Cost and Management Accounting BUACC5933
Added on 2021-06-17
11 Pages3080 Words79 Views
FinanceEconomics
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Management accountingPART 1QUESTION1 (a)Statement presenting allocation of total overhead costs(factory-wide approach)VegieGrowFlowerFoodOverhead costs[$960000 in 18:42]$288000$672000Calculation of overhead rateVegieGrowFlowerFoodTotal(HomegardensLtd.)Overhead(A)$288000$672000$960000Direct labour Hours(B)180000420000600000Overhead rate(A/B)$1.6/direct labour hour$1.6/direct labour hour$1.6/direct labour hour(b)Calculation of overhead rates(activity based costing system)Processing= $640000/Total number of kilograms processed=$640000/512000=$1.25/kilogram processedPackaging=$320000/Total number of units packaged=$320000/200000=$1.6/unit packagedAllocation of Total Overhead Cost(activity based costing system)VegieGrowFlowerFoodKilograms processed(kgs)(A)192000320000Units Packaged(B)90000110000Total Overhead($)[(A*1.25)+(B*1.6)]3840005760002
Management accounting(c) Determination of an appropriate cost driver is very important and usually the following principles are adopted for such process:Service or useSurvey methodAbility to bearA basis once adopted must be reviewed at periodic intervals to improve upon the accuracy of apportionment.QUESTION 2(a)Statement presenting calculation of overhead ratesScheduling and travelSetup timeSupervisionEstimated overhead($)(A)850009000060000Cost driversHours of travelNumber of setupsDirect labour costsTotal of cost drivers(B)1250600400000Overhead rate(A/B)$68/hour$150/setup$0.15/direct labour$Assignment of overhead cost to each product lineProduct lineDetailsOverhead($)Commercial[(750*68)+(350*150)+(100000*0.15)=]118500Residential[(500*68)+(250*150)+(300000*0.15)=]116500(b)Statement presenting operating income(using activity based overhead rates)CommercialResidentialRevenues($)300000480000Direct material costs($)3000050000Direct labour costs($)100000300000Overhead costs($)118500248500116500466500Operating income/(loss) ($)51500135003
Management accounting(c)The controller should follow activity based product costing model[as shown in (b) above]. This method is much more rational as compared to the existing system of overhead distribution as it involves distribution of the overhead based on the scheduling and travel time, setup time and the supervision time. PART 2QUESTION1 (a)Net income of Ocenia Ltd.= Total of Income from all three models(viz. spotter, snooker and stunner)=30000+70000+(40000)=$60000(b)If the company discontinues the Stunner product line, then:Statement presenting computation of net income of Ocenia Ltd.ParticularsSPOTTERSNOOKERTOTALSales$300000$500000$800000Less: Variable expenses150000200000350000Contribution margin150000300000450000Less: Fixed expenses(Note1)142500267500410000Net Income$7500$32500$40000(c)Ocenia Ltd. should not eliminate product line stunner as eliminating stunner results in a $20000 decrease in net income. Working notes:1)Calculation of fixed costFixed CostSpotterSnookerTotalCommon cost[$300000 allocated in sales ratio,i.e,3:5](A)$112500$187500$300000Additional Fixed 30000800001100004
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