Management Accounting Essay Example

1Management Accounting

Running Header: Management Accounting

Management Accounting

City and State Where Institution is Located

1a) Plant wide overhead rate for rising fast for the coming year using the same method as used in the past

Predetermined overhead rate = total estimated overhead/total estimated direct labor hours

Total estimated overhead = power department + Maintenance department cost = $18,400 + $4,000 = $22,400

Direct labor hours =Sum for the three departments = 500 + 2,000 + 1,500 = 4,000 hours

Predetermined overhead rate = $22,400/4,000 = $5.6 per hour

1b) Overhead estimation for Elite attaché case

Department

Number of hours @$5.6

Predetermined overhead

Molding department

Component department

Assembly department

Total predetermined overhead

The Elite attaché case would incur $50.4 overhead costs in its production.

2a) Allocation of maintenance department costs to the three manufacturing departments using direct method

NB// we allocate maintenance department costs on the basis of labor hours

Total number of hours = 125

Total maintenance department cost = $4,000

Allocation to Molding department = 90/125 * $4,000 = $2,880

Allocation to component department = 25/125* $4,000 = $800

Allocation to assembly department = 10/125*$4,000 = $320

2b) Allocation of power department costs to the three departments using direct method

NB// we allocate to the three departments on the basis of power usage

Total Power usage = 800 kWh

Total power department cost = $18,400

Allocation to molding department = 360/800* $18,400 = $8,280

Allocation to component department = 320/800 * $18,400 = $7,360

Allocation to assembly department = 120/800* $18,400 = $2,760

c) Computation of departmental overhead rates

Overhead allocated to;

Molding department = $2,880 + $8,280 = $11,160

Component department = $800 + $7,360 = $8,160

Assembly department = $320 + $2,760 = $3,080

New Departmental overhead rates

Molding department = Total overhead / Machine hours = $11,160/ 875 = $12.75/machine hour

Component department = Total overhead/ Direct labor hours = $8,160/2,000 = $4.08/Direct labor hour

Assembly department = Total overhead /Direct labor hours = $2,760/1,500 = $1.84/ Direct labor hour

3. Estimation of the overhead cost of the Elite attaché case

Department

Allocation rate

Number of hours

Predetermined overhead

Molding department

Component department

Assembly department

Total predetermined overhead

$12.75/ machine hour

$4.08/Direct labor hour

$1.84/Direct labor hour

Rising Fast should use departmental rates as opposed to plant wide rate to assign overhead to products since the departmental rate considers more factors than a plant wide rate and hence is likely to result in a more accurate allocation and is hence for planning purposes.4.

2. Product cost classification: Manufacture

  1. Total prime cost = Raw materials + Direct labour

Total prime cost = $1,050,000 +242,500 + 47,500 = $1,340,000

  1. Total manufacturing overhead costs = Indirect costs including service department costs, indirect labour on costs, on-cost for production supervisor, depreciation on factory building, indirect labour wages, production supervisor’s salary, total overtime premiums paid and cost of idle time : Production employees

Total manufacturing overhead = $50,000 + 15,000 + 4,500 + 57,500 + 70,000 + 22,500 + 27,500 + 20,000 = $267,000

  1. Direct Labor + Manufacturing OverheadsTotal conversion costs =

Total conversion costs = $242,500 + 47,500 + 267,000 = 557,000

  1. Total product costs for external reporting purposes

Raw materials = $1,050,000

= $557,000Add conversion costs

Cost of finished goods for the period = $1,607,000

= $57,500Less closing cost of finished goods

Cost of finished goods sold =$1,549,500

  1. Total period costs = They include administrative costs, rental of office space for sales personnel, sales commissions, product promotion costs and advertising expense

Total period cost = $75,000 + 7,500 + 2,500 + 5,000+ 49,500 = $139,500

3. Cost flows in a job costing system; schedule of cost of goods manufactured; automation: manufacture

Vision’s Pty Ltd

How much manufacturing overhead would Vision have applied to jobs to 30 November?

The predetermined overhead rate is $45 per machine hour

Number of hours to 30 November = 73,000

Manufacturing overhead applied= 73,000* $45 = 3,285,000

How much manufacturing overhead would be applied to jobs by Vision during December?

Predetermined overhead rate = $45/hour

Number of hours during December = 6,000 hours

Manufacturing overhead applied = $45* 6,000 = $270,000

The amount by which the manufacturing overhead is over applied or under applied as at 31 December.

Actual manufacturing overhead = $3,300,000 +288,000 = $ 3,588,000

$3,555,000Less predetermined overhead = $3,285,000 + 270,000 =

Under applied overhead = $33,000

The balance in Vision’s finished goods inventory account on 31 December.

the company has turned over to customers all jobs with exception of job N11-013, then this is the company’s closing stock and hence finished goods inventory on that date. stSince by December 31

The cost associated with finished goods inventory is calculated as follows;

Machine hours incurred for December = 6,000 while the overhead incurred is $288,000. Thus, the actual overhead application rate for the job = $288,000/6,000 = $48/hour

Thus Job N11-013 overhead for the month is given by number of hours for the job multiplied by the application rate = $48 * 1,000 = $48,000.

Direct materials = $12,000

Direct labour = $36,000

$48,000Overhead =

Cost for December= $ 96,000

$165,000Add balance b/f (Nov. 30)

finished goods inventory $261,000

Schedule of cost of goods manufactured for vision Pty Ltd for the year

Job N11-013 used direct materials

Schedule for manufactured goods

Computation of direct materials:

Raw materials purchased = $2,895,000+ 294,000 less raw material inventory = $315,000

Total raw materials used = $2,580,000 less indirect materials = $375,000 Direct materials used = $2, 499,000

Computation of labour cost

Labour = 2,535,000 + 240,000 = 2,775,000

Vision Pty Ltd

Cost of goods manufactured Schedule

Direct ,materials = $2,499,000

Direct labour = $2,775,000

Direct costs = $5,550,000

$3,300,000Manufacturing overhead =

Total manufacturing cost = $8,850,000

( $180,000)Less work in process =

Cost of finished goods = $8,670,000

References:

, London, Rutledge. , Managerial accountingKurt, H&, Sierra, C2016