Cost and Management Accounting Report: Serta and Tempu Beds Analysis

This report delves into the core concepts of cost and management accounting, presenting a comprehensive analysis of unit manufacturing costs for Serta and Tempu beds. It examines traditional costing methods and contrasts them with activity-based costing (ABC), illustrating how ABC can provide a more accurate allocation of overhead costs. The report includes calculations of unit manufacturing costs, assesses the impact of machine hours on cost distortion, and evaluates the financial implications of a proposed discount strategy. Furthermore, it explores a case study involving Adam Smith's decision-making regarding suppliers and raw materials, emphasizing the importance of product quality and ethical considerations. The report also advises Santana Corporation on implementing ABC, outlining appropriate activities and activity drivers, and discussing the associated benefits and costs. Overall, the report provides a practical application of accounting principles to aid in business decision-making.

Cost and management
accounting
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Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................4
TASK 1............................................................................................................................................4
Calculation of the unit manufacturing cost of the Serta and the Tempu bed..............................4
Calculate the unit manufacturing cost of the Serta and the Tempu using activity-based costing.
.....................................................................................................................................................4
3. Is the cost of the Tempu bed distorted by the use of machine hours to allocate total
manufacturing overhead to production, and, if so by how much per unit...................................4
4. Assume that the current selling price of the Tempu bed is $280 and the marketing director
has proposed to offer a $30 discount to increase sales. Is the discount advisable? Advise
management. Show supporting calculations................................................................................4
Explanation of Conventional costing will always distort product costs costin...........................4
TASK 2............................................................................................................................................5
Decision Adam Smith should take with regards to the supplier and raw material......................5
Advise Santana Corporation on suggested activities and activity drivers, explaining to
management why you consider these appropriate.......................................................................6
Explanation of why management of Santana Corporation on the potential benefits and costs
associated with implementing an Activity Based Costing system.zed business activities in......8
CONCLUSION................................................................................................................................8
REFRENCES...................................................................................................................................8
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INTRODUCTION
Cost and management accounting both are the vital part of accounting. Business organization
uses these branches for reducing their cost and enhances profit to achieve their goal. In this
report use of activity based costing for reducing cost and taking business decision and its
importance has been define in brief manner.
TASK 1
Calculation of the unit manufacturing cost of the Serta and the Tempu bed
Calculation of material cost of Serta and Tempu by using traditional costing Amount
Product
Annual
output
Serta 15000
Tempur 30000
Calculate the unit manufacturing cost of the Serta and the Tempu using activity-based costing.
Calculation of material cost of Serta and Tempu by using Activity based
budgeting
Particular Serta
Rate per
activity Tempur
Direct material 600000 40 195
Direct labor 525000 35 105
Prime cost 1125000 300
Set up cost 13440 100 2
Outgoing shipping cost 5600 250 2
Machine overheads 1270000 142.24 228
3. Is the cost of the Tempu bed distorted by the use of machine hours to allocate total
manufacturing overhead to production, and, if so by how much per unit
No in this case the cost of Tempu will be not distort by machine hour rate (McLaren,
JAppleyard, and Mitchell, 2016).
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4. Assume that the current selling price of the Tempu bed is $280 and the marketing director has
proposed to offer a $30 discount to increase sales. Is the discount advisable? Advise
management. Show supporting calculations.
No in this situation discount is not advisable because it will inure loss as compare to its
manufacturing cost.
Explanation of Conventional costing will always distort product costs costing
Conventional costing is a type of costing in which overheads are allocated to the products
on volume based measures that means labour hours machine hours and unit produced. It also
known as traditional costing. In this method factory overheads are allocated on the basis of
resource consumed in production process. This method of accounting used in predication of
profits. Conventional costing used causes and effect method which takes into account the direct
and indirect costs and overheads within the business. In traditional coating overheads are related
with the cost centres. And then its cost objectives .Traditional cost accosting it is assumed that
cost objective consume resource and it is structure oriented , Traditional costing system reveals
less accurate costs(Basiruddin, Benyasrisawat and Rasid, 2014).
