MANAGEMENT ACCOUNTING 1

GROUP ASSIGNMENT

FIRST SEMESTER 2022 – 2121910004301

Group member:

No Student’s ID Student’s name Leader Task/exercise/part

1 2021001497 Nguyễn Thị Quế Phương x Question 01

2 2021006340 Nguyễn Hằng Phương Question 02

3 2021006364 Trần Huỳnh Nhật Phong Question 03

4 2021001259 Lương Ngọc Trâm Question 04

QUESTION 01:

Interior door:

Direct manufacturing labor cost per hour: $16

Direct manufacturing labor cost – hours per unit = 1.50

Direct manufacturing labor cost per unit = $16*1.50 = $24

Exterior door:

Direct manufacturing labor cost per hour: $16

Direct manufacturing labor cost – hours per unit = 2.25

Direct manufacturing labor cost per unit = $16*2.25 = $36

Simple costing system:

Total indirect cost is allocated based machine hours:

Total indirect costs:

Activity Activity Cost

Production scheduling $95,000

Material handling $45,000

Machine setup $25,000

Assembly $60,000

Inspection $8,000

Marketing [3%*($125*3200 + $200*1,800)] $22,000

Total Indirect costs $225,800

Total machine hours = 5,500 + 4,500 = 10,000 hours

Indirect cost per machine hour = $255,800/10,000 = $25, 58

Allocation to Interior door = $25, 58 * 5,500 = $140,690

Allocation to Exterior door = $25, 58 * 4,500 = $115,110

Cost of an interior door and an exterior door under the existing simple costing system:
 Simple Costing System  

  Interior Exterior

Per Total (3200 Per Total (1800

unit Units) unit units)

Direct material cost $30 $96,000 $45 $81,000

Direct manufacturing $16 $76,800 $36 $64,000

labor cost

Indirect costs ($25,58 *   $140,690   $115,110

machine hours)

Total cost   $313,490   $260,910

Per unit cost   $97,97   $144,95

2/

Activity Total cost of Cost driver Cost diver Allocation rate ($)
activity ($) quantity (Total cost of activity /
Cost of driver quantity)

Product 95,000 Production 125 760.00

scheduling runs (40+85)
Material 45,000 Material 240 187.50
handling moves (72+168)

Machine 25,000 Machine 200 125.00

setups setups (45+155)

Assembly 60,000 Machine 10,000 6.00

hours

Inspection 8,000 Inspections 400 20.00

(250+150)

Marketing Percentage 0.03

of revenues

ABC system Interior Exterior

Direct materials $96,000 $81,000

Direct manufacturing 76,800 64,800

labour

Indirect costs allocated:

Production scheduling 30,400 64,600

($760 *40) ($760*85)

Material handling 13,500 31,500

($187.50*72) (187.50*168)

Machine setup 5,625 19,375

 ($125*45) ($125*155)

Assembly 33,000 27,000

($6*5,500) ($6*4,500)

Inspection 5,000 3,000

($20*250) ($20*150)

Marketing 12,000 10,800

(0.03*$125*3,200)

(0.03*$200*1,800)

Total costs

Total costs per unit $85.10 $167.82

($272,325/3,200 units)
($302,075/ 1,800 units)

3/ Simple costing system

-Interior: $97.97

-Exterior: $144.95

Activity-based costing system

-Interior: $85.10

-Exterior: $167.82

Different:
 -Interior: $12.87

-Exterior: $22.87

Relative to the ABC system, the simple costing system overcosts interior doors and
undercostsexterior doors. Interior doors require 1.72 machine-hours per unit (5,500 hours
÷ 3,200 units) while exterior doors require 2.5 machine-hours per unit (4,500 hours ÷
1,800 units). In thesimple-costing system, overhead costs are allocated to the interior and
exterior doors on the basisof the machine-hours used by each type of door. The ABC
study reveals that the ratio of the costof production runs, material moves, and setups for
each exterior door versus each interior door iseven higher than the ratio of 2.5 to 1.72
machine-hours for each exterior relative to each interiordoor. This higher ratio results in
higher indirect costs allocated to exterior doors relative tointerior doors in the ABC
system

QUESTION 02:

1/ Overhead is allocated based on machine-hours.

pre-determined Overhead rate = Total overhead /machine hours

$226,800/10,500

=$21.6 per machine hour

now we will allocate it

Job 215 Job 325

Machine hours 40 60

Total overhead allocated 864[40*$21.6] 1,296[60*$21.6]

