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Management Accounting Essay Example
- Category:Finance & Accounting
- Document type:Essay
- Level:High School
- Page:3
- Words:1846
Table of Content
1Management Accounting
Running Header: Management Accounting
Management Accounting
City and State Where Institution is Located
You are required to finish each of these questions, total 40 marks. Please give the solutions in detail, show calculations and submit the solutions to Moodle using a single file, it can be Excel format, Word format or PDF format, no requirement on word limits, if use any references, please refer to Harvard style.
Question 1: Support department cost allocation; plantwide versus departmental overhead rates; product costing; cost drivers: manufacturer (15 marks)
Rising Fast Pty Ltd manufactures a complete line of fibreglass attaché cases and suitcases. The firm has three manufacturing departments: Moulding, Component and Assembly. There are also two support departments: Power and Maintenance. The sides of the cases are manufactured in the Moulding Department. The frames, hinges and locks are manufactured in the Component Department. The cases are completed in the Assembly Department. Varying amounts of materials and time are required to manufacture each type of case.
Rising Fast has always used a plantwide overhead rate. Direct labour hours are used to assign overhead to products. The predetermined overhead rate is calculated by dividing the company’s total estimated overhead by the total estimated direct labour hours to be worked in the three manufacturing departments.
Liam Bolt, manager of cost accounting, has recommended that Rising Fast use departmental overhead rates. The planned operating costs and expected levels of activity for the coming year have been developed by Bolt and are presented by department in the following schedules. (All numbers are in thousands.)
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Manufacturing departments |
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Moulding |
Component |
Assembly |
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Departmental activity measures: |
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Direct labour hours |
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Machine hours |
0 |
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Departmental costs: |
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Direct material |
$ 1 250 |
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Direct labour |
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Manufacturing overhead |
21 000 |
16 200 |
22 600 |
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Total departmental costs |
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Use of support departments |
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Moulding |
Component |
Assembly |
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Maintenance: |
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Estimated usage in labour hours for the coming year |
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Power (in kilowatt hours): |
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Estimated usage for the coming year |
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Support departments |
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Maintenance |
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Departmental activity measures: |
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Estimated usage for the coming year |
125 labour hours |
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Departmental costs: |
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Materials and supplies (variable) |
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Variable labour |
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Fixed overhead |
12000 |
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Total support department costs |
Required:
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Liam Bolt has been asked to develop departmental overhead rates for comparison with the plant wide rate. The following steps are to be followed in developing the departmental rates:
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Estimate the overhead cost of the Elite attaché case using the departmental overhead rates. 5 machine hours in moulding department @$12.75/hour = $63.77 3 Direct labour hours in compartment department @$4.08/hour = $12.24 = $4.112 direct labour hours in assembly department @$2.05/hour Estimated overhead cost for Elite attaché case = $80.12 |
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Should Rising Fast use a plant wide rate or departmental rates to assign overhead to products? Explain your answer. Rising Fast should use a departmental rate to assign overheads to products since this is not a blanket allocation and it recognises that different departments consume differing levels of resources and hence the department that uses more of a certain resource is allocated more overhead with the one using less of the resource being allocated less overhead. This gives a high chance of allocating the actual amount of overhead to the department as opposed to plant wide allocation that uses one rate for the entire plant regardless of the level of usage by each department. |
Question 2: Product cost classification: manufacturer (10 Marks)
The following cost data for the current year relate to Heartstrings Pty Ltd, a greetings card manufacturer:
Service department costs1 $ 50 000
Direct labour: wages 242 500
Direct labour: on-costs 47 500
Indirect labour: on-costs 15 000
On-costs for production supervisor 4 500
Administrative costs 75 000
Rental of office space for sales personnel2 7 500
Sales commissions 2 500
Product promotion costs 5 000
Direct material 1 050 000
Advertising expense 49 500
Depreciation on factory building 57 500
Cost of finished goods inventory at year end 57 500
Indirect labour: wages 70 000
Production supervisor’s salary 22 500
Total overtime premiums paid 27 500
Cost of idle time: production employees3 20 000
Required:
Calculate each of the following costs for the year:
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Total prime costs.
Direct labor: Wages $242,500
Direct labor: On costs $47,500
$1,050,000Direct materials
$1,340,000Prime costs
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Total manufacturing overhead costs.
Indirect labor: On costs $15,000
Sevice department costs $50,000
On costs for production supervisor $4,500
Depreciation of factory building $57,500
Indirect labour: Wages $70,000
Production supervisor’s salary $22,500
Overtime premiums paid $27,500
$20,000Cost of idle time
Total manufacturing overhead costs $267,000
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Total conversion costs.
Prime costs $1,340,000
$267,000Total manufacturing overhead costs
Total conversion costs $1,607,000
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Total product costs (for external reporting purposes).
Raw materials $1,050,000
Direct labor $290,000
$112,500Variable manufacturing overhead costs
Total variable manufacturing costs $1,452,500
$154,500Fixed manufacturing overhead costs
Cost of goods available for sale $1,607,000
$57,500Less closing inventory
Cost of goods sold/Product cost $1,549,500
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Total period costs.
Administrative costs 75 000
Rental of office space for sales personnel2 7 500
Sales commissions 2 500
Product promotion costs 5 000
49 500Advertising expense
Total period costs $139,500
Question 3: Cost flows in a job costing system; schedule of cost of goods manufactured; automation: manufacturer (15 marks)
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Vision Pty Ltd, a manufacturer of fibre-optic communications equipment, uses a job costing system. Since the production process is heavily automated, manufacturing overhead is applied on the basis of machine hours using a predetermined overhead rate. The current annual rate of $45 per machine hour is based on estimated manufacturing overhead costs of $3 600 000 and an estimated cost driver level of 80 000 machine hours. Operations for the current year have been completed, and all the accounting entries have been made for the year except the application of manufacturing overhead to the jobs worked on during December, the transfer of costs from work in process to finished goods for the jobs completed in December, and the transfer of costs from finished goods to cost of goods sold for the jobs that have been sold during December. Summarised data as at 30 November, and for December, are presented in the following table. Job numbers T11-007, N11-013 and N11-015 were completed during December. All completed jobs except Job number N11-013 had been turned over to customers by the close of business on 31 December.
* Raw material purchases and raw material inventory consist of both direct and indirect materials. The balance of the raw material inventory account as at 31 December is $255 000. Required:
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* Raw material purchases and raw material inventory consist of both direct and indirect materials. The balance of the raw material inventory account as at 31 December is $255 000.
References:
, John Willey & Sons.Managerial accounting, New YorkProctor, R2012,