ABC costing technique of accounting has been developed in order to fulfil the limitations of
traditional costing. This costing method has big limitation or weakness is that it only considered
production factor for measuring their cost and allocation of overheads. Even many products of
business organization do not uses the overhands in proportion to the volume of products
produced within the manufacturing process. There will be many types of cost are reason of non
production which is related with the products’ characteristics , size, its compatibility,
complexity, tends of conventional costing distort product of cost . This refers that there would be
too much cost had been charge on allocation of overheads to products. While too little ovehareds
are allocated to other products of manufacturing products. This type of distortion are known as
cross subsidies distortions. ABC analysis solve these problems thus managers of business
organization special manufacturing industries used ABC analysis rather hen prefer the traditional
based costing method.ABC cost method management department divide each product cost in
different categories of cost drivers. Through which they can easily solve the problem f distortion
of product cost. The rules and procedure of working of traditional costing system are made in a
manner that production cost always distort to the product cost.
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TASK 2
Decision Adam Smith should take with regards to the supplier and raw material.
Adam Smith is the owner of Button Pty Limited their cost of manufacturing beds goes high thus
they are unable to generate higher rate of return. A supplier offers them to provide raw material
at lower rate through which they can easily cover up their manufacturing cost and able to earn
higher return of profit. But their raw material has some minor defects which may lead to
provides many sleeping problems for their customers.
As per the Australian law Adam Smith should not accept the proposal of supplier because the
quality of raw materials is not good and they have directs even though Adam Smith ready for
give compensate to their clients but goodwill of the company decreases and their manufacturing
cost may reduce by accepting the offer but due to decrement in the reputation of their firm , the
customer satisfaction rate goes down and their selling rate also decreases this will automatically
reduce the profit earn by Button PTY limited. Thus they did not accept the offer of supplier even
customers also claim for damages and compensation according to the Australian Consumers Act
.Thus Adam Smith must provide high qualities of products and service to their customer even
though they not get higher return of profit at initial rate but their target marked area increase with
increment of customers satisfaction rate (Rieckhof, Bergmann and Guenther,2015).A
manufacturing owner of Australian Mills was sued because of ignorance by a individual who
already wore them and in contract with demerits for an sulphite residual left in manufacturing
process. The plaintiff able proc that the pants of the manufacturing organization was have
defects because of contain extra chemicals but theses chemicals not shown whatever the
chemical outstanding was due for any either meticulous insufficiency procedure of
manufacturing. The court decided the continuation of the extreme chemical was of itself
siuuffiecnt proof of carless and upheld the allege of negligence on the Australian Knitting Mills.
The consumer have right to sue case or file against for retailers they can claim for damages and
if the Damage is high then the retailer may be sued for give panties.
An damage can be caused partially by imperfect commodities and partially by performance on
the component of the person who has been hurt or continuous smash up to their possessions.
Court of Australia may be reduced the value of damages . The compensation rate get high id f
the retailers sell the products to their clients when they have an idean regarding the fault and
they till sell their products to target market. In the case of Adam Smite they have knowledge
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regarding the damages and fault nit the raw materials even it was a miner fault but hay may
because of buffs health issue for their clients they may have duffers’ problems of splaying and
other. Thus if t any of their customers sue case on the organization regarding fault gulpers of
beds then court charge them high rate ode penalties. Thus Adam Smith would not accept the
defaced materials offer of supplier in order to maintain sustanivity of their organization within
the market. Unwarranted
TASK 3
Advise Santana Corporation on suggested activities and activity drivers, explaining to
management why you consider these appropriate.
Santana Corporation is provides grocery product and services as wholesaler supllier target
market area. They provide various types of products and service within the market. They use
conventional costing system. To increase their profitability rate they use customer’s profitability
analysis tool which is the part of cost and management accounting. With the use of this
methodology manger of Santana will be able to identify profitably rate of each clients. With the
use of attributing cost of each client activity. Santana Corporation should be use activity based
costing method which can easily able to distribute cost activities to each group and thy able to
identify cost incurred on each activity (Powers, Higham, Broussard and Phillips, 2016).
Activity based costing is a system that focus on activities as fundamental cost objectives ad
utilizes cost of these activities as building blocks or compiling the cost of other cost object.
