Management Accounting: Calculation of Activity Cost Rate, Time-driven Activity Cost Driver Rate, Cost Assigned to Activities, and Actions for Unused Capacity

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Question 1........................................................................................................................................3
(a) Calculation of activity cost rate..............................................................................................3
(b) Calculation of time-driven activity cost driver rate...............................................................3
(c) Calculation of cost assigned to each of the activities.............................................................4
(d) Actions to be taken for the unused capacity...........................................................................4
Question 2........................................................................................................................................5
(a) Calculation of contribution margin per capacitor of January.................................................5
(b) Calculation of Sales Level of January when Profit to sales ratio is 20%...............................5
(c) Calculation of Break-even Point............................................................................................6
(d) Calculations of sales level of February when profit to sales ratio is 20% ............................6
Question 3........................................................................................................................................7
(i) Calculation of Sales Budget....................................................................................................7
(ii) Calculation of Production Budget..........................................................................................8
(iii) Calculation of Component Usage Budget.............................................................................8
(iv) Calculation of Production Cost Budget.................................................................................8
(b) Analysis of Financial Feasibility............................................................................................9
Question 4. ......................................................................................................................................9
CONCLUSION..............................................................................................................................11
REFERENCES................................................................................................................................1

INTRODUCTION
Every manager of the company need to manage its cost of the production and also have to
manage the excess capacity if any. The report will discuss the idle capacity and the actions that
the manager can adopt in order to maintain and utilize the excess capacity in effective and
efficient manner.
MAIN BODY
Question 1
(a) Calculation of activity cost rate
Activity Time percentage Estimated
overhead cost
(A)
Estimated cost
driver quantity
(B)
Activity cost
rate (A)/ (B)
Handle
customer order
50.00% 300000
(600000 * 50%)
5000 customer
order
60 Per customer
order
Process
customer
complaints
35.00% 210000
(600000 * 35%)
700 customer
complaints
300 Per
customer
complaints
Perform
customer credit
check
15.00% 90000
(600000 * 15%)
600 credit checks 150 Per credit
checks
(b) Calculation of time-driven activity cost driver rate
Cost per hour = RM 600000 estimated cost/ 30000 total estimated hours = 20 Per Hour
Activity Unit time Activity
cost driver
rate
Quantity Total Hours Total cost
Handling
customer
orders
2 hours 40 RM
(20 * 2)
5000 10000
(5000 * 2)
200000
(5000 * 40)
Performing
credit check of
customers
5 hours 100 RM
(20 * 5)
600 3000
(600 * 5)
60000
(600 * 100)

Processing
customer
orders
7 hours 140 RM
(20 * 7)
700 4900
(700 * 7)
98000
(700 * 140)
TOTAL 17900 358000
s
(c) Calculation of cost assigned to each of the activities
Activity Activity cost
driver rate
Quantity Total cost
Handling
customer orders
40 RM 5000 200000
(5000 * 40)
Performing credit
check of
customers
100 RM 400 40000
(400 * 100)
Processing
customer orders
140 RM 600 84000
(600 * 140)
TOTAL 324000
(d) Actions to be taken for the unused capacity
In order to evaluate and manage the use of unused capacity the manager of the company
need to take various steps and actions. Unused capacity is arises when the demand of the product
in the market is less than the supply of the product from the company. Because of the excess
capacity, company need to bear the production cost which they are not able to recover from the
market. And further in order to deal with this unused capacity the company need to sell its
product to the customer at discounted price which also lead to loss of profit in the company.
So, in order to solve this issue company have to first visualize the demand of their
product in the market with the help of deep and thorough market research. And after with the
help of this through market research company have to calculate its idle capacity of the
production in the company (Mahmoudian and et.al., 2021). If the unused capacity situation is
arises due to the recession and off-season sale, then company need to introduce the new product
as per the on-season demand. In such case, company can bear advertisement cost for further
advertisement appoint efficient sales person and also introduce after sales service to push up the
demand of their product in the market.
Sometime excess capacity is also arises because of the imbalance among the different
department in the factory (Baumers and et.al., 2017). And in order to eliminate such unused