Management Accounting: Costing, Break Even, Overhead Rates, Journal Entries

This article covers topics such as costing calculation, break even analysis, margin of safety, contribution margin, overhead rates, journal entries, and more in management accounting. It includes solved assignments and essays for students. The article also mentions subject, course code, and college/university if applicable.

Management Accounting

Table of Contents
Part-1................................................................................................................................................3
Costing calculation, Period cost, Break even, margin of safety, contribution margin, operating
leverage............................................................................................................................................3
PART-2............................................................................................................................................6
XYZ company journal entries with respect to movement of WIP inventory..................................6
Part-3................................................................................................................................................7
Awesome company: the plant wide overhead rate, overhead that would be assigned to each
product, departmental overhead rates, overhead per products........................................................7
Activity Rate for Activity Cost Pools, manufacturing overhead allocation between basic &
overhead model................................................................................................................................9
Total Selling & Administrative Cost For Basic & Advanced Models............................................9
Reference:......................................................................................................................................11
Appendix:......................................................................................................................................12

Part-1
Costing calculation, Period cost, Break even, margin of safety,
contribution margin, operating leverage
ABC company production unit range in units 20000-30000
Total cost per unit of 25000 units
being produced 31
Total manufacturing cost
(including the fixed & variable
cost) of producing 25000 units 775000
Per unit period cost incurred 11
Total period cost for producing
25000 units 275000
variable manufacturing cost per
unit(exclusive of variable
administrative expense) for
producing 24000 units 14
Fixed manufacturing cost per
unit(includes only overhead cost ) 6
Total fixed manufacturing cost for
producing 25000 units 150000
Average fixed manufacturing
overhead for producing 24000 units 6.25

variable manufacturing cost per
unit(exclusive of variable
administrative expense) for
producing 26000 units 14
Average fixed manufacturing
overhead for producing 26000 units
5.76923
1
unit Direct cost, that can be
identified to the cost object or units
of production(includes direct
material , direct labor, variable
manufacturing overhead,
administrative expenses per unit,
sales commission per unit ) 19
total direct cost for producing
27000 units 513000
unit indirect cost of manufacturing
(all fixed costs) 12
total indirect cost for producing
27000 units 324000
contribution margin per unit (unit
selling price -variable cost per unit ) 15
Contribution margin ratio per
unit[(sales-variable costs)/sales]
(Ward, 2012) 44%
Breakeven point in units[Q*S-
VC*Q-FC=0
(FC+VC)/s = Q, breakeven units]
for 25000 units 8824
Breakeven point in sales
dollar[(FC+VC)=Q*S=breakeven
sales] for 25000 units 775000

Margin of safety[(current sales-
breakeven sales)/current sales] for
25000 units 9%
Period cost:
Period costs is associated with the passage of time and the most common examples of period
costs are general and administrative expenses, such as rent, office depreciation, office supplies,
and utilities(Boerner et al.,2010).
Period costs are often subdivided into additional subcategories for selling activities and
administrative activities. Administrative activities is the most common type of period costs as
these costs are being incurred on an ongoing basis, irrespective of the level of sales of a
business. The production selling costs vary t with the sales levels, especially in case where sales
commissions is a large part of this expenditure
Margin of safety is here 9% that means that sales can fall by 9% from the current level before
the business will start making loss.
selling & production
unit 25000 26500
sales 850000 901000
unit cost of sales 13
total cost of sales 325000 344500

gross profit 525000 556500
overhead expenses 7
administrative expense 3.5
selling expense 4.5
total operating
expenses 15
Total operating
expenses 375000 397500
EBIT 150000 159000
growth in EBIT if
production and sales
increase from 25000 to
26500 0.06
% change in sales 0.06
Operating leverage
(% change in
EBIT/% change in
sales 100%
PART-2
XYZ company journal entries with respect to movement of WIP
inventory
Dr Cr
Work in progress inventory 53200
To
Raw material inventory 53200
Work in progress inventory 117000

To
direct labor inventory 117000
Overhead 135500
To
WIP inventory 135500
Overhead 656000
To
Factory Payroll 656000
Blending Department 652000
To
Refining Department 652000
Finished goods inventory 730000
To
Blending Department 730000
Cost of goods sold $600,000
To
finished goods inventory $600,000
Cash $1,480,000
To
sales $1,480,000
Part-3
Awesome company: the plant wide overhead rate, overhead that would
be assigned to each product, departmental overhead rates, overhead per
products
Department
Mouldin
g
Assemble and
Pack Total

plant
wide
overhea
d rate
using
labor
hours
Manufacturi
ng overhead 787,500 562,500
135000
0
Direct Labor hours
Model
overhea
d cost
per
labor
hour
[cost
per unit
of labor
hour,$]
Plant
wide
overhea
d rate units
overhea
d
assigne
d to per
unit of
output
BASIC 10,000 20,000 30000 45 900.00
2000
0 67.5
overhea
d cost
per
labor
hour
Advanced 5,000 10,000 15000 90 1800.00
1000
0 135
Machine hours
BASIC 12000 12000
Advanced 10000 10000
Departmental Approach
Moulding
Manufacturing 787500 Overhead units overhead

