Running Head: COST ACCOUNTING 1

Cost accounting

Student’s name

Instructor’s name

Course code

Date
COST ACCOUNTING 2

Question 1

Support department costs include the direct expenses plus any costs it acquires from other

support department allocations. Overhead allocation as part of support department expenses

plays a crucial role in the industry’s services. It aids in setting commodity prices to ensure the

sector acquires a competitive advantage and revenue increase. These costs allow the

management to implement effective decisions and strategies to provide effective operational

services.

SERVICE DISTRIBUTION% Supporting Department Operating Department

Maintenance Personnel A B Total
Maintenance Hours 30% 40% 30% 100%
Number of Employees 35% 35% 30% 100%

Supporting Department Operating Department

Maintenanc
DIRECT ALLOCATION
Personnel A B
e
Departmental Cost before Allocations 350,000 400,000 450,000 350,000
Allocation
Maintenance Ratio of (40:30) (350,000) 200,000 150,000
Personnel Ratio of (35:30) (400,000) 215,385 184,615
Total Overheads 0 0 865,385 684,615

Operating
Supporting Department
Department
STEP METHOD OF ALLOCATION
Maintenanc
Personnel A B
e
Departmental Cost before Allocations 350,000 400,000 450,000 350,000
Allocation
Maintenance Ratio of (40:30) (350,000) 50,000 171,428 128,572
COST ACCOUNTING 3

Personnel Ratio of (35:30) (450,000) 242,308 207,692

Total Overheads 0 0 863,736 686,264

Question 2

A flexible budget, also known as a variable account, is an administration financial

proposal that estimates expenditure and revenue on the recent production tally basis (Adilli,

2020). This budget enables the industry to evaluate the actual performance using a similar

operation degree. Likewise, it assists the company to implement control measures. The flexible

budget allows straightforward product pricing and costing services and enables the industry to

map diverse business decisions. The static grant includes an account where the amounts do not

change even with particular volume changes. Likewise, a flexible budget enables effective cost

control and reduction management services. This budget increases the employees’ performance

evaluation aspects.

SOLITARE COMPANY

Flexible budget performance report

For month ended June 30, 2020

Budget
Actual Flexible Budget
Amounts Flexible Budget
Results Variance
per Unit
Units $10,700 8,300

Sales Revenue $ 100 1,070,000 0 NO 1,070,000

COST ACCOUNTING 4

variance
Variable
14 (698,220) (56,736) F (754,956)
Expenses
Contribution
371,780 56,736 F 315,044
Margin

Fixed Expenses (49,380) (12,000) U (37,380)

Operating
322,400 44,736 F 277,664
Income $

Flexible budget variance = 44,736 F

COST ACCOUNTING 5

References

Adilli, A. (2020). The Flexible Budget as a Development Tool: Evidence From the Personal

Preparation Course. Available at SSRN 3539720.