Technology and Accounting Processes Discussion 2022

Running head: MANAGEMENT ACCOUNTING
Management Accounting
Name of the Student
Name of the University
Author Note

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TECHNOLOGY AND ACCOUNTING PROCESSES
Table of Contents
Report to Mr Robinson................................................................................................................2
Job from Fairfield Corporation....................................................................................................3
Summary......................................................................................................................................5
Bibliography.................................................................................................................................6

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Report to Mr Robinson
The installation of the new machinery being sold by Central Robotics would result in the
reduction in the labour hours required to produce the annual share of products by around 6000
labour hours. However, this does not imply that the removal of the labours employed would
automatically change the overheads incurred by the business during manufacture. A
manufacturing overhead is a cost incurred during the process of production which can neither be
classified as material or labour. Hence, these costs are included as a part of the cost of the goods
and need to be calculated carefully. A manufacturing overhead is to be included only if
contributes directly to the process of production and not to some unrelated process of the
business.
The Central Robotics is producing a machine which keeps the manufacturing overheads
constant. This means the overhead allocated for an individual labour is much higher than the
predetermined overheads.
Particulars Formula Amount
Predetermined Manufacturing
Overhead Cost
$
2,475,000
Total Direct Labour Hours $
52,000
Predetermined Overhead Rate Predetermined Manufacturing Overhead
Cost/Predetermined Labour Hours
$
48
Revised Labour Hours $
46,000
Revised Overhead Rate Manufacturing Overhead Cost/Revised Labour $

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Hours 54
An increase in the overhead rate means that the cost incurred per labour on an annual
basis is increasing while the productivity of the entity remains the same. This is a sign of
increased inefficiency in the manufacturing process of the firm. The costs have remained the
same while the availability of labour has decreased. In this situation, the only way in which the
use of the machine can be deemed to be profitable is when the cost required to operate the
machine is lower than the costs paid on the 6000 labour hours. These are the causes for the new
predetermined overhead rate being higher than the old predetermined overhead rate.
Job from Fairfield Corporation
With regards to the job from Fairfield Corporation, the estimated total cost of the job is
calculated in the following manner:
Cost of Direct Materials 45800
Total Labour costs for 400 hours 8400
Total Overhead costs under new
predetermined rate
$
21,521.74
Total cost of job $
75,721.74
In the above situation, the calculation of the total cost of the job is undertaken to be
$75721.4. This means that the entity requires to spend a higher amount to complete this
particular job instead of the predetermined overhead rate. This is $2000 more than the amount

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which the entity was required to spend on the manufacture of a product requiring 400 labour
hours. This cost would, however, vary on the basis of the change in the cost of materials for
some other job. If a particular job does not use the new automated machine, then the cost of
maintenance and salary paid to the operator cannot be included as a part of the costs incurred to
complete the job. They would then be a part of the additional overheads incurred by the entity as
a part of its factory and should not be considered in calculating the product overheads. They
however, form a part of the overheads incurred by the entity in the form of administrative
expenditure.
From the above analysis, it is increasingly evident that the managers should be worried
about the overhead rate incurred by the entity. A cost which previously required lower
expenditure to be completed successfully now required more expenditure. The new machinery
brought in has also not been able to control the manufacturing overheads incurred by the entity.
Hence, the entity has not been successful in controlling the manufacturing overheads. An
increased overhead rate is an indicator of inefficiency on the part of the business. This should be
avoided by the managers in all circumstances.
The costs incurred by the entity in terms of making payments to 6000 labour hours is
$180000. The costs incurred on the machinery are as high as $345000. If there is only a
reduction of 2000 labour hours, then the total costs incurred by the business are significantly
high. The savings in labour costs will be as low as $60000. Hence, any probable benefit earned
by purchasing the new machinery would completely be written off. This also means that the
profit levels of the entity.

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Summary
On the basis of the above discussion, it can be stated that the business is better off
without purchasing the machinery. There are no tangible or significant benefits that the business
is earning by using the machinery. The increase in the overhead rate and the lack of sufficient
reduction in the total labour hours are other concerns. To remain sustainable and maintain
sufficient profits, the entity should avoid purchasing the product.

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Bibliography
Bragg, S. M. (2016). Cost accounting fundamentals. Colorado, CO: Accounting Tools.
Collis, J., & Hussey, R. (2017). Cost and management accounting. Macmillan International
Higher Education.
Datar, S. M., & Rajan, M. (2018). Horngren's Cost Accounting: A Managerial Emphasis.