Management Accounting | Assessment 1

Running head: MANAGEMENT ACCOUNTING
Management Accounting
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
Question 1: Stating one of the ethical standards, as provided by the Institute of Management
Accountants................................................................................................................................3
Question 2:.................................................................................................................................3
a) Classifying the 8 activities among the four types of quality costs:........................................3
b) Explaining the relationship between the four types of quality costs and changes throughout
the years:....................................................................................................................................4
Question 3:.................................................................................................................................4
a) Explaining John and Paul’s differing points of view of quality costs:..................................4
b) Explaining the measures that are considered in Year 4:........................................................5
Question 4:.................................................................................................................................5
a) Estimating the variable and the fixed portions of the delivery expense for Fridges-R-Fun:. 5
b) Reviewing Ringo's estimated delivery expenses using the high-low method:......................5
Question 5:.................................................................................................................................6
a) Calculating the predetermined overhead rates used for welding and assembly:...................6
b) Calculating the total overhead cost applied to this specific job:............................................6
c) Calculating the total manufacturing cost recorded for this specific job:...............................6
d) Considering the specific job containing 100 units, while calculating the unit product cost: 7
e) Explaining the cause a difference between the specific job and the industry benchmark for
the assembly overhead cost:.......................................................................................................7
Question 6:.................................................................................................................................8
a) Listing and explaining three limitations of using cost-plus pricing, as discussed by
Dholakia:....................................................................................................................................8
b) Explaining how value-based pricing would benefit from the costs of quality changes
implemented by Ringo:..............................................................................................................8

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Question 7:.................................................................................................................................9
a) Determining the amount of under applied or over applied manufacturing overhead for Year
1:.................................................................................................................................................9
b) Implication of having large over applied or under applied overhead to the management
planning and product costing:..................................................................................................10
References:...............................................................................................................................11

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Question 1: Stating one of the ethical standards, as provided by the Institute of
Management Accountants
According to the ethical standards, the employment of a plumber who is licensed to
only provide plumbing jobs and not identify the relevant unnecessary cost that is in curing in
the organization is relatively unethical. Hiring George would directly initiate and jeopardize
the standard that was needed to comply with the detection of relevant and necessary cost as
he excels in plumbing jobs and not identifying any kind of unnecessary cost associated with
production and other expenses. Therefore, it is unethical under both ethical standards for
professional codes of conduct in accounting do not use an accounting professional to identify
the relevant cost and unnecessary expenses that is being conducted by the organization. The
use of George would directly initiate frauds and scandals within the organization, as he will
not be able to cope up with the relevant accounting needs that are required for identifying any
kind of manipulations conducted within the organization. Additionally, he would be
supportive to Paul and allow him to embezzle the funds of the organization (Lachman 2014).
Question 2:
a) Classifying the 8 activities among the four types of quality costs:
Types of quality
costs
Activities
System Systems development
Technical support Technical support to suppliers of compressors
Technical support to suppliers of pipes
Customers support Field testing at customers’ sites

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Inspection on assembling line
Rework on assembling line
Warranty Warranty repairs of fridges
Warranty replacements of fridges
b) Explaining the relationship between the four types of quality costs and changes
throughout the years:
The relationship between the identified four types of quality cost is relative Lee
changing due to the implementation process. Currently the aim of the organization is to
improve system development, technical support, field support, and warranties for adequately
reducing the level of expenses that was previously conducted on warranties and rework
assembly line. The reduction and the relevant levels of warranty expenses is due to the
improvements that was conducted in the production line in the support provided to the
suppliers and customers (Ross 2017).
Question 3:
a) Explaining John and Paul’s differing points of view of quality costs:
There is a relevant difference no point of John and Paul regarding the quality cost,
John is more focused on reworking and Paul is more focused open driving the relevant cost
that is increasing due to the increment in reworks. Therefore, John is only trying to increase
the quality cost that is incurred in yearly basis. However, Paul is more focused on reducing
the level of cost that is incurred due to the excessive he works that is conducted by the
customers.

