Management Accounting Assignment

This document is a management accounting assignment that discusses the advantages of improvising the style of cakes and stepping into the business of producing gourmet pies. It also includes a schedule of cost of goods manufactured, cost of goods sold, and income statement. Additionally, it explains the job costing system of cost accounting and the calculation of overhead costs. References are provided at the end of the document.

Management
Accounting
Assignment

1
By student name
Professor
University
Date: 07 March 2019.
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Table of Contents
QUESTION 1.................................................................................................................................................3
QUESTION 2.................................................................................................................................................4
QUESTION 3.................................................................................................................................................6
QUESTION 4.................................................................................................................................................7
References...................................................................................................................................................8
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QUESTION 1
1) In the given question the business of cakes of Delicious Cakes factory is getting out of business,
the reason being the conventional style of cakes and no new ideas or new style of producing
cakes. The managing director of Delicious Cakes is reluctant to accept the idea of the marketing
director to improvise the style of cakes and enter into the business of producing gourmets pies
because of low profits from the existing business and low level of funds.
Being the management accountant there are various advantages of improvising the style of the cakes
and stepping into the business of producing the gourmet pies. These are being present below in various
points:
 Introduction of gourmet pies will boost the brand image of Delicious Cakes since the market is
untapped and the competition is very low. It will be an easy entry for the Delicious Cakes into
the market (Dumay & Baard, 2017).
 The customer base will increase tremendously even for the existing cakes. Since the customers
will be more eager to try the Gourmet pies, as it will be new to the market, we will be able to
sell the existing cakes also by improvising the same and making it more attractive.
 The consumers are willing to pay more for quality products so it will be favourable for us to set a
high price of gourmet pies to recover the initial costs and by the time, competitors will enter the
market we will already have recovered our costs and would have started earning profits. We
would have reached our growth stage (Alexander, 2016).
 With good marketing and advertising, we can create a long lasting goodwill and brand image of
the business. Since the product is new to the market, it will attract vast customers.
2) We can adopt the management control system to assess the performance of the company. The
quantity, which is being produced, and the sales achieved (Visinescu, et al., 2017). There should
be target sales, which have to be achieved by the marketing head. The feedback of the
consumers is very important to assess in order to improvise the tastes and design of the
product. There are various types of information which would merit the attention of Slick and
managing director, these are:
 Additional cost being incurred in the introduction of gourmet pies along with
improvising the existing cakes (Heminway, 2017).
 Incremental revenue from the sales of gourmet pies. The sales quantity of gourmet pies
and the point at which the company breaks even.
 Customer feedback is of most importance in case of introduction of new products. The
feedback about the taste of the product as well as the design.
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QUESTION 2
1) The schedule of cost of goods manufactured is as follows:
Foxwood Company
Particulars Amount ($) Amount ($)
Direct Material
Direct material inventory 1st Jan 2018 40,000.00
Add: Direct Material Purchased 460,000.00
Less: Direct material inventory 31st Dec 2018 (50,000.00)
Direct Material Consumed 450,000.00
Direct Manufacturing Labour 300,000.00
Materials handling cost 70,000.00
Sandpaper 2,000.00
Lubricants & Coolants 5,000.00
Work in process inventory 1 Jan 2018 10,000.00
Work in process inventory 31 Dec 2018 (14,000.00)
Cost of Goods Manufactured 823,000.00
2) The Schedule of cost of goods sold is as follows:
Foxwood Company
Particulars Amount ($) Amount ($)
Direct Material
Direct material inventory 1st Jan 2018 40,000.00
Add: Direct Material Purchased 460,000.00
Less: Direct material inventory 31st Dec 2018 (50,000.00)
Direct Material Consumed 450,000.00
Direct Manufacturing Labour 300,000.00
Materials handling cost 70,000.00
Sandpaper 2,000.00
Lubricants & Coolants 5,000.00
Work in process inventory 1 Jan 2018 10,000.00
Work in process inventory 31 Dec 2018 (14,000.00)
Cost of Goods Manufactured 823,000.00
Miscellaneous indirect manufacturing
labour 40,000.00
Plant leasing costs 54,000.00
Depreciation – plant equipment 36,000.00
Insurance on plant equipment 3,000.00
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Marketing promotions 60,000.00
Marketing salaries 100,000.00
Distribution costs 70,000.00
Customer service costs 100,000.00 463,000.00
Cost of Goods Sold 1,286,000.00
3) The income Statement is as follows:
Foxwood Company
Particulars Amount ($) Amount ($)
