Case Analysis Cover Sheet

Management Accounting 201

Due: 12 pm on Thursday, 1
st
May 2014
amily !ame " Surname:
Chin
#ther !ames:
Wei Jin
Student $D:
16716173
!ame o% Tutor:
Tutorial day:
Wednesday
Tutorial Time:
8.00 - 9.30AM
Ta&le o% Contents
1.0 Introductory 1
2.0 Costing Method
2.1 Conentiona! Costing Method 2-3
2.2 Actiity "ased Costing #-6
3.0 Issues
3.1 Issue 1 6-7
3.2 Issue 2 8-9
#.0 $eco%%endations 9
&.0 Conc!usion 10
6.0 $e'erences 10
1'0 $ntroduction
(his re)ort is ai%ed to deduce the di''rences *et+een the conentiona! )roduct costing
and actiity *ased costing ,A"C- to achiee the o)ti%a! costing %ethod 'or the use o'
.rinted Circuit "oard /e)art%ent o' 0i'e1ung Cor)oration. (he t+o costing %ethods
+ere co%)are to identi'y +hich %ethod shou!d *e ado)ted *y the co%)any2s .C"
/e)art%ent. Adantages and !i%itations o' *oth %ethods +ere discussed and e3)!ained
in detai! 'ro% ca!cu!ations *ased o' in'or%ation )roided *y the co%)any.
2'0 Costing Methods
2'1 Conventional (roduct Costing
.$4/4(4$MI54/ 674$84A/ C61(
0a*our 6erhead Cost )er 9nit : (ota! 0a*our 6erhead
(ota! 0a*our 8ours
: ;#3&<000
=,3000 3 2- > ,1000 3 1- > , &00 3 0.&-?
: ;60
Machine 6erhead Cost )er 9nit : (ota! Machine 6erhead
(ota! Machine 8ours
: ;&60<000
=,3000 3 1- > ,1000 3 2- > ,&00 3 #-?
: ;80
7aria*!e 6erhead Cost )er 9nit : (ota! 7aria*!e 6erhead
(ota! 9nits .roduced
: ;180<000
=3000>1000>&00?
: ;#0
/irect Materia! : nu%*er o' @i!ogra%s o' /irect Materia! 3 ;600

Adanced : 0.0&@g 3 ;600
:;30
"oosted : 0.07&@g 3 ;600
: ;#&
Custo%ised : 0.1@g 3 ;600
: ;60
/irect 0a*our : nu%*er o' hours +or@ed 3 ;80
Adanced : 2 3 ;80
: ;160
"oosted : 1 3 ;80
: ;80
Custo%ised : 0.& 3 ;80
: ;#0
9nit .roduct Cost
Adanced "oosted Custo%ised
0a*our $e!ated 6erhead ;120 ;60 ;30
Machine $e!ated 6erhead ;80 ;160 ;320
7aria*!e 6erhead ;#0 #0 #0
/irect Materia! ;30 ;#& ;60
/irect 0a*our ;160 ;80 ;#0
(ota! ;#30.00 ;38&.00 ;#90.00
2'2 Activity )ased Costing *A)C+
Actiity Cost .oo!
Actiity (ota! Cost ,;- (ota! Actiity $ate o' Actiity ,;-
.roduct 1chedu!ing 9#&00 370 2&&.#1
Ins)ection 17#000 8000 21.7&
.ac@aging and 166&00 #&00 37
1hi))ing
Machine 1etu) 176#00 17000 10.38
Machine Insertion 3003&0 1320000 0.23
Machine 1o!dering 832&0 207&00 0.#0
Aenera! 1u))!ies #0000 7000 &.71
.rocure%ent 7&000 207&00 0.36
8aBardous Waste
/is)osa!
6&000 60000 1.08
6erhead Cost 'or Adanced Circuitry
Actiity $ate o' Actiity ,;- (ota! Actiity A"C Cost ,;-
.roduct 1chedu!ing 2&&.#1 0.1 2&.&#
Ins)ection 21.7& 1 21.7&
.ac@aging and
1hi))ing
37 1 37.00
Machine 1etu) 10.38 2 20.76
Machine Insertion 0.23 120 27.60
Machine 1o!dering 0.#0 2& 10.00
Aenera! 1u))!ies &.71 1 &.71
.rocure%ent 0.36 2& 9.00
8aBardous Waste
/is)osa!
