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ACC200 : Introduction to Management Accounting | Assignment

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Added on  2019-10-30

ACC200 : Introduction to Management Accounting | Assignment

   Added on 2019-10-30

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ACC200 : Introduction to Management Accounting | Assignment_1
MANAGEMENT ACCOUNTINGIntroductionJackson Ltd has a product line which consists of namely two products i.e. Fred and Martha.Currently, the costing of these two products is being carried on using the traditional overheadmethod using the direct labour as the suitable metric and applying a plant-wide overhead rate.Further, the pricing of the products is linked to the costing as a 20% mark-up is charged onthe products. However, a competitor is providing the product Martha at a significantly lowerprice due to which there is an urgency to allocate the overheads cost in accordance with ABC(Activity Based Costing) approach so that the costing can be improved and prices could bemore competitive. The objective of this report is to bring out the differences between theoverhead allocation in the two methods and the unit prices derived using the traditional andABC approach so as to provide recommendation to the company with regards to pricing.Analysisa)The objective is to determine the cost per unit for each of the two products (Fred andMartha). The first job would be to ascertain the overhead rate which would be applicable.Total manufacturing overheads = $ 816,000Total direct hours of labour = 1000*2 (For Fred) + 5000*3 (For Martha) = 17000 hoursManufacturing overhead per direct labour hour = = 816000/17000 = $ 48Since, 2 hours of direct labour are used for each unit of Fred, hence unit overhead costs forFred = 48*2= $ 96Since, 3 hours of direct labour are used for each unit of Martha, hence unit overhead costs forMartha = 48*3= $ 144Thus, based on the above computation and the provided direct cost data, the unit costcomputation for the two products is summarised in the table below (Emmauel and Otley,2010)Hence, from the above computation, it is apparent that the unit cost for Fred and Martha is $166 and $ 249 respectively.b)With regards to ABC approach, the first step would be find the cost per activity and applythe same to the two products i.e. Fred and Martha.
ACC200 : Introduction to Management Accounting | Assignment_2

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