Management Accounting: Activity Based Costing and Break-even Analysis

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
QUSETION- 1.................................................................................................................................1
(a) Computation of the activity cost rate as per the traditional method of activity based costing
......................................................................................................................................................1
(b) Computation of the time-driven activity cost driver rates......................................................1
(c) Computation of the cost assigned to each activities...............................................................2
(d).................................................................................................................................................2
QUESTION- 2.................................................................................................................................3
(a) Contribution margin per capacitor in January........................................................................3
(b) Sales level at the desired profit of 20%..................................................................................3
(c) Break-even analysis of single shift operations.......................................................................4
Break-even analysis of double shift operations...........................................................................4
(d) Sales level at the desired profit of 10% in February at single shift of operation...................4
Sales level at the desired profit of 10% in February at double shift of operation........................5
QUESTION 3...................................................................................................................................6
a) .................................................................................................................................................6
b)..................................................................................................................................................7
QUESTION 4...................................................................................................................................7
REFERENCES..............................................................................................................................12

QUSETION- 1
(a) Computation of the activity cost rate as per the traditional method of activity based costing
S.NO ACTIVITY
TIME
PERCENT
AGE
ASSIGNED
COST
ESTIMATED COST
DRIVER
QUANTITY
COST
DRIVER
RATE
1
Handle customer
orders 50.00% 300000 5000 customer orders
60 per customer
order
2
Process customer
complaints 35.00% 210000
700 customer
complaints
300 per
customer
complaint
3
Perform
customer credit
check 15.00% 90000 600 credit checks
150 per credit
checks
RM 600000
The total assigned cost to the various services is RM 600000 which is used by the service
personnels in three different types of services which are handling the customer orders, processing
the customer complaints and performing the customer credit check (Keel and et.al., 2017).
It can be assessed that the activity cost rate is RM 60 per customer order, RM 300 per customer
complaint and RM 150 per credit checks on the basis of their respective level of the actibvities
that are undertaken.
(b) Computation of the time-driven activity cost driver rates
Committed resource cost for
customer service 600000
Working hours 30000
Cost per hour 600000/30000
20
S.NO ACTIVITY
UNIT TIME
(HOURS)
ACTIVITY COST
DRIVER @ 20 PER
HOUR
1 Handle customer orders 2 40
2 Process customer complaints 7 140
3 Perform customer credit check 5 100
1

The cost per hour is RM 20 based on the supplied resources and the actual working hours
that are undertaken by the company (Leahy and et.al., 2017). On the basis of the provided unit
time the activity cost driver per activity is ascertained which is RM 40 per hour for handling
customer orders. RM 140 per hour is for processing the customer complaints and RM 100 per
hour is for performing the credit checks.
(c) Computation of the cost assigned to each activities
S.NO ACTIVITY
UNIT
TIME
(HOURS)
QUANTIT
Y OF
ACTIVITIE
S TOTAL HOURS
ACTIVITY
COST
DRIVER @
20 PER
HOUR
TOT
AL
COS
T
1
Handle
customer orders 2
5000
customer
orders 10000 40
20000
0
2
Process
customer
complaints 7
600
customer
complaints 4200 140 84000
3
Perform
customer credit
check 5
400 credit
checks 2000 100 40000
Total used 16200
32400
0
Total supplied 30000
60000
0
Total unused 13800
27600
0
After the allotment of the total cost based on the quantity and the time taken, it can be
analysed that the total cost used by the company is RM 324000 which RM 276000 less than the
total cost supplied which was RM 600000. The total hours provided are 30000 but only 16200
are successfully used by the company (Jiang, Ferreira and González, 2017). This means that
13800 hours remain unused and simultaneously RM 276000 also remain unused. This depicts the
operational inefficiency of the company where time and the cost both are remaining unused
because of the limited services that are provided by the service personnels.
2