ACCT204 - Management Accounting: Comparative Costing Methods Analysis

This case study provides a detailed analysis of costing methods in management accounting, comparing traditional costing and activity-based costing (ABC). It begins by allocating overhead costs department-wise, including service departments, and calculates production costs under the traditional method using machine and labor hours. The solution then determines overhead costs per activity driver for the ABC method, recalculates production costs, and highlights the differences between the two methods, noting instances of undervaluation and overvaluation. The analysis covers machine centers, assembly, stores, and maintenance departments, offering a comprehensive understanding of cost allocation and its impact on product costing. Desklib offers a wide range of solved assignments and past papers to support students' learning needs.

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

1MANAGEMENT ACCOUNTING
Table of Contents
Requirement 1:.................................................................................................................................2
Department Wise Overhead Allocation:......................................................................................2
Overhead Allocation of Service Department:..............................................................................2
PRODUCTION COST UNDER TRADITIONAL METHOD:..................................................3
Requirement 2:.................................................................................................................................3
Overhead Cost per Activity Driver:.............................................................................................3
PRODUCTION COST UNDER ABC METHOD:.....................................................................4
Requirement 3:.................................................................................................................................4
References:......................................................................................................................................5

2MANAGEMENT ACCOUNTING
Requirement 1:
Department Wise Overhead Allocation:
Particulars Total Machine Centre A
Machine
Centre B Assembly Stores Maintenance
Area Occupied (Square Mtr.) 52000 9000 8000 12000 15000 8000
Lighting & Heating $5,50,000 $95,192 $84,615 $1,26,923 $1,58,654 $84,615
Insurance of Buildings $3,00,000 $51,923 $46,154 $69,231 $86,538 $46,154
Property Taxes $8,50,000 $1,47,115 $1,30,769 $1,96,154 $2,45,192 $1,30,769
Nos. of Employees 1100 340 210 350 100 100
Salaries of Works Management $11,00,000 $3,40,000 $2,10,000 $3,50,000 $1,00,000 $1,00,000
Book Value of Machinery $1,52,00,000 $80,00,000 $55,00,000 $8,00,000 $4,00,000 $5,00,000
Insurance of Machinery $2,50,000 $1,31,579 $90,461 $13,158 $6,579 $8,224
Depreciation of Machinery $16,00,000 $8,42,105 $5,78,947 $84,211 $42,105 $52,632
Total Other Overheads $46,50,000 $16,07,915 $11,40,946 $8,39,676 $6,39,069 $4,22,394
Indirect Wages & Supervision $77,80,000 $12,00,000 $10,00,000 $16,00,000 $21,00,000 $18,80,000
Indirect Materials $13,20,000 $5,00,000 $6,50,000 $1,50,000 $0 $20,000
TOTAL MANUFACTURING OVERHEAD $1,37,50,000 $33,07,915 $27,90,946 $25,89,676 $27,39,069 $23,22,394
Overhead Allocation of Service Department:
Particulars Total Machine Centre A
Machine
Centre B Assembly
Material Procurement $80,00,000 $40,00,000 $30,00,000 $10,00,000
Overhead Cost of Stores Dept. $27,39,069 $13,69,534 $10,27,151 $3,42,384
Direct Labor Hours 3900000 900000 1000000 2000000
Overhead Cost of Maintenance Dept. $23,22,394 $5,35,937 $5,95,486 $11,90,971
Total Overhead of Service Dept. $50,61,463 $19,05,471 $16,22,636 $15,33,355
Other Manufacturing Overhead $86,88,537 $33,07,915 $27,90,946 $25,89,676
TOTAL OVERHEAD OF PRODUCTION CENTRE $1,37,50,000 $52,13,386 $44,13,583 $41,23,031
Cost Driver Machine Hours
Machine
Hours
Direct Labour
Hours
Machine/Labour Hours 2000000 1200000 2000000
Overhead Cost per Machine/Labour Hours $2.61 $3.68 $2.06

