= Total of fixed and variable costs attributable to the product Total no of units produced In absorption costing, each product manufactures is made to cover all of its costs. This is aimed by adding a notional amount to the unit cost of each product. Activity based Costing: This is an attempt to access the real cost of providing a product .It focuses on indirect costs (overheads) .It does this by making costs that would traditionally be considered indirect to direct costs. Activity based costing is particularly applicable where competition is severe and the margin of selling price over manufacturing cost has to be precisely determined. Principles of activity-based costing The steps required to car out activity-based costing are: * Identify the activities * Determine the cost of each activity * Determine the factors that drive costs * Collect the activity data * Calculate the product cost * (P6) ...read more.


If a company buys a car, to be used by a sales representative, for �15,000 it has to charge the cost in some reasonable way to the profit being earned. If it's estimated that the car will be worth �6000 in three years' time when it's to be sold, then it could be charged to profit at; (�15000 - �6000)/3 = �3000 for each year of use The way engineering companies accumulate funds with which to replace fixed assets is to charge depreciation as an overhead cost Because depreciation is an estimate and is deduced from profit it has the effect of keeping the money available in the business. There are two main methods used to calculate depreciation. Straight line method: This charges an equal amount as depreciation for each year of the assets expected life. It's called straight line because if the annual amounts were plotted on a graph they would form a straight line. The formula is d= p- v N Where d=annual depreciation, p=purchase price, v=residual value and n= years of asset life Reducing balance method: In this method a fixed percentage is applied to the written-down balance of the fixed asset. The formula for establishing this fixed percentage is: r= 1 - nVv/p Where r= the percentage rate, n=number of years, v= residual value and p=asset purchase price Using the car example above the reducing balance rate, r is r= 1- �V6000/15000 1- 0.7368 =26.31% Applying this, the depreciation pattern is in the next page: Purchase price �15000 First year 26.31% �3946 Reduced balance �11054 Second year 26.31% �2908 Reduced balance �8116 Third year 26.31% �2135 Reduced value �5981 Certainly, with regard to cars the early year's depreciation is very heavy in relation to resale prices. (D2) Apply Investment appraisal techniques and 'make or buy' decisions in relation to an engineering company Investment appraisals are conducted to assess whether it is worthwhile making an investment. ...read more.


Activity based costing would have enabled management to avoid rough guesstimates and to determine precisely how to allocate overhead costs to the part. .An oversimplified explanation of the activity based method is that all overhead costs are divided into activities and these activities are then identified with processes, which are ultimately linked to products. Other factors should be considered. Are there any "Avoidable Fixed Costs" that could be eliminated, if the product was purchased rather than manufactured? For example, what costs in the purchasing and inventory management departments might be eliminated if raw materials for the part no longer needed to be purchased and handled? For the purpose of the example, let us suppose that these costs were determined to be �10,000 worth of time that could be devoted to other productive activities. The cost of Part X is increased by �1.00. Cost of Materials �12.50 Direct Labour Cost �32.00 Variable Overhead Cost $5.10 Avoidable Fixed Overhead �1.00 TOTAL COST �50.60 Part X Partial Differential Method It appears that ConInc will still save �24,000 by manufacturing rather than purchasing the part. One more factor should be considered, the "Opportunity Costs" Opportunity costs look at a possible benefit that would accrue if the part were purchased, rather than manufactured. These benefits would be either reduced cost or increased revenue. For example, the manufacturing capacity used for making Part X might now be used for increased production of Part Y, which is a component of a product for which there is a greater demand than ConInc can supply. Or that same manufacturing capacity might be applied to making Part Z. Part Z could be manufactured for $4.00 less than the cost of purchasing it, if the manufacturing capacity was available. Cost of Materials �12.50 Direct Labour Cost �32.00 Variable Overhead Cost �5.10 Avoidable Fixed Overhead �1.00 Opportunity Cost �4.00 TOTAL COST �54.60 Part X Full Differential Method Under this analysis Part X costs �1.60 more to manufacture than to buy. ...read more.

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