-SQA-SCOTTISH QUALIFICATIONS AUTHORITY HIGHER NATIONAL UNIT SPECIFICATION GENERAL INFORMATION

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1 -SQA-SCOTTISH QUALIFICATIONS AUTHORITY HIGHER NATIONAL UNIT SPECIFICATION GENERAL INFORMATION -Unit Number Superclass- -Title- EB ECONOMICS OF MANUFACTURE DESCRIPTION- GENERAL COMPETENCE FOR UNIT: Evaluating costs associated with a manufacturing organisation. S 1. identify categories of costs in a manufacturing organisation; 2. calculate costs from given data; 3. apply the principles of break-even analysis; 4. evaluate project viability using financial appraisal techniques. CREDIT VALUE: 1 HN Credit ACCESS STATEMENT: Access to this unit is at the discretion of the centre. However, it would be beneficial if the candidate had prior knowledge of a range of manufacturing processes and be proficient in the use of menu driven software For further information contact: Committee and Administration Unit, SQA, Hanover House, 24 Douglas Street, Glasgow G2 7NQ. Additional copies of this unit may be purchased from SQA (Sales and Despatch section). At the time of publication, the cost is 1.50 (minimum order 5.00).

2 HIGHER NATIONAL UNIT SPECIFICATION STATEMENT OF STANDARDS UNIT NUMBER: UNIT TITLE: ECONOMICS OF MANUFACTURE Acceptable performance in this unit will be the satisfactory achievement of the standards set out in this part of the specification. All sections of the statement of standards are mandatory and cannot be altered without reference to SQA. 1. IDENTIFY CATEGORIES OF COSTS IN A MANUFACTURING ORGANISATION Production costs are correctly identified as direct and indirect. Production costs are correctly identified as fixed and variable. Overhead costs are identified correctly. Direct costs: direct labour; direct material; direct expenses. Indirect costs: indirect labour; indirect material; indirect expenses. Fixed costs: setup costs; tooling costs. Variable costs: direct labour; direct materials; process consumables. Overhead costs: production overheads; rent; rates; maintenance; power; administration overheads; office salaries; sales; directors fees. Written evidence that the candidate can correctly identify types of costs associated with a manufacturing organisation. 2

3 2. CALCULATE COSTS FROM GIVEN DATA (d) Calculate overhead allocation to cost centres correctly from given data. Calculate overhead absorption rates correctly from given data. Calculate depreciation costs correctly from given data. Calculate manufacturing costs correctly from given data. Overhead allocation: rent and rates; heat and light; maintenance; indirect wages; insurance. Overhead absorption: cost unit rate; direct labour hour rate; machine hour rate. Depreciation: straight line method; reducing balance method. Manufacturing costs: direct labour rates; overhead rates; material costs, subcontract costs, standard times, tooling costs, direct material costs. Written evidence that the candidate understands the principles of overhead allocation and absorption, depreciation, and calculation of manufacturing costs. 3. APPLY THE PRINCIPLES OF BREAK-EVEN ANALYSIS (d) Use of costs, profit and volume of sales to produce a break-even chart is correct. Use of the costs of production processes to determine their economic output quantity ranges is correct. Use of make and buy costs to produce a break even chart is correct. Correctly balance holding costs against order costs/setup costs to produce a simple economic order/batch quantity model. 3

4 The range statement for this outcome is fully expressed in the performance criteria. Written evidence is required as specified in PCs to (d). 4. EVALUATE PROJECT VIABILITY USING FINANCIAL APPRAISAL TECHNIQUES (d) Calculation of project viability using the payback period method and stated cash flows is correct. Calculation of project viability using the gross annual rate of return method and stated cash flows is correct. Calculation of project viability using the net present value method and stated cash flows is correct. Comparison of the results from the three different appraisal methods for two specified project cash flows is clear and concise. The range for this outcome is fully expressed in the performance criteria. Written evidence that the candidate can evaluate project viability using three different appraisal techniques as appropriate. MERIT To gain a pass in this unit, a candidate must meet the standards set out in the outcomes, performance criteria, range statements and evidence requirements. To achieve a merit in this unit, a candidate must demonstrate a superior sophisticated level of performance. This may be demonstrated by: (i) (ii) extracting and organising data; displaying a higher degree of the understanding of the concepts being applied

5 ASSESSMENT In order to achieve this unit, candidates are required to present sufficient evidence that they have met all the performance criteria for each outcome within the range specified. Details of these requirements are given for each outcome. The assessment instruments used should follow the general guidance offered by the SQA assessment model and an integrative approach to assessment is encouraged. (See references at the end of support notes). Accurate records should be made of the assessment instruments used showing how evidence is generated for each outcome and giving marking schemes and/or checklists, etc. Records of candidates achievements should be kept. These records will be available for external verification. SPECIAL NEEDS Proposals to modify outcomes, range statements or agreed assessment arrangements should be discussed in the first place with the external verifier. Copyright SQA 1997 Please note that this publication may be reproduced in whole or in part for educational purposes provided that: (i) (ii) no profit is derived from the reproduction; if reproduced in part, the source is acknowledged. 5

6 HIGHER NATIONAL UNIT SPECIFICATION SUPPORT NOTES UNIT NUMBER: UNIT TITLE: ECONOMICS OF MANUFACTURE SUPPORT NOTES: This part of the unit specification is offered as guidance. None of the sections of the support notes is mandatory. NOTIONAL DESIGN LENGTH: SQA allocates a notional design length to a unit on the basis of time estimated for achievement of the stated standards by a candidate whose starting point is as described in the access statement. The notional design length for this unit is 40 hours. The use of notional design length for programme design and timetabling is advisory only. PURPOSE This unit is designed to introduce the candidate to the basic concepts of economics associated with a manufacturing organisation. It is suitable for candidates in a wide range of vocational areas. CONTENT/CONTEXT Corresponding to the outcomes: Outcome 1 Identify cost categories from a range of typical company costs eg. operators wages, insurance, rates, director s fees, raw materials, oils and lubricants etc. Outcome 2 A typical example appropriate to each performance criterion. Outcome 3,, and Principles of break even analysis applied to a typical example appropriate to each of these performance criteria. (d) simple EBQ, EOQ, theory. (eg. constant demand). Outcome 4 Compare three different appraisal techniques against given cash flow profiles. APPROACHES TO GENERATING EVIDENCE Group discussion would be appropriate in the identification of the categories of costs associated with outcome 1. 6

7 ASSESSMENT PROCEDURES Centres may use the Instruments of Assessment which are considered by the tutors to be most appropriate. Outcome 1 could be assessed by using short answer or restricted response questions balanced appropriately across the PC s. Outcomes 2 and 3 could be assessed by simple exercises covering the appropriate PC s and where possible having them within a context familiar to the candidates. Outcome 4 could be assessed by a course study based on appraisal of given cash flow profiles. REFERENCES 1. Guide to unit writing. 2. For a fuller discussion on assessment issues, please refer to SQA s Guide to Assessment. 3. Information for centres on SQA s operating procedures is contained in SQA s Guide to Procedures. 4. For details of other SQA publications, please consult SQA s publications list. Copyright SQA 1997 Please note that this publication may be reproduced in whole or in part for educational purposes provided that: (i) (ii) no profit is derived from the reproduction; if reproduced in part, the source is acknowledged. 7