3MANAGEMENT ACCOUNTING
PRODUCTION COST UNDER TRADITIONAL METHOD:
Particulars Simple Luggage Complex Luggage
Machine Hour in Machine Centre A 4 10
Overhead Cost per Machine Hour $2.61 $2.61
Overhead Cost of Machine Centre A per unit $10.43 $26.07
Machine Hour in Machine Centre B 10 20
Overhead Cost per Machine Hour $3.68 $3.68
Overhead Cost of Machine Centre A per unit $36.78 $73.56
Labour Hours in Assembly Centre 10 20
Overhead Cost per Labour Hour $2.06 $2.06
Overhead Cost of Labor Centre A per unit $20.62 $41.23
Total Overhead Cost per unit $67.82 $140.86
Direct Cost per unit $80.00 $200.00
TOTAL PRODUCTION COST PER UNIT $147.82 $340.86
Requirement 2:
Overhead Cost per Activity Driver:
Particulars Cost Driver Amount
Units of Cost
driver Cost per Unit
Overhead of Store Dept.:
Purchasing Material Purchase Order $10,95,628 9600 $114.13
Receiving Material Material Receipts $5,40,123 5000 $108.02
Disburse Materials Production Runs $11,03,318 2000 $551.66
TOTAL $27,39,069
Overhead of Maintenance Dept.:
Production Scheduling Production Runs $12,77,317 2000 $638.66
Set-Up Machines Set-Up Hours $6,20,300 12000 $51.69
Quality Inspection Inspections $4,24,777 1000 $424.78
TOTAL $23,22,394
Overhead of Machine Centre A Machine Hours $33,07,915 2000000 $1.65
Overhead of Machine Centre B Machine Hours $27,90,946 1200000 $2.33
Overhead of Assembly Centre Direct Labour Hours $25,89,676 2000000 $1.29

4MANAGEMENT ACCOUNTING
PRODUCTION COST UNDER ABC METHOD:
Particulars Cost Driver
Cost Driver
per unit
Cost Driver
per Batch
Units per
Batch
Cost per
Driver Unit
Cost per
Unit
Simple Luggage:
Overhead Cost of Machine Centre A Machine Hours 4 100 $1.65 $6.62
Overhead Cost of Machine Centre B Machine Hours 10 100 $2.33 $23.26
Overhead Cost of Assemble Centre Direct Labor Hours 10 100 $1.29 $12.95
Material Purchase Cost Purchase Order 1 100 $114.13 $1.14
Material Receipt Cost Material Receipts 1 100 $108.02 $1.08
Material Disbursement Cost Production Runs 5 100 $551.66 $27.58
Production Scheduling Cost Production Runs 5 100 $638.66 $31.93
Set-Up Cost Set-Up Hours 50 100 $51.69 $25.85
Quality Inspection Inspections 1 100 $424.78 $4.25
Total Overhead Cost per Unit $134.65
Direct Costs $80.00
PRODUCTION COST PER UNIT $214.65
Complex Luggage:
Overhead Cost of Machine Centre A Machine Hours 10 200 $1.65 $16.54
Overhead Cost of Machine Centre B Machine Hours 20 200 $2.33 $46.52
Overhead Cost of Assemble Centre Direct Labor Hours 20 200 $1.29 $25.90
Material Purchase Cost Purchase Order 1 200 $114.13 $0.57
Material Receipt Cost Material Receipts 1 200 $108.02 $0.54
Material Disbursement Cost Production Runs 1 100 $551.66 $5.52
Production Scheduling Cost Production Runs 1 100 $638.66 $6.39
Set-Up Cost Set-Up Hours 10 100 $51.69 $5.17
Quality Inspection Inspections 1 100 $424.78 $4.25
Total Overhead Cost per Unit $111.38
Direct Costs $200.00
PRODUCTION COST PER UNIT $311.38
Requirement 3:
Particulars Simple Luggage Complex Luggage
Traditional Costing Method $147.82 $340.86
Activity Base Costing Method $214.65 $311.38
Difference -$66.83 $29.47
Remarks Under Valued Over Valued
Difference between Two Methods:

5MANAGEMENT ACCOUNTING
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Wiley & Sons
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(B. Sc.)