Accounting Assignment

Intermediate Management
Accounting
Accounting Assignment

Prepared By
Student’s Name:
Date:
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Table of Contents
Introduction................................................................................................................ 3
Background................................................................................................................ 4
Main Body................................................................................................................... 4
Part-I........................................................................................................................... 4
Issue Identification..................................................................................................... 4
Identification of Key Success Factors.........................................................................5
Identification of Alternatives...................................................................................... 5
Quantitative Analysis.................................................................................................. 5
Recommendation....................................................................................................... 7
Part-II.......................................................................................................................... 8
Issue Identification..................................................................................................... 8
Identification of Key Success Factors.........................................................................8
Identification of Alternatives...................................................................................... 8
Quantitative Analysis.................................................................................................. 8
Answer to Question No.1............................................................................................ 8
Recommendation..................................................................................................... 12
Conclusion................................................................................................................ 12
References................................................................................................................... 13
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Introduction
The basis of allocation of indirect overheads is one of the most important factors in the process
of budget preparation as wrong allocation can result into the erroneous budget estimate. As per
the conventional method of Budget preparation there are primarily two main methods for the
allocation of the indirect manufacturing overheads relating to the product, which are known as
Traditional method of allocation and the allocation based on the activity-based costing. To have
an in-depth idea on the practical application and implication of these methodologies, a case study
divided into two parts has been selected in which the first part shows the application of the
Traditional based allocation of the manufacturing overhead and the second part reflects the use
of activity-based costing.
Background
Digital Electronics, a large New Zealand manufacturer of transmission equipment through its
one of the subsidiaries in Canada started production of the two-different product naming Delta 1
and the Delta 2. For which in the first part of our case study it was decided by its controller Dana
Boar to treat some expenses specifically as variable and rest as fixed on the basis of which
Break-even sales volume and the desired sales volume to earn the target profit is required to be
computed (Pamela & Tamara, 2013). Whereas in the second part she recognized the relevance of
the activity based costing and after making the requisite changes in the allocation procedure
using the ABC, the cost of the aforesaid products has been recalculated (Johan, 2018).
Main Body
Part-I
Issue Identification
In this case it is to be decided that what should be the Break-even sales volume of each of the
products naming Delta 1 and Delta 2, being manufactured by the subsidiary of the Digital
Electronics and the determination of the level of sales volume for the Subsidiary so as to ensure
that the target profit of $210000 as set by the Digital Electronics (parent Company) should be
achieved (Cundill, Smart, & Wilson, 2017).
The major problem in this case is that the break-even sales volume needs the correct estimation
of the fixed cost as well as the variable cost, to decide the correct amount of the contribution,
which are to be put finally in the formula to calculate the break-even sales and the desired
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