Total Sales Revenue 1,360,000.00
Total Income (A) 1,360,000.00
Direct Material
Direct material inventory 1st Jan 2018 40,000.00
Add: Direct Material Purchased 460,000.00
Less: Direct material inventory 31st Dec 2018 (50,000.00)
Direct Material Consumed 450,000.00
Direct Manufacturing Labour 300,000.00
Materials handling cost 70,000.00
Sandpaper 2,000.00
Lubricants & Coolants 5,000.00
Work in process inventory 1 Jan 2018 10,000.00
Work in process inventory 31 Dec 2018 (14,000.00)
Cost of Goods Manufactured 823,000.00
Miscellaneous indirect manufacturing labour 40,000.00
Plant leasing costs 54,000.00
Depreciation – plant equipment 36,000.00
Insurance on plant equipment 3,000.00
Marketing promotions 60,000.00
Marketing salaries 100,000.00
Distribution costs 70,000.00
Customer service costs 100,000.00 463,000.00
Cost of Goods Sold 1,286,000.00
Total Expenditure (B) 1,286,000.00
Net Income (A-B) 74,000.00
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QUESTION 3
1) Analysis of physical flow of units is as follows:
Particulars Units
Work in progress, 1st November , 2016 1,000
Units started in November 12,000
Total units account for 13,000
Work in progress, 30th November,2016 2,000
Units completed & transferred during November,
2016 11,000
2) Total equivalent units = Total unit completed + work in process x percentage of completion
11000 + 1000 x .70 + 2000 x .40
12,500
3) Calculation of Units cost is as follows:
$
Particulars a) Direct Material b) Conversion Cost
Work in progress, 1st November , 2016 640.00 360.00
Units started in November, 2016 3,000.00 6,350.00
Total units account for (a) 3,640.00 6,710.00
Equivalent Units (b) 11,000.00 12,500.00
Cost per unit (a/b) 0.33 0.54
4) Analysis of total cost is as follows
Total cost = Cost of beginning inventory + costs added during the year
$ 1,000.00 + $ 9,350.00
$ 10,350.00
Total cost for 11000 units completed and transferred in November = 11000 * (0.33+0.54)
= $9570
Therefore the total cost incurred by the company on the units produced in November month is
$9570.
QUESTION 4
1) Job costing system of cost accounting is a very famous method of cost accounting. This method
of cost accounting is mostly used by business concerns, which are keen in tracing costs, which
are specific to particular jobs, or individual jobs in order to examine the costs so that the same
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can be reduced (Linden & Freeman, 2017). Under job costing system of cost accounting various
costs, namely: material cost, labour cost as well as overhead costs are accumulated for a
particular or specific job. Moreover, job costing can also be used to track the cost, which has
been incurred in excess so that the same can be recovered from the ultimate customer by billing
them the same.
In the given question, the company Martinez Building Products uses job-costing system for cost
accounting (Choy, 2018). Since the company is in the business in manufacturing and marketing
doors which are unique as well as customized doors for residential garages along with other
variant fashion of doors, the company wants to know the cost incurred in each variant of the
door which is being manufactured in order to take steps in reducing costs so that the profits can
be maximized and accordingly cost control measures can also be taken. It is very much prudent
for Martinez Building Products Company to have adopted job-costing system of accounting for
costs (Goldmann, 2016).
2) We have observed that Martinez Building Products Company allocates the total overhead costs
based on direct labour costs. The same can be computed by dividing the total overhead cost by
total direct labour cost (Jefferson, 2017).
The calculation for total overhead rate is as follows:
Total overhead cost / total direct labour cost
= $ 24000000 / $ 20000000
= $ 1.20 per Direct Labour Hour
3) Calculation of over/under applied overhead cost is as follows:
Particulars Amount ($)
Insurance for factory 500,000.00
Indirect Labour 7,500,000.00
Factory maintenance 1,000,000.00
Rent on factory building 11,000,000.00
Depreciation on factory equipment’s 2,000,000.00
Total Overhead cost Incurred (a) 22,000,000.00
Budgeted Overhead cost (b) 24,000,000.00
Actual Direct Labour Cost
(c) 21,000,000.00
Actual Overhead Rate per direct labour hour (a/c)
(d) 1.05
Budgeted Overhead Rate per direct labour hour (b/c)
(e) 1.14
Over applied Overhead cost per direct labour hour (e-d) 0.10
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References
Alexander, F., 2016. The Changing Face of Accountability. The Journal of Higher Education, 71(4), pp.
411-431.
Choy, Y. K., 2018. Cost-benefit Analysis, Values, Wellbeing and Ethics: An Indigenous Worldview Analysis.
Ecological Economics, 3(1), p. 145.
Dumay, J. & Baard, V., 2017. An introduction to interventionist research in accounting.. The Routledge
Companion to Qualitative Accounting Research Methods, p. 265.
Goldmann, K., 2016. Financial Liquidity and Profitability Management in Practice of Polish Business.
Financial Environment and Business Development, Volume 4, pp. 103-112.
Heminway, J., 2017. Shareholder Wealth Maximization as a Function of Statutes, Decisional Law, and
Organic Documents. SSRN, pp. 1-35.
Jefferson, M., 2017. Energy, Complexity and Wealth Maximization, R. Ayres. Springer, Switzerland.
Technological Forecasting and Social Change, pp. 353-354.
Linden, B. & Freeman, R., 2017. Profit and Other Values: Thick Evaluation in Decision Making. Business
Ethics Quarterly, 27(3), pp. 353-379.
Visinescu, L., Jones, M. & Sidorova, A., 2017. Improving Decision Quality: The Role of Business
Intelligence. Journal of Computer Information Systems, 57(1), pp. 58-66.
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