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b) Explaining the measures that are considered in Year 4:
In year four, if Ringo’s decision is been followed then the overall warranty expenses
would decline and reduce the river con assembly line that was needed in year 1. The overall
cost that was incurred in your to boss to ensure the longevity and the reduction in the overall
quality cost that would be incurred by the company to maintain its overall production line.
However, if the decision of Ringo is not followed and is been cancelled then the overall cost
of quality would relatively increase in your 4 due to the implementation of different system
development that has been conducted during the period of year 3 and 2.
Question 4:
a) Estimating the variable and the fixed portions of the delivery expense for Fridges-R-
Fun:
High Low
Method Fridges Delivered Delivery Expense
Highest Activity 550 5700
Lowest Activity 280 3000
Difference 270 2700
Variable Cost PU 10
Particulars Value
Delivery Expense $ 5,700
Variable Cost PU 10
Fridges
Delivered 550
Fixed Portion $ 200
b) Reviewing Ringo's estimated delivery expenses using the high-low method:
There are certain reasons behind the difference between the actual cost and the
estimated cost, which directly indicates about the unreliability of the high low method that is

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used in the above calculation. The major limitation of the high low method is the assumptions
of a linear relationship between cost and activity, which is mainly considered and
oversimplified analysis of cost behaviour. Moreover, the method only represents two activity
levels and does not represent the entire data. Therefore, to gather the adequate solution
relevant linear regression need to be used as it would help in identifying the cost behaviour.
Question 5:
a) Calculating the predetermined overhead rates used for welding and assembly:
Particulars Welding Assembly
Fixed manufacturing overhead cost $2,88,000.00 $64,800.00
Machine hours 6,000
Direct labor hours 7,200
Predetermined fixed overhead rate $ 48 9
Variable manufacturing overhead rate $ $2.00 $1.00
Predetermined overhead rate $ $50.00 $10.00
b) Calculating the total overhead cost applied to this specific job:
Particulars Welding Assembly
Job-262 40 80
Predetermined overhead rate $ $50.00 $10.00
Total overhead cost applied to Job 262
$2,800.0
0
c) Calculating the total manufacturing cost recorded for this specific job:
Job 262 Value
Direct materials $700.00
Direct labor cost $1,100.00
Manufacturing overhead $2,800.00
Total manufacturing
cost $4,600.00

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d) Considering the specific job containing 100 units, while calculating the unit product
cost:
Particulars Value
Total manufacturing
cost $4,600.00
Number of units 100
Unit product cos $4,60,000.00
e) Explaining the cause a difference between the specific job and the industry
benchmark for the assembly overhead cost:
Job Welding Assembly
Direct materials 62.50% 20.00%
Direct labor
cost
37.50% 80.00%
The calculations conducted in the above table directly help in determining the overall
percentage for the overhead assembly direct labor cost, which is identified to be higher than
the industry benchmark. The calculations are directly indicated the overall direct cost
percentage is at the levels of 80%, while industry benchmark is only at the levels of 75%.
Difference in the overall direct labor cost is due to the experience level of the labors and the
number of labor hours that might be conducted by the organization in there assembly job. The
major difference between the specific job and the industry benchmark for the assembly over
it cost is due to the level of expenses that is incurred by the organization while completing the
activity. However, the industry benchmark is relatively calculated on the basis of average
cost of direct labor that is conducted by each organization on a certain assembly over it cost
which can be different for specific company. Hence, the industry benchmark for assembly
overhead cost for the above organization has a slightly higher cost attribute than the industry
benchmark (Fisher and Krumwiede 2015).

