# Management Accounting Essay Example

1Management 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

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

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

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

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

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

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

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