Activity Based Costing for Olah Bhd

This document explains Activity Based Costing (ABC) system and its advantages for Olah Bhd. It discusses how ABC helps in determining realistic costs, making better production decisions, and finding idle capacity. The document also provides insights into cost allocation and measuring idle capacity.

MANAGEMENT
ACCOUNTING

Table of Contents
Question 1. define Activity Based Costing for Olah Bhd...........................................................1
Question 2. Evaluate contribution, sales level, break even point................................................2
Question 3. Preparation for budgets for Aliza Ltd for all Quarter of 2015.................................4
Question 4. Balance Scorecard for director of school to set bench-mark...................................6
REFERENCES................................................................................................................................8

Question 1. define Activity Based Costing for Olah Bhd
Activity Based Costing(ABC) system- in is tool that is used in inventory management to
assign resources on time, quantity and rate bases (Hill and et.al., 2019). It will help to attained
efficient cost for material allocation and make inventory management easy for company (Keel
and et.al., 2017). There are some advantage of ABC system. It also make company to allow to
sustain for long term with facing market competition effectively.
It provides way to determine realistic cost for product.
 Allows firm to make comparison between two cost same level of production activities.
 Make functioning of production effective and cost-efficient.
 It help to make better decision about production, pricing, promotion and selling
activities.
 Helpful in finding idle capacity of labor and machinery for improvement.
(a)Company need to assign RM600000 through ABC system on allocation time base
Activity % of time Spent Assigned cost Quantity Cost rate
Handle customer
order
50.00% 300000 5000 60
Process customer
complaints
35.00% 210000 700 300
Perform customer
credit check
15.00% 90000 600 150
(b)Assign RM 6,00,000 on 30,000 hours
Activity Hours Assigned cost Quantity Cost rate
Handle customer
order
2 hour 85714 4286 20
Process customer
complaints
7 hour 300000 15000 20
Perform customer 5 hour 214286 10714 20
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credit check
(c)COST ASSIGN
Activity Quantity Rate Assigned cost
Handle customer order 5000 20 100000
Process customer
complaints
700 20 14000
Perform customer
credit check
600 20 12000
(d)measure for idle capacity-
Idle capacity are the used resources that can be used for production and get optimum use
of total capacity. Olah Bhd's manager need look into idle cost he need to make proper allocation
for production overhead to used full capacity. Budgetary tool is the best way to find idle
capacity and making planning for that.
Question 2. Evaluate contribution, sales level, break even point
(a) contribution margin-
It is a part of marginal costing that allow company to define fixed and variable cost,
profit margin etc. contribution as the formula given it is different between sales and variable cost
or it can be defined as gross margin. It is the increment money that generated for product sold.
Some advantage of contribution margin-It helps in price determination and volume of
production that is need for achieving sales target. It also provides relation with variable cost and
fixed cost in allows firm to make better production function in terms of cost.
Contribution Margin= per unit sales- per unit variable cost
1. Sales per unit- 300
2. variable cost = 150+30(selling and distribution expenses)
Contribution=120 per unit for January 40% of sales
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(b) Sales Level-
Sales level= (desired profit level+ fixed cost)/contribution margin
1. Desired profit margin is 20%
2. Fixed cost is 300000 +60000 (additional fixed selling cost)
(300×20%+360000)/40%= 90150 capacitors
(c)Break Even Point(BEP) for single and double shift
BEP is a specific point where production is neither having profit nor loss. It is point that
make production unit to decided what level of sales to be attended to make cost for cost. In
simple words it is the revenue level that compensate production expenses (Leahy and et.al.,
2017). Benefits are
 Lead to collect cost for production to neglect loss making situation for company.
 Help to guide production activities to become cost effective.
 Provide knowledge about current sales level and need for promotion activities to increase
sales.
 Helpful to analyze fixed and variable cost and its relationship.
BEP= Fixed cost/ contribution
For February single shift
1. Total fixed cost = 360000
2. Contribution= 250- [180+2] (Rm 2 is for additional advertising cost)
68 per unit
BEP for single shift – 360000/68= 5294.11
For double Shift
1. Total fixed cost = 540000
2. Contribution 68 per unit 27.20%
BEP for double shift- 454000/68= 6676.47
(d) Sales level units-
It is technique to determine sales level in marginal costing with given profit level. It allow firm
to make effective planning for sales increment and find the need for sales promotion activities to
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make functioning better and company will not is need to compromise with profit due to less
production.