2/ Activity base costing

Budgeted Activity Budgeted

Overhead Driver Quantity of Budgeted Overhead
Activity /Budgeted Quantity
Driver

Purchasing $35,000 Purchase 2,000

orders $17.5[$35,000/2,000]
processed

Material 43,750 Material 5,000

$8.75[$43,750/5000]
handling moves

Machine 118,650 Machine- 10,500

$11.3[$118,650/10,500]
maintenance hours

Product 9,450 Inspections 1,200

$7.875[$9,450/1,200]
inspection

Packaging 19,950 Units 3,800

$5.25[$19,950/3,800]
produced

$226,800
 Budgeted Job 215 Job 325
Overhead /Budgeted
Quantity

Purchasing Purchase $437.5[$17.5*25 $140[$17.5*8]

$17.5[$35,000/2,000] orders ]
processed

Material Material $87.5[$8.75*10] $35[$8.75*4]

$8.75[$43,750/5000]
handling moves

Machine Machine- $452[$11.3*40] $678[$11.3*60]

$11.3[$118,650/10,50
maintenanc hours
0]
e

Product Inspection $70.875[$7.875* $23.625[$7.875*

$7.875[$9,450/1,200]
inspection s 9] 3]

Packaging Units $78.75[$5.25*15 $31.5[$5.25*6]

$5.25[$19,950/3,800]
produced ]

Total $1,126.625 $908.125

c/

Sheri’s Custom Framing favor the ABC job-costing system over the simple job-costing
system, especially in its bidding process because activity-based costing system helps in
determining accurate product cost. Activity based costing uses multiple cost drivers
whereas traditional costing system uses single cost driver.

QUESTION 3:

A/

SANTA LTD

Statement of cost showing the various elements cost and profit

Raw material

Beginning Raw material inventory 60,000

Add purchases of raw material 2,200,000

Raw material available for use 2,260,000

Less ending raw material 80,000

Raw material consumes 2,180,000

Add Direct labor 1,300,000

Prime cost 3,480,000

Add manufacturing Overhead (1300000*60%) 780,000

Works cost 4,260,000

Add beginning Work in process 80,000

Less ending work in process -120,000

Cost of goods Manufactured 4,220,000

Add Beginning inventory of Finished goods 140,000

Less ending inventory of finished goods -160,000

Cost of goods sold 4,200,000

Add general and adminstrative expenses 275,000
(5,500,000*5%)

Selling expenses 550,000

(5,500,000*10%)

Cost of sales 5,025,000

Profit 475,000

Sales 5,500,000

b.

Increment analysis

Continue Eliminate Net income

increase/decrease

Sale 1,680,000 1,680,000

Variable costs

Direct material 280,000 - 280,000

Direct Labour 448,000 - 448,000

Direct expenses 560,000 - 560,000

Total variable 1,288,000 - 1,288,000

expense

Contribution 392,000 - 392,000

margin

Fixed costs 560,000 410,000 150,000

 Net income 168,000 410,000 242,000

The management should not close the department Z as it has increased the loss by
$242,000.

QUESTION 4:

Cost Allocation: When items of cost are identifiable directly with some products or
departments such costs are charged to such cost centers. This process is known as cost
allocation. Wages paid to workers of service department can be allocated to the
department. Indirect materials used by a particular department can also be allocated to
that department. Cost allocation calls for two basic factors - (i) Concerned
department/product should have caused the cost to be incurred, and (ii) exact amount of
cost should be computable.

Cost Apportionment: When items of cost cannot directly be charged to or be accurately

identifiable with any cost centers, they are prorated or distributed amongst the cost
centers on some pre-determined basis. This method is known as cost apportionment.
Thus, items of indirect costs residual to the process of cost allocation are covered by cost
apportionment. The pre-determination of suitable basis of apportionment is very
important and usually following principles are adopted - (i) Service or use, (ii) Survey
method, or (iii) Ability to bear. The basis ultimately adopted should ensure an equitable
share of common expenses for the cost centers and the basis once adopted should be
reviewed at periodic intervals to improve upon the accuracy of apportionment.

b/

The main objectives of cost accounting are as under: (i) To ascertain the costs under
different situations using different techniques and systems of costing. (ii) To determine
the selling prices under different circumstances. (iii) To determine and control efficiency
by setting standards for Materials, Labour and Overheads. (iv) To determine the value of
closing inventory for preparing financial statements of the concern. (v) To provide a basis
for operating policies of the concern.

c/

Master Budget is the budget prepared to cover all the functions of the business
organization. It can be taken as the integrated budget of business concern, that means, it
shows the profit or loss and financial position of the business concern such as Budgeted
Profit and Loss Account, Budgeted Balance Sheet etc. Master budget, also known as
summary budget or finalized profit plan, combines all the budgets for a period into one
harmonious unit and thus, it shows the overall budget plan. The master budget
incorporates all the subsidiary functional budgets and the Budgeted Profit and Loss
Account and Budgeted Balance Sheet. Before the budget plan is put into operation, the
master budget is considered by the management and revised if the position of profit
disclosed therein is not found to be satisfactory. After suitable revision made, the Master
Budget is finally approved and put into action.