Activity based costing facilitates strategic cost management . ABC not only shows how activities
consume resource and how products or customers trigger activities but also assign costs to
product or customers according to the resource consume. ABC describes information for manger
to mange activities to improve competitiveness and achieve strategic goals. ABC is a type of cost
accounting strategy which assigns cost to business activities rather than business products and
services. Thus Santana Corporation used this costing method to apply in their organization and
management strategy. Activity base costing increasing the number of cost pools used to
accumulate overhead cost. The number of pools depends upon the cosy driving activities. Thus
instead of accumulating overheads cost in single company wise pool if department pools the cost
are accumulated by activities. These method charges overheads cost in indecent jobs or products
in propane to the cost driving activities in place of a blanket rate based on direct labour cost or
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direct hours or machine hours. It improves the traceability of the overhead costs which results in
more accurate unit cost data for management.
Santana Corporation used this method in their business activities because though most of cost
incurred for individual customers are simply produced cost there is also an overhead component
such as unusually high customer services levels products return handling an cooperative
marketing agreements. An ABC system can sort through these additional overheads cost and
help a person to detriment which customer are actually earning a retainable profit. This analysis
may result in some unprofitable customers being turned away or more emphasis being placed on
those customers who are earning the company to largest profits. ABC costing system is more
better than traditional system of costing (Hoque, 2014).
Management department of Santana Corporation use activity drivers for determining their
customers cost. These are following
Activity drivers are those hat influence the business cost of operations. They are reason of
contributing in incurring expenses. For Grocery Corporation the management department maybe
used number of suppliers invoices proceed.
 Check paid
 Number of customers invoice issues
 Square footage used Time taken in distribution
 Number of sells calls
 Numbers of retailers
 Numbers of working order
 Number of warehouse picks
All these activity deriver of Santana Corporation helps in minting a strong relation between cost
pools and activities. They directly influence the other variable.
Explanation of why management of Santana Corporation on the potential benefits and costs
associated with implementing an Activity Based Costing system.zed business activities in
Activity based costing helps in recognize method of costing is help in learning about
products and it will useful for allocation of resource of corporation in effective manner.
According to the research article A state of art on activity based costing. Implementation of this
method and organization helps in consultation of time and easily recognized cost incurred of
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various parts of business organization; activity. As Santana Corporation is work its small
supermarket and its target area includes various small retailers. With the use of ABC technique
they are able to identify how many order they received within the month, their sales forecast.
Able to compare their past and current sales target. Saran organization will be able to understand
the connect of cost in easy way. hey can able to change their procedure an even they have attain
profits y using this method as by adopintin this method the hare be to gernat profit and gain
competitive business advantage. Activity based ting helps them to generate more profit minimize
cost though cutting high incurred activities extra cost.
It helps to understand the behaviour of overhead costs and their relationship to products services
customers and market. Saran Corporation will be able to allocate their resource to those activities
that will increase shareholders value and increase their client (Kober and et.al. 2016).
Activity based costing method use them to incurred profitability analysis to operation decision. It
ensure
CONCLUSION
From the above analyse it has been concluded that cost an management accounting play
essential role in management of business organization by reducing their cost. With the use
of effective activity based costing method manager will be able to earn profit.
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REFRENCES
Books and journals
Laitinen, E. K., 2014. Influence of cost accounting change on performance of manufacturing
firms. Advances in accounting, 30(1), pp.230-240.
McLaren, J., Appleyard, T. and Mitchell, F., 2016. The rise and fall of management accounting
systems: A case study investigation of EVA™. The British Accounting Review, 48(3),
pp.341-358.
Basiruddin, R., Benyasrisawat, P. and Rasid, S. Z. A., 2014. Audit quality and cost of equity
capital. Afro-Asian Journal of Finance and Accounting 3, 4(2), pp.95-111.
Rieckhof, R., Bergmann, A. and Guenther, E., 2015. Interrelating material flow cost accounting
with management control systems to introduce resource efficiency into strategy. Journal
of Cleaner Production, 108, pp.1262-1278.
Powers, J .G., Higham, C., Broussard, K. and Phillips, T.J., 2016. Wound healing and treating
wounds: Chronic wound care and management. Journal of the American Academy of
Dermatology, 74(4), pp.607-625.
Hoque, Z., 2014. 20 years of studies on the balanced scorecard: Trends, accomplishments, gaps
and opportunities for future research. The British accounting review, 46(1), pp.33-59.
Kober, H., Lacadie, C. M., Wexler, B.E ., Malison, R. T., Sinha, R. and Potenza, M.N., 2016.
Brain activity during cocaine craving and gambling urges: an fMRI
study. Neuropsychopharmacology, 41(2), pp.628-637.
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