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ACC 200 : Introduction to Management Accounting | KOI university

7 Pages1440 Words265 Views
   

King's Own Institute (KOI), Australia

   

Added on  2019-10-31

ACC 200 : Introduction to Management Accounting | KOI university

   

King's Own Institute (KOI), Australia

   Added on 2019-10-31

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MANAGEMENTACCOUNTINGSTUDENT ID:[Pick the date]
ACC 200 : Introduction to Management Accounting | KOI university_1
MANAGEMENT ACCOUNTINGThe given situation pertains to a firm named Jackson Ltd which manufactures two productsnamed Fred and Martha. The various details about the cost involved has been given andeffect of overhead allocation according to traditional method and the Activity Based Costing(ABC) approach needs to be highlighted. This is being performed on account of a competitorpricing Martha at a lower price in comparison to Jackson Ltd which raises suspicion on theincorrect costing of the two products primarily on account of improper manufacturingoverhead allocation. The various aspects are as highlighted below.a)In order to determine the unit cost for the given products, the main issue is with regards tothe allocation of manufacturing overheads for the two products.Cumulative overhead costs related to manufacturing = $ 816,000Annual quantity produced of Fred = 1000Annual quantity produced of Martha = 5000Per unit direct labour hour consumption for Fred = 2 hoursPer unit direct labour hour consumption for Martha = 3 hoursHence, cumulative annual direct labour hours = 2*1000 + 3*5000 = 17,000Manufacturing overhead per labour hour = 816000/17000 = $ 48Considering the direct labour consumption for Fred, overhead manufacturing cost allocated toeach unit of Fred as per the above rate = 48*2= $ 96Considering the direct labour consumption for Martha, overhead manufacturing costallocated to each unit of Martha as per the above rate = 48*3= $ 144Considering the above computation, the cost per unit for the two products is highlightedbelow (Emmauel and Otley, 2010)
ACC 200 : Introduction to Management Accounting | KOI university_2
MANAGEMENT ACCOUNTINGThe above table suggests that per unit for Martha is $249 while that for Fred is $ 166.b)For allocation of the overhead costs in accordance with the ABC technique, the primarystep is to compute the per activity cost when subsequently would be applied to the givenproducts.This has been illustrated in the following table based on the data provided in relation to thevarious sub-activities and their respective cost driver (Drury, 2006).c)Using the information presented in the above table, the manufacturing cost allocation forthe two products can be proceeded in the following manner (Heisinger, 2009).Machine Related CostsUnit machine hour cost = $ 50Total machine hours consumed by each unit of Fred = 4Unit overhead (Machine Related) cost for Fred = 4*50 = $ 200Total machine hours consumed by each unit of Martha = 1Unit overhead (Machine Related) cost for Martha= 1*50 = $ 50Setup and InspectionSetup costs incurred on in 1 run = $ 4,500Fred production during 1 run = 50 units
ACC 200 : Introduction to Management Accounting | KOI university_3

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