Foundations of Management Accounting

Foundations of
Management
Accounting
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Table of contents
• EXECUTIVE SUMMARY
• INPUTS OF THE CASE
• ANALYSIS OF THE CASE – SIMPLE COSTING SYSTEM
• ANALYSIS OF THE CASE – ACTIVITY BASED COSTING SYSTEM
• FINDINGS OF THE ANALYSIS – DIFFERENCE IN TWO SYSTEM
• DECISION MAKING – HOW ABC CAN IMPROVE MARKET SHARE
• LIMITATIONS OF THE CASE
• REFERENCES

Executive Summary
 REPORT PREPARED FOR THE COMPANY LAURIE MANUFACTURING LTD.
 BUSINESS OF MANUFACTURING LAWN MOWERS
 2 TYPES OF MOWERS BEING MANUFACTURED: STANDARD AND DELUXE
 COMPANY USES THE SIMPLE COSTING SYSTEM
 MAKES ALLOCATION OF ALL THE INDIRECT COSTS BASED ON THE
MACHINE HOURS
 COMPANY’S OWNER WORRIED ON DECLINING MARKET SHARE OF
STANDARD MODEL
 DIFFERENT METHODS OF COST ALLOCATION BEING STUDIED AND
ANALYZED TO SOLVE THE ISSUE, ABC SYSTEM AND SIMPLE COSTING
SYSTEM

Inputs of the case
THE INPUTS GIVEN IN THE LAURIE MANUFACTURING LIMITED CASE HAS
BEEN SHOWN BELOW:
Particulars Standard Deluxe
Units sold 3200 1800
Sellingprice 125 200
Direct material cost per unit 30 45
Direct manufacturinglabor cost per hour 16 16
Direct manufacturinglabor-hours per unit 1.5 2.25
Production runs 40 85
Material moves 72 168
Machine setups 45 155
Machine hours 5500 4500
Number of inspections 250 150
Laurie ManufacturingLtd.