Management Accounting: ABC Method, APES 110 Code of Ethics, Overhead Cost

Introduction to management accounting
ACC200 term 2 2018 Assignment

TABLE OF CONTENTS
Introduction......................................................................................................................................3
Question 1........................................................................................................................................3
Question 2........................................................................................................................................3
Calculation of cost driver rates for the various activities identified in activity based costing
system..........................................................................................................................................3
Question 3........................................................................................................................................4
Calculation of the cost of Lexon and Protox under ABC method...............................................4
Question 4........................................................................................................................................5
Profitability analysis of Lexon and Protox..................................................................................5
Question 5........................................................................................................................................5
APES 110 code of ethics for professional Accountants..............................................................5
Question 7........................................................................................................................................7
Over valuation and undervaluation of overhead cost..................................................................7
Conclusion.......................................................................................................................................8
References......................................................................................................................................10

INTRODUCTION
Allocation of the overhead by applying the activity-based costing gives more reliable and
accurate data, because in this method allocation is based on the activity of the product, and
therefore the product which consumes more resources, results in the greater allocation of the
overhead cost and vice versa. Therefore this method assists the manager to take the right decision
(Haroun, 2015). The present study is based on the comparative evaluation of costing method for
allocation of the overhead using the traditional method of costing and the activity-based costing
method. The present study also describes provisions of APES 110 code of ethics for professional
standards issued by accounting professional and Ethical standards boards (APESB). In addition
to this, accounting for over and undervaluation of manufacturing overhead has been discussed.
QUESTION 1
It is important to ensure accurate product costing system to provide external users of financial
statements with reliable information about earnings and net worth and to provide internal
managers with the information they need for decision making (Ball, Tyler, and Wells, 2015).
Therefore, accurate product costing provide appropriate inventory cost information and
managers are able to make relevant financial decisions (Ax, and Greve, 2017).
Traditional costing system does not provide accurate information about product costing as it
makes use of blanket rate for cost allocation which is not viable. By considering the given case
of Beztec Limited, overhead cost is comprised of various costs, but all costs are allocated as per
blanket rate computed by using machine hours which is not viable and as a consequence overall
cost information is wrong and therefore the accuracy of profitability of the business is directly
affected.
QUESTION 2
Calculation of cost driver rates for the various activities identified in an activity-based costing
system
Table 1: Calculation of cost driver

Sr.
No.
Activities
Identified Cost Driver Cost
Associated
Total Number of
activities
Cost/
Activity
1 Soldering Number of Solder
Points 1165725 1766250 0.66
2 Shipment Number of
Shipments 1064250 22500 47.30
3 Quality
Control
Number of
inspection 1534500 87188 17.60
4 Purchase
Orders
Number of
Purchase Orders 1176120 213840 5.50
5 Machine
Power
Number of Machine
Hours 71280 216000 0.33
6 Machine set
up
Number of Machine
setups 928125 33750 27.50
QUESTION 3
Calculation of the cost of Lexon and Protox under ABC method
Table 2: Total cost of each product under the ABC method
Particulars
Number of
Activity
Cost/
Activi
ty Lexon
Number
of
Activity
Cost/
Activit
y Protox
Direct Material 5491200.00 3854400.00
Direct Labor 475200.00 277200.00
Machine 3801600.00 475200.00
Production
Overhead
Soldering 1333125.00 0.66 879862.50 433125.00 0.66 285862.50
Shipment 18225.00 47.30 862042.50 4275.00 47.30 202207.50
Quality Control 63225.00 17.60 1112753.62 23963.00 17.60 421746.38
Purchase Orders 90113.00 5.50 495621.50 123727.00 5.50 680498.50
Machine Power 198000.00 0.33 65340.00 18000.00 0.33 5940.00
Machine set up 18000.00 27.50 495000 15750 27.50 433125.00
Total Cost of
Goods Sold 13678620.12 6636179.88
Total
Production 24000.00 6000.00
Cost of Goods
sold/ Unit 569.94 1106.03