Management Accounting | Case Study Report

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Management Accounting

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Table of Contents
Part A.........................................................................................................................................3
Introduction............................................................................................................................3
1..............................................................................................................................................3
2..............................................................................................................................................4
3..............................................................................................................................................4
4..............................................................................................................................................4
5..............................................................................................................................................5
Conclusion..............................................................................................................................5
Part B..........................................................................................................................................6
References..................................................................................................................................7
Appendix....................................................................................................................................8

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Part A
Introduction
In the company, there are various decisions that are required to be made and for that
several aspects and areas are to be evaluated. In the given case also the new machine is being
considered for the installation purpose by which the saving will be made. This is required to
be analyzed and for that various calculations will be made and they will be represented in the
report below. The impact which will be made with this decision will also be ascertained in
the most appropriate manner.
1.
The changes will be made with the installation of the new machine and that will also
be affecting the overhead rate which is managed. Due to that, the calculation will be required
to be made and that is presented hereunder for better understanding.
Particulars Amount
Estimated overheads 2475000
Cost-saving due to labour hour
reduction
468000
Lease payment 300000
Cost of a skilled technician 45000
Total Overheads after changes 2352000
Total original labour hours 52000
hours saved 6000
Net hours required 46000
New overhead rate per hour 51.13
It can be noted that the original overhead rate was $47.6 which has now increased to
$51.13. This rise is because of the new costs which will be required to be incurred on lease
and the skilled worker. There is the cost-saving which is made with the new machine but that
is covered by the additional costs (McLellan, 2014). The hours will be reduced so the
expenses which are increasing will be apportioned to the available hours only. Due to all this,
the final overhead rate which has been determined is increasing.

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2.
The new job order has been received and it will be considered in accordance with the
new rate that has been determined. The total cost which will be incurred shall be identified
and for that, all the calculations are presented below:
Particulars Amount
Total labour hours 400
Direct material cost 45800
Direct labour cost 8400
Manufacturing
overheads
20452.17
Total cost 74652.17
The total cost which is required for the new job order is calculated by using the new
overhead rate and by considering that the total cost is ascertained to be at $74652.17.
3.
The business has undertaken the milling machine which is automated and is reducing
the total number of labour hours that are required. This will be used in the production process
of the company and for that various calculation have been made. In the process, there are two
types of jobs that are involved and they include the one using the machine and other which is
not using the machine (Li et al., 2012). The jobs in which the machine will not be used are
also required to bear the consequences of change although they are not using the machine.
With the undertaking of the machine, the overhead rate has increased and this can be
noted in the calculations made above. This shows that this hike will be implemented on all
the jobs and so the cost of the jobs in which machine is not used will be increasing
unnecessarily. They are the ones which will be affected by the high price without taking the
benefit of the new machine.
4.
The managers of the business are required to manage all the activities in such a
manner that the least cost is incurred. In the given case there is an increase in the overhead
rate with the new proposal and this will be of concern to the management. The decision to
install the machine has been taken with the view to have a positive impact and reduction in

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the overall cost. In the actual the situation is opposite and the rate has risen which is an
adverse condition for the business as the rate is higher even after incurring the additional
expenses (Armitage et al., 2016). They are required to analyze the complete situation again
and then with the help of that appropriate decision will be made so that the control on the cost
can be established and the process can be made beneficial for the business.
5.
The analysis is made and it has been found the reduction in the total hours is restricted
to 2000 hours which has been earlier considered as 6000 hours. Due to this the change will be
made in the overhead rate which has been determined and the calculation needed for the same
is provided below:
Particulars Amount
Estimated overheads 2475000
Cost-saving due to labour hour
reduction
156000
Lease payment 300000
Cost of a skilled technician 45000
Total Overheads after changes 2664000
Total original labour hours 52000
hours saved 2000
Net hours required 50000
New overhead rate per hour 53.28
It can be noted that the saving of the hours is 2000 hours and the cost which will be
saved with this is lesser than the incremental cost of installing the machine. This has led to an
increase in the overhead rate at a much higher value (Osadchy & Akhmetshin, 2015). Due to
this, it can be said that the proposal will not be beneficial for the company and there will be a
further rise in the cost with this instead of the cost-saving. The decision of the management to
take the machine is inadequate and shall not be processed further.
Conclusion
The report has been presented and in that the decision of the management to
undertake the new machine has been evaluated. All the aspects in this respect have been
covered and with that various calculations have been made that have helped in ascertaining

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the benefits and losses which will be made. With the help of that, the appropriate decision
that shall be taken has been ascertained.
Part B
Powerpoint presentation

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References
Armitage, H. M., Webb, A., & Glynn, J. (2016). The use of management accounting
techniques by small and medium‐sized enterprises: a field study of Canadian and
Australian practice. Accounting Perspectives, 15(1), 31-69.
Li, X., Sawhney, R., Arendt, E. J., & Ramasamy, K. (2012). A comparative analysis of
management accounting systems' impact on lean implementation. International
Journal of Technology Management, 57(1), 33.
McLellan, J. D. (2014). Management Accounting Theory and Practice: Measuring the Gap in
United States Businesses. Journal of Accounting, Business & Management, 21(1).
Osadchy, E. A., & Akhmetshin, E. M. (2015). Accounting and control of indirect costs of
organization as a condition of optimizing its financial and economic
activities. International Business Management, 9(7), 1705-1709.

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Appendix

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