Management Accounting for Costs: Ausway Company Case Study

Desklib provides past papers and solved assignments for students. This report analyzes Ausway Company's costing methods and value chain.

Management Accounting for Costs
1

Contents
Introduction......................................................................................................................................2
Question 1........................................................................................................................................3
Conclusion.......................................................................................................................................4
Question 2........................................................................................................................................5
1. Cost of Goods Manufactured Statement for the Year ended 31st December 2018..................5
2. Cost of Sales for the year ended 31st December 2018..............................................................5
3. Gross Profit of Company for the year ended 31st December 2018..........................................6
4. Net Profit of the Company for the year ended 31st December 2018........................................6
Question 3........................................................................................................................................7
1. Calculation of Overheads Rates per Unit as per Direct Method..............................................7
2. The overhead cost of Thingamebob.........................................................................................7
3. Calculation of Overheads Rates per Unit as per Step Down Method......................................8
4. Cost of Thingamebob using overhead Rates of (iii)................................................................8
5. Calculation the overhead rates per unit as per reciprocal services method..............................9
6. Cost of Thingamebob using overhead Rates of (v)................................................................10
7..................................................................................................................................................10
Question 4......................................................................................................................................11
1. Predetermined Overhead Rate for Each Department.............................................................11
2. The total cost of Job 842........................................................................................................11
3. Determination of Over applied or under applied overheads..................................................11
Question 5......................................................................................................................................12
1. Calculation of Amounts using Weighted Average Method...................................................12
2. Requirement 1 using FIFO Method.......................................................................................12
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References......................................................................................................................................14
Introduction
In the following report, there is a brief discussion about the value chain of Ausway Company.
How value chain will be helpful for any organization in achieving the objectives within a pre-
defined time period and also with the help of this Ausway can be able to earn an adequate
amount of price by setting the price value of the product reasonably.
3

Question 1
A value chain is said to be the set of activities which include designing of the product,
marketing, production and also distributing the product to the customers with providing best
services. It can be conducted by the business for the purpose of delivering the product to the
reach of customers. The process of value chain starts with raw materials used in the making of
the product and includes each and everything that was added before delivering or selling that
product to the consumer. Management of value chain is the process of organizing these activities
for properly analyzing them (Tate, et. al., 2018). The target is to communication establishment
between each stage's leaders for making sure that the product is handover to the customer as easy
as possible. Value chain provides a suitable framework for meeting up the issues related to
management accounting of Ausway Company. In this company, there are major issues of
management accounting found such as lack of knowledge of costing behavior which is treated as
one of the biggest issues, inaccuracy of data, wrong forecasting of the sales and production, etc.
With the help of management accounting, financial data can be generated and it also helps in
achieving the objectives and also responsible for the growth and development of the business
(Qose, et. al., 2018). Ausway is a company which produces maps and street directories for
providing the direction. Here value chain plays a vital role in generating and setting of the prices
which help in satisfying the customers to the greater level. Management of the activities should
be done properly so that the value chain analysis process can be implemented successfully. The
main purpose of the value chain is to reduce the wastage of resources in the organization and
properly allocate them in the organization so that wastage can be stopped. It is beneficial in
identifying the areas that can be enhanced for maximizing profitability and efficiency. For the
success of Ausway, there should be proper utilizing of the resources done along with proper
costing prices; also the profitability condition of any company is mostly based on the products
and services that were given. There should be various management accounting techniques used
so that no issues occur within the organization.
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Conclusion
Considering the overall report, it has been concluded that the value chain is a very important
aspect for any organization. Similarly, in Ausway also value chain analysis plays a crucial role in
successfully planning and implementing the prices of the products and services. With the help of
the value chain, the customer can be satisfied regarding the product prices and services. It has
also been taken into consideration that management accounting issues provide problems to the
organization.
5

