Reference no: EM131580998

There are 2 pans to this assignment, each carrying equal marks in total

PART 1

Amongst others. there are 2 general approaches to Investment Appraisal. That is using PAYBACK as a method of choosing projects and using NET PRESENT VALUE.

Required:

1. Explain each of these methods to a non-accountant

2. Explain what is meant by the TIME VALUE OF MONEY ( you can use your own numerical examples for illustration if you choose, the factors below may help)

3. List the advantages and disadvantages of each method
10% Discount Factors:

Year 1 -0.909

Year 2 -0.826

Year 3 -0.751

Year 4 -0.683

Year 5 -0.621

PART 2

Force India Ltd has 2 production departments, Bodywork and Power Unit, but also has a Parts department which is a service department. Details of costs incurred for the month of June 2017 are as follows:

Bodywork Power Unit                  Parts                    Total

Directly Allocated £50,000          £100,000           £20.000              £170,000

Factory Site Rent                                                                      £10,000

Administration                                                                           £20.000

                                                                                             £200,000

Other information is available:

1. The total area of their factory site is 10,000 sq metres. Bodywork occupies 6,000, Power Unit occupies 3,000 and the Parts Dept occupies 1,000 sq metres

2. Administration costs are considered to be related to numbers of personnel. Staff numbers are as follows:

Bodywork 75
Power Unit 100
Parts 25

3. Parts costs are reapportioned EQUALLY to each production department

REQUIRED

a) Show how the total cost of £200,000 should be fairly apportioned to the 2 PRODUCTION DEPARTMENTS

b) Explain why ACTIVITY BASED COSTING is considered to be a better method for absorption of overheads than TRADITIONAL ABSORPTION COSTING