Management Accounting for Costs & Control Assignment

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Management Accounting for Costs &
Control
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Table of Contents
ASSESSMENT ITEM 2..................................................................................................................3
ASSIGNMENT 1.............................................................................................................................3
Question 1........................................................................................................................................3
Question 2........................................................................................................................................6
Question 3......................................................................................................................................12
Question 4......................................................................................................................................18
Question 5......................................................................................................................................22
References......................................................................................................................................24
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ASSESSMENT ITEM 2
ASSIGNMENT 1
Question 1
Introduction
Entrepreneurs use various methods to increase the performance of their business. It is not an easy
task to grow a newly set up business. There are lot of factors that influence positively and
negatively towards increasing the productivity and profitability. One such method that is used by
the managers to enhance the productivity is Value Chain Analysis. It is a strategic tool that is
used to analyze the internal activities of the firm. For a proper result, it is important for the firm
to monitor the internal as well as the external activities. This will give the managers a better
outlook at the performance and they can take necessary decisions.
There are various activities that are engaged by the firm to increase the number of goods
produced. It has to enhance its services in order to satisfy the customers. Value Chain Analysis
lets the managers analyze different channels through which the primary activities are performed
and this acts as an addition towards increasing the final value of the product (Villamayor-Tomas,
et.al., 2015). These are done directly as well as indirectly. There are different types of operations
that takes place in the value Chain Analysis. It involves activities like design, production,
marketing and distribution of the overall products and services.
The primary activities of the Value Chain Analysis Include:
 Inbound Logistics This includes receiving, storing and distributing of raw materials that
are used in the production process.
 Operations It is the stage at which the raw materials are turned into the final product.
 Outbound Logistics This is the process that includes the distribution of the final product
to the customers.
 Marketing and sales This is the most important aspect of delivering the product to the
consumers. It involves factors like advertising, promotions, sales-force organization, and
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distribution channels, pricing and managing the final product to ensure that the product is
targeted to the right segment of consumers.
 Services It is the final product that is being provided to the consumers. It refers to
activities needed to maintain the product’s performance after it had been produced,
including installation, training, maintenance, repair, warranty and after sale services
(Jaligot, et.al., 2016).
There are few other activities that are supported by the primary functions to manage the process
efficiently. They can be classified as below:
 Procurement It is the method through which the raw materials are produced in the firm
by quoting several prices from various dealers.
 Technology Development It is the development of new technology to ease the process of
production. This is used at the research and development phase of the firm.
 Human Resource Management It includes the activities that are involved in hiring and
retaining the proper employees for the work to be done in the firm. Right employees will
give right results.
 Firm Infrastructure It refers to the firm’s infrastructure and its management, planning,
accounting, finance and quality control mechanisms.
Conclusion
It is thus concluded that value chain analysis is a very important tool that helps in monitoring the
internal activities of the organization in a structured manner.
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Question 2
1. Cost of Goods Manufactured Statement of David for the month ended 31st July 2019
Cost of Manufacturing Statement
Particulars Amount Amount
Direct Material
Raw Material Inventory 1/07/19 $ 4,800
Add: Purchases of Raw Material $ 53,200
Less: Raw Material Inventory 31/07/19 $ (5,200)
Direct Material Used in Production $ 52,800
Direct Labour $ 6,000
