Management Accounting Case Study and Analysis for ACCT6004

This document provides a detailed analysis of a management accounting case study, focusing on cost accounting techniques and their application in decision-making. It includes calculations of new overhead rates, the impact of a new machine on different jobs, and an assessment of hour savings. The analysis evaluates the financial implications of the new machine, considering its effect on both the specific job and other jobs. The case study identifies the rising total cost of products due to high overhead rates, even for jobs that do not use the machine. It also highlights that labor hour savings are less than expected, leading to the recommendation to avoid the machine's installation. The document concludes with findings and recommendations based on the analysis, supported by relevant references.

Management
accounting

Management accounting tools
 Management accounting is the process to record and
evaluate all the areas of business.
 There are several tools which can be used such as
the overhead allocation.
 The case is being evaluated here to identify the
correct decision.
 The costing calculations are to be made for the
same.

Calculation of new overhead rate
The new overhead rate is calculated as follows:
Particulars Amount
Estimated overheads 2475000
Cost saving due to labour hour reduction 468000
Lease payment 300000
Cost of skilled technician 45000
Total Overheads after changes 2352000
Total original labour hours 52000
hours saved 6000
Net hours required 46000
New overhead rate per hour 51.13

Calculating cost with new rate
Particulars Amount
Total labour hours 400
Direct material cost 45800
Direct labour cost 8400
Manufacturing overheads 20452.17
Total cost 74652.17
The new job order is received and to ascertain the total
cost there will be use of the new overhead rate. The
calculation is made and is as follows:

Impact of new machine on other jobs
The use of machine is not made in all jobs and the
impact on them will be as provided:
 The high overhead rate will be considered in them
also.
 The overall cost will be increasing due to this.
 There will be no benefit of the new machine for
them and will increase their burden.
 The benefit which would have otherwise been
made will be eliminated.

Reduction in hour saving
The actual hour saving is less and by that the overhead
rate will be affected which is shown below:
Particulars Amount
Estimated overheads 2475000
Cost saving due to labour hour reduction 156000
Lease payment 300000
Cost of skilled technician 45000
Total Overheads after changes 2664000
Total original labour hours 52000
hours saved 2000
Net hours required 50000
New overhead rate per hour 53.28

Findings and recommendation
The new overhead rate is determined to be higher than existing
rate.
The total cost of product is rising due to the same.
All the jobs which are not using are also suffering the high cost.
The saving in labour hour is less than expected.
The installation of machine is not beneficial and shall be
avoided.

References
Armitage, H. M., Webb, A., & Glynn, J. (2016). The
use of management accounting techniques by
small and medium‐sized enterprises: a field
study of Canadian and Australian
practice. Accounting Perspectives, 15(1), 31-69.
Osadchy, E. A., & Akhmetshin, E. M. (2015).
Accounting and control of indirect costs of
organization as a condition of optimizing its financial
and economic activities. International Business
Management, 9(7), 1705-1709.