Management Accounting Assignment - TaxEzy

Added on - 28 May 2020

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1Management Accounting
2IntroductionAnalysis of the cost method used by the company helps to determine the profitability ofeach product and also helps in making the appropriate costing decisions. There are variouscosting methods used by the companies to allocate the costs incurred from the manufacturingprocess up to the place where sales has been made. Some of important costing methods areactivity based costing, marginal cost, unit costing etc.In this report, a case of TaxEzy has been solved using the excel spreadsheet. TaxEzyprovides the services of the income tax preparation for individual and small business. Last yearcompany has not made much profit despite of increase in number of returns processed. So forthis purpose, a management accountant has been appointed to look after what actually has beenhappening in the company and find out what exactly the issue is. Activity based costing methodhas been used to find out, per unit cost incurred with each type of income tax return and profitper return is made by the company.Activity Based Costing: Definition and InterpretationActivity based costing is the most important method used in costing as it proportionate theindirect costs in ratio as it was actually used by each product. In the activity based costing,various activities performed in the firms have to be identified and on the basis of that indirectcosts are assigned to the products. So it can be said that activity based costing helps inrecognizing the relationship between costs, activities and products. On the basis of this relationindirect cost are assigned to the products on less arbitrarily than the traditional method. Activitybased costing helps in assigning the manufacturing overhead cost in most appropriate manner ascompare to traditional method where only one allocation driver is used i.e. machine hours or
3labor hours. Activity based costing uses the activities used by the products as their cost driver toproportionate the overhead cost into each of the products manufactured. This costing system isgenerally used by the manufacturing companies as in such companies products passed throughmultiple activities before it is ready for sale (Brigham and Michael, 2013).There are multiple uses of the activity based costing as it helps in indentifying the products thatare providing the maximum profits and profits that are generating the loss. The use of activitybased costing can be better understood through solving the given case study.Solving Case using the Activity Based CostingFollowing data has been gathered from the given case study related to TaxEzy. There are twotypes of return processed by TaxEzy, Individual return and business return. Information relatedto each product has been mentioned in below table together with the activity consumed by eachof tax return.ParticularsIndividual ReturnBusiness ReturnsNumber of Returns30009000Price Charged from the customers$149.00$399.00Interview client (In hours)20 min or 0.33hour2 hoursObtain Missing data0Consumed here onlyInput data15 min or 0.25hour1 hourVerify return with client10 min or 0.16hour55 min or 0.916 hourRectify errors after ATO query221043Submit returnSame time for all returnsSoftware0$25000 + 2.5 per
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