Value Chain and Key Management Issues

This document discusses the value chain of organization ABC Inc and identifies key management issues. It explains the support functions and primary activities of the organization and how these activities affect the cost and accounting practices. The document also provides insights into the allocation of overhead costs and the most appropriate method for departmental cost allocations.

Assignment 1
Name of the Student
Name of the University
Author Note

Table of Contents
Answer to question 1:.................................................................................................................3
Answer to question 2:.................................................................................................................4
Answer to question 3:.................................................................................................................5
Answer to question 4:.................................................................................................................7
Answer to question 5:.................................................................................................................8
Bibliography.............................................................................................................................10

Answer to question 1:
The value chain of the organization ABC Inc is given above.
The support functions are as follow:
Legal: The legal team looks after the cases and legal issues pertaining to different arm of
the group companies
IT: The IT team is responsible for installation and maintenance of IT software and
hardware across the different group companies
Finance and Accounts: The team looks after accounting of all the departments and finance
team looks after arrangement and disbursing of funds across the group companies.
Audit: The audit team regularly check the accounts, stock etc. for its accuracy
Human Resource: The team looks after recruitment, HR planning and exit formalities
The primary activities are:
Inbound Logistics: As the company is primarily into export and import, this function is
responsible for importing goods into the country
Operations: After arrival of goods some operation is performed in order to make the
product market ready
Outbound logistics: Deals with the export to different countries

Marketing and sales: Deals with generating lead in the country
Services: It is related to the services of the product received in the country.
Key management issues identified by the value chain
Due to inbound logistics, the accounting takes care of the items received and their cost
including all the import cost. The operation activities affect the cost due to its activities. The
outbound logistics takes care of management accounting practices related to sale value and
export cost. Due to marketing and sales activities, different cost including marketing
activities is included in the accounting practices. The service cost is also included due to its
activity.
Similarly, the support activities are also cost center and included in the management
accounting.
Answer to question 2:
Portland Precision Engineering Co Ltd
As on 31st December 2018
Question 1: Cost of
Manufactured
Amount Amount
BI Raw Materials $67,200.00
Purchases $1,94,600.00
Freight Inwards $2,800.00
RM Available $2,64,600.00
Less EI Raw Mat -$71,500.00
Direct materials $1,93,100.00
Direct labor $4,90,000.00
Indirect labour costs incurred $77,200.00
Council rates $90,000.00
Depreciation on factory machinery $10,750.00
Indirect material used $8,726.00
Depreciation on factory fittings $6,400.00
Factory rent expense $39,270.00
Other manufacturing expenses $5,600.00
Sales salaries expense $1,21,520.00
Electricity for factory $58,800.00
Insurance on factory and equipment $22,120.00
Manuf OH applied $4,40,386.00
Manuf Cost Added $11,23,486.00
Beg Invent WIP $49,000.00
Total Man Costs $11,72,486.00
Less EI WIP -$50,700.00

Cost Goods Manufactured $11,21,786.00
Begin Invent FG $21,000.00
FG Avail for Sale $11,42,786.00
Less EI Fin Goods -$2,01,500.00
Cost of Goods Sold $9,41,286.00
Income Statement
Revenues $14,00,000.00
Cost of Goods Sold -$9,41,286.00
Gross Margin $4,58,714.00
Selling and Administrative expenses -$22,880.00
Advertising expense -$20,800.00
Income tax expense -$32,400.00
Net Profit $3,82,634.00
Answer to question 3:
Moldin
g
Assembl
y Total
Questio
n 1
Total Cost after departmental allocation using direct
method
100966
7 910333
Divided by: Allocation base 40000 160000
Overhead Rate 25.2417 5.68958
Questio
n 2 Overhead Rate 25.2417 5.68958
Multiply by: Number of hours 3 5
Overhead cost allocated 75.725 28.4479
104.17
3
Overhead cost of Thingamabob
104.17
3
Questio
n 3
Total Cost after departmental allocation using step
method
101650
0 903500
Divided by: Allocation base 40000 160000
Overhead Rate 25.4125 5.64688
Questio
n 4 Overhead Rate 25.4125 5.64688
Multiply by: Number of hours 3 5
Overhead cost alllocated 76.2375 28.2344
104.47
2
Overhead cost of Thingamabob
104.47
2