Manufacturing Overheads
Depreciation Factory Machinery $ 1,600
Factory Power $ 150
Factory Rent $ 9,195
Factory Supplies $ 4,800
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Freight Inwards $ 730
Indirect Labour $ 2,000
Machinery Maintenance $ 250
Rates- Factory $ 1,400
Total manufacturing Overheads $ 20,125
Total Manufacturing Costs $ 78,925
Add: Work in Progress 01/07/19 $ 2,250
Less: Work in Progress 31/07/19 $ (2,500)
Cost of Goods Manufactured $ 78,675
Income Statement of David for the month ended July 2019
Particulars Amount Amount
Sales Revenue $ 158,500
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Less: Expenses
Direct Material
Raw Material Inventory 1/07/19 $ 4,800
Add: Purchases of Raw Material $ 53,200
Less: Raw Material Inventory 31/07/19 $ (5,200)
Direct Material Used in Production $ 52,800
Direct Labour $ 6,000
Manufacturing Overheads
Depreciation Factory Machinery $ 1,600
Factory Power $ 150
Factory Rent $ 9,195
Factory Supplies $ 4,800
Freight Inwards $ 730
Indirect Labour $ 2,000
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Machinery Maintenance $ 250
Rates- Factory $ 1,400
Total manufacturing Overheads $ 20,125
Total Manufacturing Costs $ 78,925
Add: Work in Progress 01/07/19 $ 2,250
Less: Work in Progress 31/07/19 $ (2,500)
Cost of Goods Manufactured $ 78,675
Gross Profit $ 79,825
Less: Other Expenses
Advertisement Expense $ 5,000
Sales Travel Expense $ 1,530
Depreciation Office Machinery $ 600
Interest Expense $ 5,000
Office Salaries $ 5,000
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Sales Salaries $ 4,780
Telephone $ 500
Total Other Expenses $ 22,410
Add: Finished Goods 01/07/2019 $ 11,200
Less: Finished Goods 31/07/2019 $ (10,500)
Cost Of Sales $ 101,785
Net Profit for the month $ 56,715
2. Company’s Cost of Sales for the month ended July 2019 is $ 101785 which is computed
in the above income statement of the company by adding all the cost relating to
manufacturing and sales of the company and making adjustments relating to opening and
closing finished goods, work in progress and raw material.
3. Company’s Gross Profit for the month ended July 2019 is $ 79825 which has been
computed by deducting the cost of goods manufactured from the sales revenue of the
company (Majumder, et. al., 2017).
4. Cost of manufacturing statement has been made above which helps the company in
taking various decisions for the company as it specifies the total cost relating to the
manufacturing in the factory thus helping in computing gross profit of the company.
However it should be noted that there are also several limitations of cost of goods
manufactured statement which has been stated as follows:
 Cost of goods manufactured only considers cost relating to manufacturing
activities or factory related cost. It does not considers the administrative and
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selling cost thus not giving the complete overview of the company which is not
feasible for decision making for the organization as a whole (Majumder, et. al.,
2017).
 Cost of goods manufactured used for computing profit does not provide the
organization and its stakeholders with the correct overview of the company as the
statement made using cost of manufacturing does not correctly compute the cost
as there are certain other expenses which have been incurred by the organization
during the period. This leads to incorrect decision making for the company
relating to computing total cost for the company.
 Cost of goods manufactured in only feasible for the organization which is
engaged into manufacturing of goods. Organization which is engaged into
provision of service only or into provision of both manufacturing and service
facilities cannot use the cost of goods manufactured for important decision
making as in case of service organization the company would not have any cost of
manufacturing (Majumder, et. al., 2017). It will thus lead to non-computing of
cost and thus leading to incorrect decision making for the company.
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Question 3
I
Allocation of Support Department cost to Operation Department Cost on basis of Direct
Method
Particulars Total Cost
Basis of
Allocatio
n
Cost
Drive
r
P.U.
Sheep
Drenc
h
Cattle
Drenc
h
Material Handling Cost
$
135,000
Number
of
Material
Movemen
ts
$
500
$
75,000
$
60,000
Research Department Cost
$
350,000
15% to
each of
the two
departme
nts
$
52,500
$
52,500
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Administrative Department
$
260,000
Number
of
Employee
s
$
86,66
7
$
173,33
3
$
86,667
Total Cost allocated from Support
Department
$
745,000
$
300,83
3
$
199,16
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II
Allocation of Support Department cost to Operation Department Cost on basis of Step
Down Method
Particula
rs
Tota
l
Cost
Basis
of
Allocat
ion
Cos
t
Dri
ver
P.U.
Shee
p
Dren
ch
Cattl
e
Dren
ch
Researc
h
Depart
ment
Mater
ial
Handi
ng
Cost
Administ
rative
Departme
nt
Developi
ng New
Product
Research
Departme
nt Cost
$
350,
000
15% to
each of
the two
depart
$
52,5
00
$
52,5
00
$
-
$
-
$ - $
245,000
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