College of Admin: ACCT 301 Cost Accounting Assignment on Budgeting

This assignment presents a comprehensive solution to a cost accounting problem. It begins with the allocation of maintenance department costs to the cutting and packaging departments using the direct method, providing detailed calculations. The assignment then explores the net realizable value method for allocating joint costs, offering a practical example. Furthermore, it delves into the comparison of different methods of allocating departmental support costs, specifically the direct, step, and reciprocal methods, with a preference for the reciprocal approach. The solution also explains unfavorable variances, outlining potential causes such as labor rate and efficiency variances, material variances, and overhead variances. Finally, it discusses the effects of budgeting, emphasizing its role in planning, performance evaluation, and employee engagement. The assignment is well-structured, offering a clear understanding of cost accounting concepts with relevant examples and explanations.

Running Head: COST ACCOUNTING 0
Cost Accounting
(Student Name)
4/6/2020

COST ACCOUNTING 1
Table of Contents
Question 1........................................................................................................................................2
Part A...........................................................................................................................................2
Question B....................................................................................................................................3
Part C............................................................................................................................................3
Question 3........................................................................................................................................4
Question 4........................................................................................................................................5
References........................................................................................................................................6

COST ACCOUNTING 2
a)
Question 1
Part A
Statement showing allocation of Maintenance Department Costs to the
Cutting Department
(Using Direct Method)
From To
Maintenance Cafeteria Cutting
Packagi
ng
In SAR In SAR In SAR In SAR
Direct Costs 50000 45000 275000 300000
Maintenance Allocation -50000 23333.3
26666.6
7
Total 0 45000
298333.33
33
326666.
67
Maintenance Cost to be allocated
to operating department 50000

COST ACCOUNTING 3
Based of Allocation for
Maintenance Cost
In square
feet
Rate of Allocation
(Cutting : Packaging) 3500:4000
ie 7:08
Share of Maintenance Cost to be
allocate to the Cutting
Department 23333.3
Cutting department allocated
maintenance cost 23333
B
)
Statement showing allocation to the Packaging
Department
From To
Maintenance Cafeteria Cutting
Packagi
ng

COST ACCOUNTING 4
In SAR In SAR In SAR In SAR
Direct Costs 50000 45000 275000 300000
Maintenance Allocation -50000 23333.33
26666.6
7
Cafeteria Allocation -45000 16875 28125
Total 0 0 315208.33
354791.
67
Working Notes
Share of allocation of service
department costs to the operational
department
Direct Method
Support Department Basic Allocation
Maintena
nce
Cafete
ria
Cut
tin
g
Pack
agin
g

COST ACCOUNTING 5
Cafeteria
Number of
Employees (3:5)
37.
5 62.5
Maintenance Square Feet (7:8)
46.
67 53.33
Question B
Net Realizable value method would be more appropriate to allocate joint cost
Produc
t Units
Selling
Price After
Split off
points
(SAR PER
UNIT)
Total
Sales
Separable
Cost per
unit (SAR
PER
UNIT)
Total Separable
Cost
Net
Realizabl
e Value
A
30000
0 32 9600000 5 1500000 8100000
B
20000
0 30 6000000 3 600000 5400000
C
40000
0 20 8000000 2 800000 7200000

COST ACCOUNTING 6
Part C
I may examine the intent of allocating service department in the case I work for an company
and am needed to assign support department costs. Based on the intent, by analyzing its features,
I may pick any of the methods below. In my view, I will prefer the third approach which is
Reciprocal approach because it is the most effective method for allocating departmental support
costs (Guajardo & Rönnqvist, 2016). There are three methods of allocating departmental support
costs namely:
 Direct method
 Step method
 Reciprocal method
Direct method: The direct allocation system is a methodology used to assign service
department expenses to certain areas of a company. The method is used to completely load
running agencies with the overhead costs they are responsible for.
Step method: Contrary to the direct approach, all other business units and running
system are allocated the expense of a service department by the process approach (also known as
the process-down method). A sequential protocol is the expense allocation according to phase
process. It coincides with the expense allocation of the service department delivering the most
service to other agencies and finalizes with the costs allocation of the service department
supplying the least service to other service departments.
Reciprocal method: The last method is the collective method. It's the most accurate, but
it's the most complicated. The relationship between the providers is understood in the reciprocal
process. Service expenses are therefore allocated to and from the other branches in operations
(Pimentel, Aizezikali & Baker, 2018).