Part 5:
Allocation of overheads under reciprocal method:
Let Total overheads of Repairs department be 'X'
Total overheads of Engineering department be 'Y'
X = 100,000 + 0.2Y...…………….(1)
Y = 580,000 + 0.1 X...…………….(2)
Substituting (1)
Y = 580,000 + 0.1(100,000+0.2Y)
Y = 580,000 + 10,000+ 0.02Y
0.98 Y = 590,000
Y = 602,041
Substituting the value of Y in (1)
X = 100,000 + 0.2(602,041)
X = 220,408
Particulars Molding Assembling Repairs Engineering
Overheads before allocation 5,00,000 7,40,000 1,00,00
0 5,80,000
Allocation:
Repairs (3:15:2) 33,061 1,65,306
-
2,20,40
8
22,041
Engineering (17:3:5) 4,09,388 72,245 1,20,40
8 -6,02,041
Total departmental overheads ($) 9,42,449 9,77,551 0 0
Overhead rate for Molding = Overhead rate for Molding = (total overhead cost)/(Machine
hours) = 942,449/40,000} = 23.561225

Overhead rate for Assembling = Total overhead cost/Labour hours
= 977,551/160,000
= 6.10969
Part 6: Total Overhead cost of Thingamabob
= (23.561225*3) + (6.10969*5)
= 70.68 + 30.55
= 101.23
Part 7:
Reciprocal method is the most appropriate method of departmental cost allocations. It
considers the interdepartmental services between service departments where in case of direct
method and step method service department costs are allocated only for production
departments. Hence it is considered as most accurate method.
Answer to question 4:
Given information:
Collaroy Products Ltd budget
Preparation Finishing
Manufacturing overhead 285600 684000
Machine hours 6,800 9,000
Direct labour hours 13,000 24,000
Direct labour cost 240000 380000
The accounting records for Job 842 reveal the following:
Preparation Finishing
Direct materials requisitioned 1300 1420
Direct labour cost 1640 1800
Direct labour hours 90 100
Machine hours 40 50
Part 1: Calculation of Predetermined Overhead rate:
Preparation department = Total Overhead / Total Machine hours
= 285600 / 6800
=$42 per machine hour
Finishing Department = Total Overhead / Total Labour cost
= 684000/380000

=$1.8 per $ of labour cost
Part 2: Total Cost of Job 842:
Particulars $ $
[a] Direct Material requisition
[i] Preparation Department 1300
[ii] Finishing Department 1420 2720
[b] Direct labour cost
[i] Preparation Department 1640
[ii] Finishing Department 1800 3440
[c] Manufacturing Overhead [working 1]
[i] Preparation Department 1680
[ii] Finishing Department 3240 4920
Total cost 11080
Working 1:
For Preparation Department
In preparation department, overhead are distributed on the basis of machine hour used.
So Job 842 used 40 hours.
Therefore preparation department head = 40*42 = 1680
For Finishing Department:
In finishing department, overhead cost is distributed on the basis of direct labour cost.
Therefore, finishing department head = 1800*1.8 = 3240
Part 3:
Standard factory overhead in finishing department for labour cost of $375800 =
$375800*1.8
= 676440
Actual overhead cost = $682500
Therefore, overheads are over applied by (682500-676440) = $6060
Answer to question 5:
Weighted average method FIFO
Particulars Materials Conversion Materials Conversion
Opening $ 1,88,000.00 $ 88,000.00 $ - $ -
Added during process $ 3,28,000.00 $ 5,45,600.00 $ 3,28,000.00 $ 5,45,600.00
Total $ 5,16,000.00 $ 6,33,600.00 $ 3,28,000.00 $ 5,45,600.00
Equivalent Units $ 60,000.00 $ 52,000.00 $ 40,000.00 $ 44,000.00
EQ unit per unit $ 8.60 $ 12.18 $ 8.20 $ 12.40

Under weighted average method:
Cost of goods sold =
(50000*8.6) + (50000*12.18)
= 430000+609230.77
=1039230.77
WIP Closing =
(20000*8.6) + (20000*12.18)
=172000 + 243692.31
=415692.31
Under FIFO
Cost of goods sold =
(50000*8.20 + 50000*12.40)
= 410000 + 620000
=1030000
WIP closing =
(20000*8.20 + 20000*12.40)
=164000 + 248000
=412000

Bibliography
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