Accounting for Management (MCC5212) Assignment Solution Analysis

This document presents a comprehensive solution to an accounting assignment focused on Kwong Tin Company. The solution encompasses various aspects of cost accounting, including the differentiation between product and period costs, variable, fixed, and semi-variable costs. It provides detailed calculations for budgeted prime costs, production overhead absorption rates, and the preparation of income statements and balance sheets. The analysis includes calculations for average costs at different production levels, incremental analysis for make-or-buy decisions, and a complete income statement and balance sheet for ABC Trading Limited. The assignment covers topics such as cost classification, overhead allocation, and financial statement preparation, providing a thorough understanding of accounting principles and their practical application in management accounting.

Running Head: ACCOUNTING 1
ACCOUNTING

Running Head: ACCOUNTING
Contents
Question 1........................................................................................................................................3
Part a............................................................................................................................................3
Part b............................................................................................................................................4
Part c............................................................................................................................................4
Part D...........................................................................................................................................5
Part E)..........................................................................................................................................5
Question 2........................................................................................................................................6
A...................................................................................................................................................6
B...................................................................................................................................................7
Question 3........................................................................................................................................8
References......................................................................................................................................10

Running Head: ACCOUNTING
Question 1
Part a
Product costs
When the costs are incurred to create a product they are termed as the product costs. Such
costs are inclusive of direct labor, materials, supplies as well as consumable products, overheads.
The costs which are basically required to cater the service to the customer are known as the
product costs. For example, the example costs are inventory cost, trading costs (Spickova &
Myskova, 2015).
Period costs
There are certain costs which cannot be capitalized into prepaid expenses, or fixed assets.
In case of the period costs, the cost is more attached with the passage of time with a transactional
event. Most of the times, these costs are a part of income statement under the heading of selling
and administrative expenses category. For example, selling expenses and administrative
expenses such as salaries related to the production of the product.
Variable costs
Variable costs are costs that change as the quantity of the good or service that a business
produces changes. Variable costs are those costs that can fluctuate over the period and it can also
be recognized as summation of marginal costs over the units pmanufactured. The variable costs
are raw materials and purchases falling as te best example of variable costs (Klychova, Zakirova,
Zakirov & Valieva, 2015).
Fixed costs

Running Head: ACCOUNTING
Fixed costs can be termed as that category of the cost, which does not change over the
period of the time. These costs are bound to happen and they cannot be avoided, hence, these
costs are termed as fixed costs. Few examples of fixed costs are depreciation, rent, insurance and
property taxes (Cascio, 2015).
Semi-variable costs
A semi-variable costs, also known as a semi-fixed cost or the mixed cost is the cost,
which is the composition of both the fixed and the variable components. The fixed cost are
incurred for a limited time period and thereafter the costs are converted into the variable costs
once the production level exceeds. For example telephone and electricity expenses fall under the
category of semi-variable costs.
Part b
PART B 2000 2000
Budgeted prime costs per unit for
standard mug
Price per
unit
Department
ONE
Price per
unit
Department
Two
Direct material 1.5 300 0.5 500
Direct Labor 0.2 400 0.1 200
Direct Expenses 0.5 1000 0.1 200
Total budgeted prime costs 1700 900
Part c
Production overhead absorption rates
Particulars
Department
ONE
Department
Two
Manufacturing overhead
Supervisors’ and manager’s salary 1200000 1600000
Rent and rates 1800000 3200000
Electricity and insurance 300000 500000
Machines and equipment depreciation 330000 1900000
Total manufacturing overhead 3630000 7200000
Mahcine hour 100000

Running Head: ACCOUNTING
Direct Labor hour 90000
Overhead absorption rate 40.33 72.00
Part D
Department ONE
Particulars Units Price Amount
Sales 2000 45
$
90,000.00
Less: direct materials 1.5
$
3,000.00
Less: Direct expenses 0.5
$
1,000.00
Less: Direct labor
$
40,000.00
Gross profit
$
46,000.00
Department TWO
Particulars Units Price Amount
Sales 2000 45
$
90,000.00
Less: direct materials 0.5
$
1,000.00
Less: Direct expenses 1
$
2,000.00
Less: Direct labor
$
9,000.00
Gross profit
$
78,000.00
Part E)
Particulars Amount Amount Total
Less: direct materials
$
300.00 $ 1,000.00
$
1,300.00
Less: Direct expenses
$
6,000.00 $ 7,000.00 $ 13,000.00
Less: direct wages
$
1,000.00
$
200.00
$
1,200.00
Prime costs $ $ 8,200.00 $ 15,500.00

Running Head: ACCOUNTING
7,300.00
Production overhead $ 10,830,000.00
Total production costs $ 10,845,500.00