overhead
rate[machine hour
per unit of
manufacturing
overhead cost]
(DRURY,2013)
assigned to per
unit of output
Machine hours
BASIC 12000 0.02 20000 39.375
Advanced 10000 0.013 10000 78.75
Departmental Approach
Assemble and Pack
Manufacturing
overhead 562500
Overhead rate[labor
hour per unit of
manufacturing
overhead cost] units
overhead
assigned to
per unit of
output
Direct labor hours
BASIC 20000 0.04
2000
0 28.125
Advanced 10000 0.018
1000
0 56.25
Activity Rate for Activity Cost Pools, manufacturing overhead allocation
between basic & overhead model
company’s total manufacturing overhead
activity cost pools Machining
Assembl
e and
pack
Order
processing Setups Other Total
Activity/cost
Drivers
Machine-
hours in
Direct
labour
Number of
customer
Setup
hours
unused
capacit

Moulding hours orders y
Basic 12000 20000 400 1
Advanced 10000 10000 50 3
proportion of
manufacturing
overhead ,$(
Horngren, 2009) 417500 282500 230000 340000 80000 1350000
Rate, overhead cost
per unit of driver
Basic 34.792 14.125 575.000
340000.00
0
340623.
9
Advanced 41.75 28.25 4600 113333.33
118003.
3
Total Selling & Administrative Cost For Basic & Advanced Models
Total selling and
administrative expense
Model
Total overhead cost per
driver
percent
age
proportio
n of total
overhead
cost
Sales
commis
sion
traceabl
e fixed
advertis
ing
costs ,$
Total
selling
and
administr
ative
cost(Jarill
, 2013)
Basic 340623.9167 74%
1002649.
292
50132.4
65 150000
200132.4
646
Advan
ced 118003.3333 26%
347350.7
08
34735.0
71 200000
234735.0
708

Reference:
Boerner, S., Laub, U. K., Heinrichs, M. J., & Hirth, J. (2010). U.S. Patent No. 7,664,684.
Washington, DC: U.S. Patent and Trademark Office.
DRURY, C. M. (2013). Management and cost accounting. Springer.
Horngren, C. T. (2009). Cost accounting: A managerial emphasis, 13/e. Pearson Education India.
Jarillo, J. C. (2013). Strategic networks. Routledge.
Ward, K. (2012). Strategic management accounting. Routledge.

Appendix:
$
Manufacture and selling cost of
one product 34
ABC company production & selling
units 25,000
Direct material cost per unit 8
Direct labor cost per unit 5
Variable manufacturing overhead
cost per unit 1
Fixed manufacturing overhead cost
per unit 6
Fixed selling expenses per unit 3.5
Fixed administrative expenses per
unit 2.5
sales commissions per unit 4
Variable administrative expenses
per unit 1
Total cost per unit of 25000 unuts
being produced 31
Total manufacturing cost
(including the fixed & variable cost)
of producing 25000 units 775000
Per unit period cost incurred 11
Total period cost for producing
25000 units 275000

variable manufacturing cost per
unit(exclusive of variable
administrative expense) for
producing 24000 units 14
Fixed manufacturing cost per
unit(includes only overhead cost ) 6
Total fixed manufacturing cost for
producing 25000 units 150000
Average fixed manufacturing
overhead for producing 24000
units 6.25
variable manufacturing cost per
unit(exclusive of variable
aministrative expense) for
producing 26000 units 14
Average fixed manufacturing
overhead for producing 26000
units
5.76923
1
unit Direct cost, that can be
identified to the cost object or
units of production(includes direct
material , direct labor, variable
manufacturing overhead,
administrative expenses per unit,
sales commission per unit ) 19
total direct cost for producing
27000 units 513000
unit indirect cost of manufacturing
(all fixed costs) 12
total indirect cost for producing
27000 units 324000

contribution margin per unit (unit
selling price -variable cost per unit ) 15
Contribution margin ratio per
unit[(sales-variable costs)/sales] 44%
Breakeven point in units[Q*S-
VC*Q-FC=0
(FC+VC)/s = Q,breakeven units] for
25000 units 8824
Breakeven point in sales
dollar[(FC+VC)=Q*S=breakeven
sales] for 25000 units 775000
Margin of safety[(current sales-
breakeven sales)/current sales] for
25000 units 9%
1-Mar
Completed units transferred from
WIP to blending department 32700
WIP composition units
in sales
values($)
Material 147600 8200
Direct labor 76200 3000
Overhead 479000 21500
53200
117000
March usage of blending
department 135500
Material 45000
Direct labor 16200
Overhead 114000

Model BASIC Advanced Total
Number of units produced
and sold 20,000 10,000 30,000
Sales ,$ 3,000,000 2,000,000 5,000,000
Cost of goods sold 2,300,000 1,350,000 3,650,000
Gross margin 700,000 650,000 1,350,000
Selling and administrative
expenses 720,000 480,000 1,200,000
Net operating income (loss) -20,000 170,000 150,000
$
Direct labor cost per hour 20
Direct materials cost per
unit
BASIC 40
Advanced 60
Model Order size, Units
Basic 400
Advanced 50
Set up hour per order
Model
Basic 1
Advanced 3

Sales commission
Model
Basic 5%
Advanced 10%
traceable fixed advertising costs ,$
Model
Basic 150000
Advanced 200000