1.08 10 10.80
(ota! 168.16
6erhead Cost 'or "oosted Circuitry
6erhead Cost 'or Custo%ised Circuitry
Actiity $ate o' Actiity ,;- (ota! Actiity A"C Cost ,;-
.roduct 1chedu!ing 2&&.#1 0.10 2&.&#
Ins)ection 21.7& 6 120.&0
.ac@aging and
1hi))ing
37 1 37.00
Machine 1etu) 10.38 12 12#.&6
Machine Insertion 0.23 960 220.80
Machine 1o!dering 0.#0 12& &0.00
Aenera! 1u))!ies &.71 # 22.8#
.rocure%ent 0.36 12& #&.00
8aBardous Waste
/is)osa!
1.08 30 32.#0
(ota! 688.6#
9nit Cost 'or A"C Method
Adanced ,;- "oosted ,;- Custo%ised ,;-
/irect Materia! 30.00 #&.00 60.00
/irect 0a*our 160.00 80.00 #0.00
(ota! 6erhead Cost 168.16 328.73 688.6#
(ota! 3&8.16 #&3.73 788.6#
Actiity $ate o' Actiity ,;- (ota! Actiity A"C Cost ,;-
.roduct 1chedu!ing 2&&.#1 0.02 &.11
Ins)ection 21.7& 2 #3.&0
.ac@aging and
1hi))ing
37 1 37.00
Machine 1etu) 10.38 & &1.90
Machine Insertion 0.23 #80 110.#0
Machine 1o!dering 0.#0 70 28.00
Aenera! 1u))!ies &.71 2 11.#2
.rocure%ent 0.36 70 2&.20
8aBardous Waste
/is)osa!
1.08 1& 16.20
(ota! 328.73
,'0 $ssues
,'1 $ssue 1
Cost Co%)arison *et+een Conentiona! .roduct Costing and A"C
Circuitry Conentiona! .roduct
Costing ,;-
A"C ,;-
Adanced #30.00 3&8.16
"oosted 38&.00 #&3.73
Custo%ised #90.00 788.6#
-.pected (ro%its or /osses
.ro'it or 0oss : 1e!!ing .rice - .roduct Cost
.ro'itC0oss )er 9nit Manu'acturedD
Circuitry 1e!!ing .rice ,;- Conentiona!
.roduct Costing ,;-
A"C ,;-
Adanced #32.00 2.00 73.8#
"oosted #&0.00 6&.00 ,3.73-
Custo%ised 620.00 130.00 ,168.6#-
(ota! .ro'itC 0ossD
Circuitry Conentiona! .roduct
Costing ,;-
A"C ,;-
Adanced 6000 221&20
"oosted 6&000 ,3730-
Custo%ised 6&000 ,8#320-
(ota! 136000 133#70

1e!!ing 20E Mar@ 9) .rice
Circuitry A"C +ith 20E %ar@
u) ,;-
Conentiona! +ith 20E
%ar@ u) ,;-
Current 1e!!ing .rice
,E-
Adanced #29.79 &16.00 #32.00
"oosted &##.76 #62.00 #&0.00
Custo%is
ed
9#6.37 &88.00 620.00
Fro% the ta*!e a*oe< it is dis)!ayed that the .C" /e)art%ent has not *een %eeting
the 20E Mar@ 9) on the cost o' eery )roduct *ut Adanced Circuitry ,'ro% the A"C
%ethod-. (he ta*!es sho+ that the /e)art%ent has *een %a@ing !osses 'ro% "oosted
Circuitry and Custo%ised Circuitry and has *een %a@ing good )ro'it 'ro% Adanced
Circuitry.
