Unit 4 - Applied Commercial and Quality Principles in Engineering
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PEARSON (PEARSON)
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BTEC National Engineering
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Engineering 2016/2017 NQF
Unit 4 - Applied Commercial and Quality Principles in Engineering
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BTEC Assignment Brief
Pearson BTEC Level 3 National Foundation Diploma in
Qualification Engineering
Unit number and title Unit 4: Applied Commercial and Quality Principles in
Engineering
B: Explore activity-based costing as a method to control
Learning aim(s) (For NQF costs and to determine if an engineering product or service
only)
is profitable
Assignment title Activity-Based Costing
Joanne Pollitt Wright
Assessor
Issue date
Hand in deadline
You are working as a final year apprentice in a small
engineering company. Your supervisor is pleased with the
investigations you completed into ways that your company
could gain a competitive advantage.
Vocational Scenario or Your supervisor has now asked you to investigate reasons
Context why an engineering organisation would wish to control costs,
so they can be considered in your organisation.
To do this, your supervisor wants you to find out about the
different types of costs that an engineering organisation will
encounter, and ways in which these costs could be controlled.
You are going to investigate a) how an engineering
organisation allocates costs; and b) the ways in which costs
can be controlled within an engineering organisation. You will
also use activity-based costing to identify any inefficiencies
associated with the engineering activities.
Task 1 To do this:
Your tutor will provide you with a case study that includes
financial information about an engineering organisation
which either produces engineering products or provides an
engineering service.
You should then:
, ● Investigate and report on the reasons why engineering
organisations want to analyse and control costs,
including how decision making can be influenced.
● Use the case study to research the costs associated with
either producing a product or providing an engineering
service. You should investigate how costs are allocated
to individual activities, including direct costs, indirect
costs, variable costs, semi-variable costs, fixed costs and
general/administration costs.
● You should then use the case study to complete and
record an iterative activity-based costing exercise to
generate an activity-based cost model for an engineering
product or service. This costing exercise should include
five stages:
● 1) identifying activities;
● 2) assigning resource costs to activities
● 3) identifying outputs
● 4) assigning activity costs to outputs; and
● 5) assigning activity cost pools.
Finally, you should reflect on the results of your activity-based
costing exercise, by:
● a) explaining how costs are categorised
● b) identifying those cost areas that have the greatest
impact on the profitability of the product or service that
you have investigated; and
● c) evaluating the reasons for producing an activity-based
cost model.
Checklist of evidence A research and problem-solving project to explore the costs
required associated with engineering activities and to complete an
activity-based cost model for a product or service.
Criteria covered by this task:
Unit/Criteria
To achieve the criteria, you must show that you are able to:
reference
4/B.D2 Produce an accurate and refined activity-based costing model, during
the process, for a product or service to determine the major cost areas
that could impact on profitability, explaining the reasons for cost controls
4/B.M2 Produce accurately an activity-based cost model for an engineering
product or service, explaining the reasons for cost controls
4/B.P3 Explain why an engineering organisation controls costs
Produce an activity-based cost model for an engineering product or
4/B.P4
service
,Sources of information Books
to support you with Hicks, D.; Activity-Based Costing: Making It Work for Small
this Assignment and Mid-Sized Companies, Wiles, 2002, ISBN
9780471237549
Frost, W.; ABCs of Activity Based Management: Crushing
Competition Through Performance Improvement; iUniverse
2005; ISBN 8790595358717
Websites
http://www.bluefinsolutions.com/blogs/steve-
mainprize/november-2014/a-worked-example-for-activity-
based-costingHYPERLINK
"http://www.bluefinsolutions.com/blogs/steve-
mainprize/november-2014/a-worked-example-for-activity-
based-costing"
http://kfknowledgebank.kaplan.co.uk/KFKB/Wiki%20Pages/
Activity%20Based%20Costing%20(ABC).aspxHYPERLINK
"http://kfknowledgebank.kaplan.co.uk/KFKB/Wiki%20Pages
/Activity%20Based%20Costing%20(ABC).aspx"
HYPERLINK
"http://kfknowledgebank.kaplan.co.uk/KFKB/Wiki%20Pages
/Activity%20Based%20Costing%20(ABC).aspx"
HYPERLINK
"http://kfknowledgebank.kaplan.co.uk/KFKB/Wiki%20Pages
/Activity%20Based%20Costing%20(ABC).aspx"
Above are some examples of websites. Further useful
resources may be found at
http://qualifications.pearson.com/en/support/published-
resources.html#step1HYPERLINK
"http://qualifications.pearson.com/en/support/published-
resources.html#step1"
Other assessment Case study
materials attached to
this Assignment Brief
, Unit 4 Assignment 2 Applied commercial and quality Principles
• Why do engineering companies control costs and what are the benefits of controlling costs:
1. The main reason of controlling costs is to lower the expenditures of the company and to get
an idea of how much money they can spare for other issues around the company e.g.,
repairing machines or develop on new technologies such as the infinity QS.
2. Another crucial point of controlling costs in the company it allows you to identify the areas
the company is overspending and underspending by doing this the company can balance it
to make the business run much smoother and increase efficiency throughout the company.
3. The most important aspect of managing costs is to get competitive advantage over other
companies, by managing your costs the right way allows you to invest more in the business.
This investment can be a huge technology led advancement in the company which can
attract more customers or allow your company to run effectively and complete the job with
a higher accuracy compared to other companies.
4. One of the most crucial points for managing costs in the elevator company as this allows the
company to predict how many new customers will the company have and to prepare for
that new time period to have materials ready in stock which will reduce costs because the
price of material fluctuates and also the faster the elevator is ready the more profit the
company will have.
5. Another important factor for managing costs is to future proof, which means developing the
company to be able to compete with the new technologies this can be by acquiring new
software such as Infinity QS or by purchasing new and more developed machinery which is
way ahead of its time this will allow your company to be at a better competitive advantage
and this will attract more customers who will pay more for better quality.
6. By managing costs and improving the efficiency of the machines it will allow you to price
your products at a more competitive level, it will also allow you to predict your income for
the next few months and by this allow you to develop new ideas related to your existing
product which then furthermore could boost your sales and revenue.
7. Also, by managing the costs it allows the company to identify the products that are not
bringing in enough profit and they can withdraw that product as it is pulling down the profit
margin for the company
Definitions and examples of types of costs present in a company:
Direct Cost is directly related to the cost of manufacture of the components in the
Direct cost- company in this case the elevator. Examples of Direct costs are raw material and direct
labour cost.
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