Sales level= (desired profit level+ fixed cost)/contribution margin
1. Desired profit margin 20% of sales
2. Fixed cost- 454000
(250×20%+454000)/27.2%= 1669301 units
Question 3. Preparation for budgets for Aliza Ltd for all Quarter of 2015
(i) Sales Budget-
sales budget is prepared to find out what level of sales in unit is need is future period. It
will help in planning making other budget for company setting goals for profit and guide to
achieve them (Dieng and et.al., 2017). It will allow organization to make compassion between
actual result and standard result.
Sales Budget for Aliza Ltd
Particular
Quarter
1 Quarter 2 Quarter 3 Quarter 4
Sales unit (forecasted) 35000 50000 30000 45000
Price per unit 165 165 176 176
Total sales 5775000 8250000 5280000 7920000
Sales discount
Net sales 5775000 8250000 5280000 7920000
(ii)Production Budget-
it allows company to track coat that will impact sales and production function. It also
allows company to forecast inventory level that is required to for predicted sales what level to be
retain as closing inventory (Hill and et.al., 2019). Benefits are better allocation of coast,
inventory management, meeting sales requirement and define closing inventory level that
company need.
Production Budget
Particular Quarter 1 Quarter 2 Quarter 3 Quarter 4
Sales unit (forecasted) 35000 50000 30000 45000
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Closing inventory 5250 7500 4500 6750
Total production 40250 57500 34500 51750
Opening inventory 5250 7500 4500
Total production
required 40250 52250 27000 47250
(iii)Component budget-
it is helpful foe those organization whose have started new business function or new
product. It will allow firm to estimate all component that are need for production and their cost
per unit and values in making product. It also classified component in their requirement and how
to use efficient use of them.
Component budget
Particular Quarter 1 Quarter 2 Quarter 3 Quarter 4
Sales unit (forecasted
) 35000 50000 30000 45000
Expenses material 55 59.25 59.25 59.25
Labor cost 25 25 25 26.25
Variable cost 15 15 15 15
Expenses material 3325000 4962500 2977500 4522500
Fixed cost 70000 70000 70000 70000
Total production cost 3395000 5032500 3047500 4592500
(iv)Production cost budget
It is an overall budget that define what will be that production level, cost for each
activity, combination of fixed and variable cost with impact. This budget allows to determine
profit level for desired sales (Nault and et.al., 2018). Benefits of production cost budget-
It is helpful for making decision for future production.
It also allows company in better position for sales and cost management
Production cost Budget
Particular Quarter 1 Quarter 2 Quarter 3 Quarter 4
Estimated production 40250 52250 27000 47250
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unit
Material required per
unit 55 59.25 59.25 59.25
Labor cost 25 25 25 26.25
Variable cost 15 15 15 15
Total variable cost 3823750 5185812.5 2679750 4748625
Fixed overhead 70000 70000 70000 70000
Total production cost 3893750 5255812.5 2749750 4818625
Total sales 5775000 8250000 5280000 7920000
profit 1881250 2994187.5 2530250 3101375
Working notes-
1. calculation for opening inventory is based on 15% of next three month and for 1 st
quarter it is taken as zero .
2. Calculation of material cost is
RM
Unit
required total
Component A 9 2 18
Component B 6 2 12
Component C 25 1 25
Total per unit
expenses 55
Increase 10% in A and B component from 1 April and 5% in C.
Financial position of Aliza Ltd on the basis of budgets
From sales budget it is stated that company should focus on improving sales to make
organization more stable and for continues growth. Company's sales is decreased in third quarter
reasons for that need to be found and solve for positive graph of profit.
Second budget is for production budget that is made to find out what will be the right
quantity for production and finished goods. It will help find no. of unity to be produce ti
maintain sales requirement. Budget for Aliza Ltd is prepared on the basis of sales forecasting.
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Third is Competent budget that is prepared to find out level of material and labor to
optimum production level that help for achieving BEP in less time. It also defines change that
may accrue in production function like increasing prices of material and labor.
Last one is production cost budget that is helpful in defining overall cost of production.
