Cost Ascertainment Techniques in Business

This assignment delves into the crucial aspect of cost ascertainment within businesses. It emphasizes understanding different expenditure headings that facilitate accurate cost calculation for specific jobs or services. The document provides a detailed breakdown of variable overhead, indirect overhead, administrative overhead, manufacturing overhead, and various other cost categories with illustrative examples. This knowledge is essential for effective cost management and informed decision-making in any business setting.

Running head: ACCOUNTING FOR MANAGERS
Accounting for Managers
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1ACCOUNTING FOR MANAGERS
Table of Contents
Answer 1: Bonza Handtools Limited..............................................................................................2
Answer 2: The Tassie Company......................................................................................................6
(i) Production capacity of the factory at 200,000 units per year:................................................6
(ii) Manufacturing ability of the factory with 180,000 units each year:......................................7
Question 3: ABC Limited................................................................................................................8
1. Allocation rate of Overhead:...................................................................................................8
2. Total costs associated with special order:................................................................................8
3. Cost related with special order:...............................................................................................8
4. Minimum price for each trailer:...............................................................................................9
5. Importance of activity-based costing with different overhead cost pools for pricing.............9
Question 4: Role of overhead segmentation in allocating overhead costs to individual jobs or
services............................................................................................................................................9
References:....................................................................................................................................11

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Answer 1: Bonza Handtools Limited
Bonza Handtools Limited’s Profitability position for the current plan and three
alternatives
Particulars Note Details Existing Plan Alternative 1 Alternative 2 Alternative 3
Actual Sales (A) Units Per annum 20,000 20,000 25,000 24,000
Sales (B) Units Beginning 3 months 6,000 6,000 6,000 10,000
Sales (C) Units Remaining Period 14,000 14,000 19,000 14,000
Selling price/unit
(D)
$ Beginning 3 months 130 140 130 120
Selling price/unit
(E)
$ Remaining Period 130 140 130 130
Variable
manufacturing
cost/unit (F)
$ Provided 50 50 55 50
Variable selling
and administrative
cost/unit (G)
$ Provided 30 30 30 30
Total sales (G) $ [(B) x (D) + (C) x
(E)]
2,600,000 2,800,000 3,250,000 3,020,000
Total variable
manufacturing
cost (H)
$ [(A) x (F)] 1,000,000 1,000,000 1,375,000 1,200,000

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Total selling and
administrative
cost (I)
$ [(A) x (G)] 600,000 600,000 750,000 720,000
Contribution (J) $ [(G) - (H) - (I)] 1,000,000 1,200,000 1,125,000 1,100,000
Fixed
manufacturing
cost (K)
$ Provided 400,000 400,000 400,000 400,000
Fixed selling and
administrative
cost/unit (L)
$ Provided 300,000 300,000 300,000 300,000
Advertising and
promotion cost
(M)
$ Provided - 125,000 50,000 40,000
Earnings Before
Interest and Tax
(EBIT) (N)
$ [(J) - (K)- (L) - (M)] 300,000 375,000 375,000 360,000
Interest (O) $ Not
Applicable/Provided
- - - -
Earnings Before
Tax (EBT) (P)
$ [(N) - (O)] 300,000 375,000 375,000 360,000
Tax (Q) $ Not
Applicable/Provided
- - - -
Earnings After $ [(P) - (Q)] 300,000 375,000 375,000 360,000

4ACCOUNTING FOR MANAGERS
Tax (EAT)
To,
The Directors of Bonza Handtools Limited
Date: 04.01.2018
Subject: Evaluation of the three present proposals
Respected Sir,
After detailed elaboration regarding the three present proposals, the report was prepared
through indicating the impact and advantages of the proposals within the company. These are
explained under:
Proposal 1:
Considering the Jan Rossi proposal, the company’s accountant indicated that selling price
requires being $140 per unit for increasing its total profit level. The table above clearly indicates
that the company can observe a profit increase from $300,000 to $375,000 because of which the
amount will boost to $75,000. An increased profit margin can be attained with support of
suitable advertising campaign that has expenses of $125,000 (Schmidt, Götze and Sygulla 2015).
Conversely, the company’s risk level might be increased in case the advertising campaign is not
capable to gather attention of the consumers. Because of this, there will be significant drop in the
company’s promotion and advertising expense.
Proposal 2:

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The production manager of Bonza Handtools Limited that is Tom Tune, indicated that
certain product quality improvement might be attained through enhancing total sales volume by
25% along with variable cost by $5 per unit. It can be supported through promotional tool use
that amounts to $50,000 (Seuring and Goldbach 2013). Conversely, the advertising campaign
expense is less in comparison to the first proposal that can result in increased profit of $75,000.
This is due to the consumers’ satisfaction level with improvement in the product quality.
Proposal 3:
The sales manager of the company that is Mary Watson explained that the selling price
each unit is needed to be decreased by $10 in the initial three months of the financial year
(Rieckhof, Bergmann and Guenther 2015). In addition, the requirement for experiencing $40,000
is present as a part of advertising expense in order to attain a profit of $60,000. Moreover, such
approach cannot offer any positive result for the company in the upcoming years. This due to the
reason that the consumers might perceive the price of product has decreased as the company has
compromised with quality of products and for this reason, the capability of revenue generation of
the company can be decreased (Pettersson and Segerstedt 2013).
Recommendations:
From the above analysis, the directors of Bonza Handtools Limited are advised to accept
proposal from the production manager of the company that is Tom Tune. This is due to the
reason that the manager has centered on improving the product quality along with total sales
volume. This might facilitate of gathering profit of around $75,000. Despite an identical profit
level as the accountant’s proposal, there is increased risk factor in the final proposal due to
further concentration on the advertising and promotional campaign (Kokubu 2013).