COST ACCOUNTING 7
Question 3
Unfavorable variance is an accounting concept which defines instances in which real
costs surpass the normal or expected costs. An adverse deviation will warn management that the
performance of the product is smaller than expected. The sooner an adverse anomaly is observed,
the sooner the issue will be resolved. Unfavorable variances in financial terminology apply to a
discrepancy between real outcomes in any financial group versus a budgeted occurrence in
which actual outcomes are not as advantageous as the expected results. In addition, a potential
issue that could have a negative impact on earnings is noted and then corrected. The idea does
not really work well. In fact, the dilemma is that in comparison to the benchmark or target, only
an adverse gap exists and that norm can be unlikely or at least very hard to achieve (Tan, Salo,
Juntunen & Kumar, 2018).
The possible reasons for unfavorable variance are explained in the below points:
 Unfavorable labor fluctuations exist because worker rates and prices are greater than
expected. Numerous variables may create an unfavorable variation of labor. Structures
and rates of competence of employee’s compensation can create disadvantages. New
workers may earn less compensation, but they are more likely less productive also their
seasoned counterparts. Bad planning may also contribute to duplication and inefficiency
of workers. Materials of the drug may also be guilty. If the corporation buys goods of less
quality to save on the expense of production, workers who make the items will be that.
 There would be an adverse price difference where overhead costs are higher than
expected for the commodity output generated by the organization. Corporations typically
have no major differences in this sector, with fixed overhead costs remaining fairly
stable. Nonetheless, the unreasonable difference will occur if property taxes, prices for
benefits, manager's compensation or depreciation increase in the unforeseen way (Shi et
al., 2019).
Question 4
The effects of budgeting are various. It formalizes the planning and synchronization of
operations with the large vision, the strategic strategy of the organization. It takes the

COST ACCOUNTING 8
responsibility for the decision-making and increases the responsibility of the board. Both
decision-makers aim to accomplish the same goal with a clear strategy in motion. Providing a
shared framework for consideration of how well the boss achieved his targets and for a debate as
to whether the real outcomes fall short of the initial target, the target often facilitates
performance reviews. This helps all industry segments to make them more effective, contributing
to a greater company-wide efficiency.
CETC may be a difficult job to create an effective budget. It is more than just clicking
and tossing a lot of numbers at the manager. A crucial aspect of the process of workplace
engagement is engaging in the budgeting process. This ensures that the budgeted targets are
agreed by parties. Employees whose success is related to these targets will consider their budgets
to be equitable and realistic. The cycle of budget creation for the management offers the
opportunity to learn and share the thoughts and suggestions of the staff. Participate in them and
buy-in and that will lead to more success (Messer, 2017).

COST ACCOUNTING 9
References
Guajardo, M., & Rönnqvist, M. (2016). A review on cost allocation methods in collaborative
transportation. International transactions in operational research, 23(3), 371-392.
Messer, R. (2017). Budgets and other lies: Evidence of bias in financial planning. Business
Horizons, 60(4), 447-453.
Pimentel, V., Aizezikali, A., & Baker, T. (2018). An evaluation of the bid price and nested
network revenue management allocation methods. Computers & Industrial
Engineering, 115, 100-108.
Shi, D., Chan, H., Yang, X., Zhang, G., Yang, H., Wang, M., & Li, Q. (2019). Risk factors
associated with IgA vasculitis with nephritis (Henoch–Schönlein purpura nephritis)
progressing to unfavorable outcomes: A meta-analysis. PloS one, 14(10).
Tan, T. M., Salo, J., Juntunen, J., & Kumar, A. (2018). A comparative study of creation of self-
brand connection amongst well-liked, new, and unfavorable brands. Journal of Business
Research, 92, 71-80.