.C" shou!d 'ocus on the three Circuits een!y as Adanced CircuitryGs )rice +as
higher than aerage +hi!e "oosted and Custo%ised +ere +e!! under)riced as re)orted
'ro% the 1a!es /e)art%ent.
,'2 $ssue 2
,'2'1 (ro&lems 0ith Conventional (roduct Costing Systems
1. /rien *y 7o!u%e "ased Cost /riersD (his assu%es that a!! )roducts are at unit
!ee! cost hence the cost is ca!cu!ated *y a%ount o' )roducts )roduced in genera! un!i@e
the A"C syste% +here*y is %ore detai! as it ca!cu!ates the cost o' %anu'acturing and
actiities.
2. /oesnt Inc!ude 5on-Manu'acturing CostsD Conentiona! .roduct Costing 1yste%s
do not ta@e into account 5on-Manu'acturing Cost such as Ins)ection o' .roduct or
trans)ortation o' )roduct to retai!ers.
3. 5ot *atch sensitieD Assu%es a!! *atches )roduced are the sa%e siBe. .rice does not
ary +hen *atch A is s%a!!er than the regu!ar *atch siBe< cost )er unit o' )roduct
re%ains constant. 9nder A"C 1yste%< *atch !ee! actiities are )er'or%ed each *atch o'
)roduct as to gauge the siBe o' the *atch.
,'2'2 Advantages 0ith Activity )ased Costing
1. It o''ers %ore accurate set o' data to sta@eho!ders.
2. Manage%ent +ou!d hae *etter ad%inistration o' )roducts at hand +ith the
identi'ication o' cost )oo!s and cost driers.
3. An accurate )roduct cost !eads to a %ore e''icient %ar@et )rice *eing decided.
,'2', /imitations o% Activity )ased Costing
1. Cost o' constant!y u)dating A"C is high as it reHuires e3tensie and detai!ed cost and
actiities.
2. (he data %ight *e s@e+ed due to high 'aci!ity !ee! cost ,non-)roduct cost-
4'0 1ecommendations
.C" shou!d o)t to use the A"C 1yste% due to the 'act that their *usiness ino!es
%any actiities that are not accosted 'or using the conentiona! %ethod. Instead o'
*asing cost so!e!y o'' %achine hours< A"C syste% tota!s u) cost 'ro% di''erent cost
driers such as ins)ection and %achine setu) that are actua! cost contri*uting to the
)roduction o' the Circuitries. It +as sho+n in Issue 1 that *y 'o!!o+ing the data
o*tained *y the A"C syste%< the .C" /e)art%ent %anaged to understand the situation
in hand +hich +as the under)ricing in *oth "oosted Circuitry and Custo%ised Circuitry
and the oer)ricing o' Adanced Circuitry.
A!so< .C" has *atch orders +hich are aried in siBe and +i!! create deiations in cost
ca!cu!ation using the Conentiona! Costing 1yste%s due to its ina*i!ity to di''erentiate<
'or e3a%)!e< the di''erence *et+een 3000 units o' Adanced Circuitry and &00
Custo%ised Circuitry. (here'ore< to o*tain a %ore accurate set o' cost data< .C" shou!d
i%)!e%ent Actiity "ased Costing 1yste%.
2'0 Conclusion
In this co%)etitie +or!d< eery co%)any needs to strie to *e as e''icient as
)ossi*!e in eery as)ect o' their co%)any in order to stay one ste) ahead o'' their
co%)etitors.
First!y< .C" needs to increase its e''iciency in )roduct costing as )ricing a
)roduct +rong!y can cause a +rong res)onse 'ro% the %ar@et and in turn trigger the
+rong decision o' the co%)any to act on the %ista@e. 6nce the costs are corrected<
.C" shou!d gather so%e ne+ res)onse on Adanced< "oosted and Custo%ised Circuitry
and %a@e a decision 'ro% then on to either 'ocus on "oosted and Custo%ised Circuitry
or sta*!y dee!o) +ays to increase )roductiity and %a3i%ise cost )er unit circuitry
*ui!t.
3'0 1e%erence
0ecture & I(o)ic &D Actiity "ased CostingI .o+er)oint 0ecture 5otes
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