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Answer 2: The Tassie Company
The table below has been prepared relied on the recent plan along with certain proposed
manufacturing capacities of the company relied on the following information:

7ACCOUNTING FOR MANAGERS
(i) Production capacity of the factory at 200,000 units per year:
From the above information, it is gathered that Tassie Company might produce 200,000
units each year. Moreover, the company is focused on producing 150,000 units with respect to
the recent plan (Bebbington, Unerman and O'Dwyer 2014). In this scenario, the company is not
required to compromise its own manufacturing level for bidding the production of 40,000
product units associated with government department. For this reason, the company might be
capable to sell the goods at $10.8 each unit that is attained through totaling variable cost, fixed
cost along with 20% markup on the cost price (Otley and Emmanuel 2013).
(ii) Manufacturing ability of the factory with 180,000 units each year:

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Relied on the current situation, the Tassie Company might manufacture more than
180,000 units each year and conversely, the present production level is around 150,000 units
each year. For this reason, the company is needed to give away 10,000 units of individual
production, within which it attains profit of around $2.50 each unit in order to accept the
government contrast (Drury 2013). Therefore, for initial beginning 30,000 units, the first price
can be $10.80 and for some more units, the amount might be $13.30 each unit. Moreover, the
overall average price of 40,000 units has been recorded at $11.43 (Klychova et al. 2015).
Question 3: ABC Limited
1. Allocation rate of Overhead:
2. Total costs associated with special order:

9ACCOUNTING FOR MANAGERS
3. Cost related with special order:
4. Minimum price for each trailer:
5. Importance of activity-based costing with different overhead cost pools for pricing
“Activity-based costing” and “segmented overhead cost pools facilitate in allocation of
incurred amount on a particular activity relied on the department head (Kim and Sohn 2013).
Considering the activity based costing, the allocated cost for activity based on the time devoted
amount within the production department for products and services production. The cost pool
indicates certain direct cost, while the anticipated hours might be recognized in the cost driver
form. This might facilitate in cost decrease, preparing competitive pricing strategy along with a
boost in business profit (Klychova et al. 2015). For instance, certain supervision charges might
be apportioned relied on total staff numbers within the particular department.

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Question 4: Role of overhead segmentation in allocating overhead costs to individual jobs
or services
The overhead segmentation might be advantageous in cost ascertainment which is not
explained within the course of normal business while anticipating overhead expenses and these
are not associated with it (Fullerton, Kennedy and Widener 2014). The expenditures and income
might be apportioned to every manufacturing department that might facilitate in knowing the
segments of business that is increasingly profitable. In contract to that, if the company centres on
a particular product, the overhead expenses might be efficient that might facilitate managers in
anticipation of profitability of the product line. Moreover, the accountant of a particular company
might recognise overhead that might result in differences in the product profit whether
negatively or positively (Fullerton, Kennedy and Widener 2013). The overhead expenses might
be separated in several expenditure headings that might facilitate cost ascertainment for certain
jobs or services. Few examples are presented in a table form as below:
Variable overhead Indirect overhead Administrative
overhead
Manufacturing
overhead
 Earnings for
handling of
materials
 Manufacturing
supplies along
with tools utilities
 Costs associated
with office and
telephone
 Managerial
salaries
 Research and
development
expenses
 Front office
expenses
 Office supplies
 Outer audit and
legal costs
 Expenses or
wages
 Management and
 Developing rent
of factory
 Preservation
personnel and
managers’ salaries
 Factory
equipments
 Property taxes

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 Legal fees
 Fees of
accounting and
auditing
selling utilities
 Sales office and
lease of
administration
 Janitorial staffs
Wages

12ACCOUNTING FOR MANAGERS
References:
Bebbington, J., Unerman, J. and O'Dwyer, B. eds., 2014. Sustainability accounting and
accountability. Routledge.
Drury, C.M., 2013. Management and cost accounting. Springer.
Fullerton, R.R., Kennedy, F.A. and Widener, S.K., 2013. Management accounting and control
practices in a lean manufacturing environment. Accounting, Organizations and Society, 38(1),
pp.50-71.
Fullerton, R.R., Kennedy, F.A. and Widener, S.K., 2014. Lean manufacturing and firm
performance: The incremental contribution of lean management accounting practices. Journal of
Operations Management, 32(7), pp.414-428.
Kim, J.B. and Sohn, B.C., 2013. Real earnings management and cost of capital. Journal of
Accounting and Public Policy, 32(6), pp.518-543.
Klychova, G.S., Zakirova, A.R., Zakirov, Z.R. and Valieva, G.R., 2015. Management aspects of
production cost accounting in horse breeding. Asian Social Science, 11(11), p.308.
Kokubu, K., 2013. Material Flow Cost Accounting: Significance and Practical Approach∗.
In Handbook of sustainable engineering (pp. 351-369). Springer Netherlands.
Otley, D. and Emmanuel, K.M.C., 2013. Readings in accounting for management control.
Springer.
Pettersson, A.I. and Segerstedt, A., 2013. Measuring supply chain cost. International Journal of
Production Economics, 143(2), pp.357-363.