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Question 6:
a) Listing and explaining three limitations of using cost-plus pricing, as discussed by
Dholakia:
The three justified drawbacks that were appointed by Dholakiya regarding cost plus
pricing are depicted as follows.
 Cost plus pricing is revised for some electrometric reason as it directly discourages
efficiency, as cost containment would lower cost, which directly reduces the level of
profits and revenues that could be generated by the organization.
 The second drawback that was identified was the guarantee that was provided by the cost
plus measure, which directly indicates about the sales volume beforehand, and the overall
cost that should be incurred in the process. However, cost plus prices does not provide
adequate guarantee of the cost covering of the earnings of a profit, which reduces its
functionality and efficiency in the organization (Hbr.org 2018).
 The third drawback that was highlighted regarding the cost plus pricing calculation is the
ignorance of both customer's willingness to pay and the competitor’s prices. Therefore,
instead of cost plus pricing methods managers directly utilize the value based pricing
condition, which helps in accounting for all the relevant factors that influences the
decision making conditions of a manager.
b) Explaining how value-based pricing would benefit from the costs of quality changes
implemented by Ringo:
Ringo directly provided adequate information about the overall quality coarse
activities that can be conducted by the organization to reduce the level of spending that was
conducted on warranties. Ringo directly introduced and provided information regarding the
relevant changes that needs to be implemented within the organization for adequately

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reducing the overall extra expenses and minimize the level of quality costs. The measures
such as development of new system for streamlining the assembly line, providing technical
support for minimizing the receiving of faulty materials, field testing the fridges on customer
sites and inspecting the fridges on the assembly line. These measures directly allowed Ringo
to minimize the level of quality cost in year 3, as the overall expenses in warranties declined.
Therefore, value-based pricing method would directly allow the organizations to improve
their current pricing conditions and generate higher level of income in the long run.
Question 7:
a) Determining the amount of under applied or over applied manufacturing overhead
for Year 1:
Particulars Welding Assembly
Fixed manufacturing overhead cost $3,00,000.00 $64,800.00
Machine hours 6,000
Direct labor hours 7,200
Predetermined fixed overhead rate $ 50 9
Variable manufacturing overhead rate $ $2.00 $1.00
Predetermined overhead rate $ $52.00 $10.00
Particulars Welding Assembly
Job-262 40 80
Predetermined overhead rate
$ $52.00 $10.00
Estimated overhead $2,880.00
Particulars Welding Assembly
Fixed manufacturing overhead cost $3,20,000.00 $64,800.00
Machine hours 5,800
Direct labor hours 7,200
Predetermined fixed overhead rate $ 55 9
Variable manufacturing overhead rate $ $2.00 $1.00

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Predetermined overhead rate $ $57.17 $10.00
Particulars Welding Assembly
Job-262 40 80
Predetermined overhead rate
$ $57.17 $10.00
Actual overhead $3,086.90
b) Implication of having large over applied or under applied overhead to the
management planning and product costing:
Particulars Value
Estimated overhead $2,880.00
Actual overhead $3,086.90
over applied or under applied
overhead $206.90
Having large over applied for under applied overhead to the management planning
and product costing would directly have a negative impact on the budget conditions of the
organization. The large numbers of over applied and under applied overhead directly
indicates that the cost incurred in producing a certain job is a relatively not efficiently
analyzed by the organization (Farkas, Kersting and Stephens 2016). This mainly indicates
about the low level of management that is conducted to control relevant cost. Hence, the
incremental overhead cost would directly result in the low planning and product costing
measures that is deployed by the organization. The over applied or under applied overhead
cost is mainly at $206.90, which is relevantly not high as compared to the overall cost that
has been incurred in the each Job.

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References:
Farkas, M., Kersting, L. and Stephens, W., 2016. Modern Watch Company: An instructional
resource for presenting and learning actual, normal, and standard costing systems, and
variable and fixed overhead variance analysis. Journal of Accounting Education, 35, pp.56-
68.
Fisher, J.G. and Krumwiede, K., 2015. Product costing systems: finding the right
approach. Journal of Corporate Accounting & Finance, 26(4), pp.13-21.
Hbr.org. 2018. When Cost-Plus Pricing Is a Good Idea. [online] Available at:
https://hbr.org/2018/07/when-cost-plus-pricing-is-a-good-idea [Accessed 8 Aug. 2019].
Lachman, V.D., 2014. Ethical issues in the disruptive behaviors of incivility, bullying, and
horizontal/lateral violence. Medsurg Nurs, 23(1), pp.56-60.
Ross, J.E., 2017. Total quality management: Text, cases, and readings. Routledge.