Question 2
1. Cost of Goods Manufactured Statement for the Year ended 31st December 2018
Particulars Amount Amount
Opening Raw Material 67,200
Raw Material Purchases 194,600
Freight Inwards 2,800
Less: Closing Raw Material (71,500)
Less: Indirect Material Used (8,726)
Direct Material Used 184,374
Direct Labour 490,000
Manufacturing Overheads
Indirect Labour 77,200
Other Manufacturing Expenses 5,600
Factory Rent 39,270
Depreciation on Factory Fittings 6,400
Depreciation on Factory Machinery 10,750
Insurance on Factory & Equipment 22,120
Electricity for Factory 58,800
Total Manufacturing Overheads 220,140
Add: Opening Work In Progress 49,000
Less: Closing Work In Progress (50,700)
Cost of Goods Manufactured 892,814
2. Cost of Sales for the year ended 31st December 2018
Particulars Amount
Direct Material Consumed 184,374
Direct Labour 490,000
Prime Cost 674,374
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Add: Factory Overheads 220,140
Factory Cost 894,514
Add: Opening WIP 49,000
Less: Closing WIP (50,700)
Cost of Goods Manufactured 892,814
Add: Interest Expense 3,080
Add: Opening Finished Goods 210,000
Less: Closing Finished Goods (201,500)
Cost of Goods Sold 904,394
Add: Advertising Expense 20,800
Add: Sales Salary Expense 121,520
Add: Selling Expense 22,880
Cost of Sales 1,069,594
3. Gross Profit of Company for the year ended 31st December 2018
Particulars Amount
Sales Revenue 1,400,000
Less: Cost of Goods Sold 904,394
Gross Profit 2,304,394
4. Net Profit of the Company for the year ended 31st December 2018
Particulars Amount
Sales Revenue 1,400,000
Less: Cost of Sales (1,069,594)
Net Profit 330,406
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Question 3
1. Calculation of Overheads Rates per Unit as per the Direct Method
Particulars
Moldin
g Assembly
Production-related
Overheads 500000 740000
Support Related Overheads 509667 170333
Total Overhead Cost
100966
6.667 910333
Total Machine Hours 40000
Total Labour Hours 160000
Overhead Rates Per Unit 25.24 5.69
Working Note:
Allocation of Repairs & Engineering Cost to molding & Assembly Department as per the
Direct Method
Particulars
Total
Cost
Molding
Department
Assembly
Department
Repairs Cost 100000 16667 83333
Engineering Cost 580000 493000 87000
Total 680000 509667 170333
It should be noted that the indirect method the cost of each support department is divided into
production departments based on the share of each production department. Support provided to
other support department's are ignored (Nah, & Lavoie, 2018). In the given case the company is
having two departments which are engaged in production namely Molding & Assembly
Department. On the other hand, two support department's cost is also divided into production
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departments. Two support departments are repairs and maintenance. Support provided by repairs
to the engineering department and vice versa is ignored indirect method.
2. The overhead cost of Thingamabob
Particulars Amount
Machine Hrs Used 3.00
Overhead Rates per Machine Hr 25.24
Total Overhead Cost of molding Department (A) 75.73
Labour Hour used 5
Overhead Rates per Labour Hr 5.69
Total Overhead Cost of Assembly Department (B) 28.45
Total Overhead Cost for Thingamabob 104.17
3. Calculation of Overheads Rates per Unit as per Step Down Method
Particulars
Moldin
g Assembly
Production-related
Overheads 500000 740000
Support Related
Overheads 516500 163500
Total Overhead
Cost 1016500 903500
Total Machine
Hours 40000
Total Labour
Hours 160000
Overhead Rates
Per Unit 25.41 5.65
Working Note:
9

Allocation of Repairs & Engineering Cost to molding & Assembly Department as per
Step Down Method
Particulars
Total
Cost
Molding
Department
Assembly
Department
Repairs
Cost
Engineerin
g Cost
Repairs Cost 100,000 15,000 75,000
(100,000
) 10,000
Engineering Cost 590,000 501,500 88,500 - (590,000)
Total 690,000 516,500 163,500
It is noted that in the case of the step-down method allocation of service department cost is
made in steps. The sequence of allocation is provided in the given question and firstly repairs
cost are to be allocated into production departments and engineering department (Ahad, et. al.,
2017). After such division, the cost of the engineering department, as well as the cost allocated
to the engineering department from repairs, are totaled and allocated to respective production
departments in the ratio specified.
4. Cost of Thingamebob using overhead Rates of (iii)
Particulars Amount
Machine Hrs Used 3.00
Overhead Rates per Machine Hr 25.41
Total Overhead Cost of molding Department (A) 76.24
Labour Hour used 5
Overhead Rates per Labour Hr 5.65
Total Overhead Cost of Assembly Department (B) 28.23
Total Overhead Cost for Thingamabob 104.47
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5. Calculation the overhead rates per unit as per reciprocal services method
Particulars Molding Assembly
Production-related Overheads 500000 740000
Support Related Overheads 423541 171460
Total Overhead Cost
923540.6
6 911460
Total Machine Hours 40000
Total Labour Hours 160000
Overhead Rates Per Unit 23.09 5.70
Working Note
Particulars
Production
Department
Support
Department
Moldi
ng Assembly Repairs
Engin
eerin
g
Repairs Cost 15,000 75,000 -
10,00
0
Engineering Cost
394,40
0 69,600 116,000 -
Total Repairs Cost
21600
0
Total Engineering Cost
59000
0
Making Equation from the two
costs
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Total Engineering Cost= 580000 +
(10% of Repairs Cost)
Equat
ion 1
Repairs Cost=15000 + 20% of
Engineering Cost
Equat
ion 2
Putting Values of Equation 2 in
Equation 1
Total Engineering Cost = 580000 +
10% [15000 + 20% of Engineering
Cost]
Engineering Cost = 593367.34
Repairs Cost =15000 + 20% of
Engineering Cost
Repairs Cost = 15000 + 118673.47
Repairs Cost = 133674
Particulars Total Molding Assembly
Repai
rs
Enginee
ring
Repairs
133,67
4 20,051 100,256
(133,6
74) 13,367
Engineering
593,36
7 403,490 71,204
118,6
73
(593,367
)
Total 423,541 171,460
6. Cost of Thingamebob using overhead Rates of (v)
Particulars Amount
Machine Hrs Used 3.00
Overhead Rates per Machine Hr 23.09
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