That will make price determination easy and also to fixed profit margin. It shows variable cost
and fixed cost to determine for production it makes cost-effectiveness easy for organization.
Question 4. Balance Scorecard for director of school to set bench-mark
Selected university is “Kuala Lumpur” which is Malaysian university
Vision –To improve Teaching Techniques for better learning
Purpose- Make system to provide knowledge through online mode
Strategic priorities- attraction of students satisfaction Brand Image
Strategic result- increase in no. of students. Student are more satisfied and willing to improve
their knowledge. It leads to make a special Image of school that they are more focused on
effective learning not on increasing no. of students.
Financial this will create special brand image and lead to increase no. of student that
help to collect more fees charge, ultimately overall revenue increase. Target set by school are
50% increase in no. of student and to make get 20% high jump in net profit
Customer- parent/student are the customer that are potential customer for focused. And
more important is to attract student because they will have to make carrier and need to get
effective learning. Target that director has decided to introduce online learning and concept of
less paper study to get attention.
Internal process- for collecting higher attention director has make changes in internally,
for that introducing new learning technique are made, high level of promotion activities, crating
brand image and for cost control some methods are implemented. Director should implement
new software and teacher in favor of better learning.
Organizational Capacity- director need to train teacher for knowledge based study. Use
technologies for attractive study, more case based and practical part rather than book study.
Strategic result-
School are is on the way to desired result, and they started using new teaching techniques that
help them to reach stage where student are more satisfied with learning through online and case
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studies. School have increased its capacity by almost 30% and retention ration for is also
become more impressive (Kempa and Tutupary, 2020). It has positive impact on overall profit as
increase by 10% this can be better however, school have to make some extra expenses on
facilities of training of teacher and online equipment. This new concept has improved efficiency
level of both teacher and student. Teacher are more focused on practical knowledge and student
are learning with minimum effort.
Director has also able to create school's brand image for providing online learning and case
based studies that help student not only for academic but also in professional carrier. It will lead
school to cut cost for future promotion because, school have created brand value and
student/parent will make mouth publicity.
Director has to have long termed vision for need not worry if short term losses may accrue and
should consider expenses as investment for future earning (Sahrul, Kamase and Tenriwaru,
2021). Moreover, result are attended in first year and think about vision most important think is
that school are not have losses and purpose in fulfilled to make improvement in financial result.
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REFERENCES
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Dieng, H. B., and et.al., 2017. New estimate of the current rate of sea level rise from a sea level
budget approach. Geophysical Research Letters. 44(8). pp.3744-3751.
Hill, G., and et.al., 2019. The role of electric vehicles in near-term mitigation pathways and
achieving the UK’s carbon budget. Applied Energy. 251. p.113111.
Keel, G., and et.al., 2017. Time-driven activity-based costing in health care: a systematic review
of the literature. Health Policy. 121(7). pp.755-763.
Kempa, R. and Tutupary, R., 2020. PERFORMANCE ANALYSIS OF 19 AMBON STATE
MIDDLE SCHOOL USING BALANCE SCORECARD APPROACH. EDU SCIENCES
JOURNAL. 1(3). pp.177-187.
Knoblauch, C., and et.al., 2018. Methane production as key to the greenhouse gas budget of
thawing permafrost. Nature Climate Change. 8(4). pp.309-312.
Leahy, M. F., and et.al., 2017. Improved outcomes and reduced costs associated with a health‐
system–wide patient blood management program: a retrospective observational study
in four major adult tertiary‐care hospitals. Transfusion. 57(6). pp.1347-1358.
Nault, B. A., and et.al., 2018. Secondary organic aerosol production from local emissions
dominates the organic aerosol budget over Seoul, South Korea, during KORUS-
AQ. Atmospheric Chemistry and Physics. 18(24). pp.17769-17800.
Sahrul, A. M., Kamase, J. and Tenriwaru, T., 2021. ANALISIS KINERJA MENGGUNAKAN
PENDEKATAN BALANCE SCORECARD PADA PT TELKOMSEL. Jurnal Ilmu
Manajemen Profitability. 5(1). pp.11-20.
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Production Budget. 2021. [Online]. Available through:
<https://www.myaccountingcourse.com/accounting-dictionary/production-budget>.
Strategy Focused Schools: An Implementation of the Balanced Scorecard in Provision of
Educational Services. 2021. [Online}. Available
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