Running Head: ACCOUNTING
Question 2
A
A1
Calculation of average cost per unit at 4000 production level
Particulars Calculation Total Amount
Variable manufacturing 62*4000 248000
Fixed costs 170000
Total costs 418000
Number of units 4000
Average cost per unit 418000/4000 104.5
Hence, average cost per unit at the level of 4000 is $104.5
A2
Calculation of average cost per unit at 5000 production level
Particulars Calculation Total Amount
Variable manufacturing 62*5000 310000
Fixed costs 170000
Total costs 480000
Number of units 5000
Average cost per unit 480000/5000 96
Hence, average cost per unit at the level of 4000 is $96
A3
Calculation of amount of increase and decrease in company's operating income
A) Without accepting the special order
Particulars Calculation Total Amount
Sales 140*4000 560000
less: variable costs 62*4000 248000
Contribution 312000
Less: Fixed manufacturing 170000
Operating income 142000
B) With accepting the special order
Sales

Running Head: ACCOUNTING
Regular order 140*4000 560000
Special order 70*1000 70000
less: variable costs 62*5000 310000
Contribution 320000
Less: Fixed manufacturing 170000
Operating income 150000
Increase or decrease in the operating level
Initial income 142000
Final income 150000
Difference 8000
(Final - Initial Income )/ Initial income 5.63%
B
INCREMENTAL ANALYSIS
Make the part
Purchase the
part
Incremental
analysis
Manufacturing cost
Direct Materials 155000 155000
Purchase Price
(15$ per unit) 150000 -150000
Total 155000 150000 5000
Hence, from the above analysis it can be said cost under the buy option is low
It is the better to buy the part
C Explanation
Calculation of cost under the scenario of making the part
Particulars Amount
Direct material 46000
Direct labor 50000
Variable manufacturing
overhead 34000
Avoidable fixed overheads 25000
Total manufacturing costs 155000
the fixed costs shall not be considered as it is bound to be incurred no matter what

Running Head: ACCOUNTING
Calculation of cost under the scenario the buy
the part
Cost of purchase (15000*10)
$
150,000.00
Question 3
INCOME STATEMENT
ABC Trading Limited
for the year ending 31st March 2019
Particulars Amount Amount
Sales $ 5,449,800.00
Less: Returns outwards $ (101,600.00)
Discount received $ 24,000.00 $ 5,372,200.00
Less:
Purchases $ 3,363,780.00
Carriage inwards $ 99,820.00
Return inwards $ (156,800.00)
Discount Allowed $ 35,000.00 $ 3,341,800.00
Gross profit $ 2,030,400.00
less: Expenses
Administrative expenses $ 538,400.00
Selling and distribution expenses $ 392,900.00
Director's fee $ 84,000.00
Other operating expenses $ 283,400.00
Interim dividend paid $ 70,000.00
Interest on debentures $ 7,000.00
Sales commission $ 5,000.00
Depreciation -Equip 1150000*15% $ 172,500.00
Depreciation -Motor 710000*25% $ 177,500.00
Final
Total expenses $ 1,730,700.00
Less: Income tax $ 43,300.00
Net Profit $ 256,400.00
BALANCE SHEET

Running Head: ACCOUNTING
ABC Trading Limited
as at 31st march 2019
Particulars Amount Amount
Assets
Fixture and fitting, at cost $ 1,150,000.00
Less: Accumulated depreciation $ (336,000.00) $ 814,000.00
Motor vans and cost $ 710,000.00
Less: depreciation $ (21,000.00) $ 689,000.00
Trade receivables $ 429,400.00
Allowance for doubtful debts $ (20,000.00) $ 409,400.00
Cash at bank $ 270,500.00
Inventory $ 392,500.00
Prepaid insurance $ 2,400.00
Total Assets $ 2,577,800.00
Liabilities
4% Debenture, repayable $ 350,000.00
Share Premium $ 80,000.00
General reserve $ 160,000.00
Trade payables $ 246,800.00
Other liabilities $ 646,500.00
Ordinary share capital $ 1,000,000.00
Retained earnings $ 94,500.00
Add: Profit $ 256,400.00 $ 94,500.00
Total Liabilities $ 2,577,800.00
$ -

Running Head: ACCOUNTING
References
Cascio, W. F. (2015). Costing human resources. Wiley Encyclopedia of Management, 1-1.
Klychova, G. S., Zakirova, A. R., Zakirov, Z. R., & Valieva, G. R. (2015). Management aspects
of production cost accounting in horse breeding. Asian Social Science, 11(11), 308.
Spickova, M., & Myskova, R. (2015). Costs efficiency evaluation using life cycle costing as
strategic method. Procedia economics and finance, 34, 337-343.