Newcastle Industrial Manufacturers: Management Accounting Assignment

This assignment solution addresses a Management Accounting problem for Newcastle Industrial Manufacturers (NIM), focusing on the costing of three products: A-12, P-37, and K-51. The solution begins by calculating the total unit cost of each product using the traditional costing method, detailing direct materials, direct labor, and overhead allocation. Subsequently, the assignment calculates the total unit cost using activity-based costing (ABC), incorporating activity cost pools such as production setup, machining, material handling, and quality control. A comparison of the results from both costing methods highlights the differences in cost allocation and the implications for managerial decision-making, emphasizing the accuracy of ABC. The solution also discusses the advantages and disadvantages of ABC and absorption costing methods. The document includes references to support the analysis.

Running head: MANAGEMENT ACCOUNTING
Management Accounting
Name of the Student:
Name of the University:
Author’s Note:

1MANAGEMENT ACCOUNTING
Table of Contents
Question 1........................................................................................................................................2
Question 2........................................................................................................................................3
Question 3........................................................................................................................................5
Question 4........................................................................................................................................6
References........................................................................................................................................8

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Question 1
The total unit cost of the three products using NIM’s traditional method of cost allocation are as
follows whereby total cost for product A12 has been calculated as follows:
A12 Total Cost: Direct Materials: $18*9000Product Volume: 162,000
Direct Labor: Labor Rate $1.08*450 (Working Hours): 486
Total Overheads: 2524500*1350/28050: 121500 (Total Activity Cost Pool*Product Machine
Hour/Total Machine Hours).
P37 Total Cost: Direct Materials: $24.24*15,000Product Volume: 363,600
Direct Labor: Labor Rate$3.24*2250(Working Hours): $7290
Total Overheads: 2524500*1500/28050: 121500 (Total Activity Cost Pool*Product Machine
Hour/Total Machine Hours).
K51 Total Cost: Direct Materials: $15*84,000Product Volume: 363,600
Direct Labor: Labor Rate$2.16*8400(Working Hours): $18144
Total Overheads: 2524500*25200/28050: 2268000 (Total Activity Cost Pool*Product Machine
Hour/Total Machine Hours).

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Particulars A12 P37 K51
Direct Materials 162000 363600
126000
0
Direct Labor 486 7290 18144
Total Overheads 121500 135000
226800
0
Total Cost 283986 505890
354614
4
Question 2
The total unit cost of the three products using activity-based costing is as follows:
A12 Total Cost: Direct Materials: $18*9000Product Volume: 162,000
Direct Labor: Labor Rate $1.08*450 (Working Hours): 486
Total Overheads:
Production Setup: 883575*(90/804) Total Production Setup Cost*(Setup for Product/Total
Product).
Machining of Products: 504900*(1350/28050) Total Machining Parts*(Machine Hours/Total
Machine Hours)
Material Handling: 378675*(15/144): Total Material Handling Cost*(Material Handled/Total
Materials).
Quality Control: 757350*(180/1200) Total Quality Control*(Quality Controlled/Total Quality
Controlled)

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P37 Total Cost: Direct Materials: $24.24*15,000Product Volume: 363,600
Direct Labor: Labor Rate$3.24*2250(Working Hours): $7290
Total Overheads:
Production Setup: 883575*(138/804) Total Production Setup Cost*(Setup for Product/Total
Product).
Machining of Products: 504900*(1550/28050) Total Machining Parts*(Machine Hours/Total
Machine Hours)
Material Handling: 378675*(25/144): Total Material Handling Cost*(Material Handled/Total
Materials).
Quality Control: 757350*(216/1200) Total Quality Control*(Quality Controlled/Total Quality
Controlled)
K51 Total Cost: Direct Materials: $15*84,000Product Volume: 363,600
Direct Labor: Labor Rate$2.16*8400(Working Hours): $18144
Production Setup: 883575*(576/804) Total Production Setup Cost*(Setup for Product/Total
Product).
Machining of Products: 504900*(25200/28050) Total Machining Parts*(Machine Hours/Total
Machine Hours)
Material Handling: 378675*(104/144): Total Material Handling Cost*(Material Handled/Total
Materials).

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Quality Control: 757350*(804/1200) Total Quality Control*(Quality Controlled/Total Quality
Controlled) .
Particulars A12 P37 K51
Direct Materials
16200
0
36360
0
126000
0
Direct Labor 486 7290 18144
Total Overheads:
Production Setup 98908
15165
8 633009
Machining of
parts 24300 27000 453600
Materials
Handling 39445 65742 273488
Quality Control
11360
3
13632
3 507425
Total Costs
43874
1
75161
4
314566
5
Question 3
The costs calculated in the question 1 is based on traditional costing whereby we have
added an average cost to the direct cost of manufacturing products and is also best and widely
used when the overhead the company or firm is generally low, when compared to the direct cost
of production. While in the case of question 2 the ABC Costing method has identified all the
specified overhead operations that are well related with the manufacturing of each of the product
(Ebele and Meshach 2016). The total cost calculated in the first case of traditional costing has
been comparatively lower for each of the product unit. While on the other hand in the case of
ABC Costing the same has been comparatively higher and this has been primarily due to the
inclusion of various costs that were directly related to the manufacturing of each of the product

6MANAGEMENT ACCOUNTING
analysed or considered (Shea et al., 2018). The total cost that have been well determined using
each of the method are well shown below it can be well seen that not only the two costing
method have different answers but they also have a high variance.
Particulars A12 P37 K51
Traditional
Costing
28398
6
50589
0
354614
4
ABC Costing
43874
1
75161
4
314566
5
Now this is the key reason why the ABC Costing method is generally considered as a
more accurate method for products/service costing which would be well helping the management
of NIM to make use and make more precise and accurate decisions. The ABC Costing would be
enabling the effective challenges of operating costs for finding a better way of allocation and
eliminating the overheads. The costing method would also allow the NIM Management better
analyse product and the customer profitability analysis.
Question 4
The activity based costing is a key method which is well used for identifying the
company’s indirect cost activities and then assigning these costs to the products or jobs that can
well use these stated activities. The absorption costing or full costing method is one of the key
method which is well responsible for allocating manufacturing overhead (Saidi 2018). The key
advantages and disadvantages of the same are as follows:
Advantages:
 Gives a realistic & meaningful costs of manufacturing for specified products

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 Allocation of the manufacturing overhead is done more accurately for products and
processes that generally use these activities
 The costing method well identifies inefficient process and various targets for
improvement process
 It also well determine the margin of product on a more precise and accurate basis.
 The process also highlights processes that are having unnecessary costs and wasted costs
incurred.
Disadvantages:
 The process involved for well collection and preparation of data sets is considered as time
consuming
 It would take more costs to accumulate and analyze the necessary or required
information’s.
 The data source availability becomes an issue from the normal accounting reports
presented
 The data outputs and reports which are well prepared with the help of ABC Costing are
generally not compliance with the GAAP and hence which restricts one for usage in the
case of external reporting (Bazrafshan and Karamshahi 2017).
 The data outputs generated by the ABC can well conflict with the managerial
performance standards that have been well established using the traditional costing
approach.

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References
Bazrafshan, S. and Karamshahi, B., 2017. Examining the disadvantages of activity based costing
(ABC) system and introducing the modern (behavior based costing)(BBC) system. International
journal of management, accounting and economics, 4(2), pp.163-177.
Ebele, A.P. and Meshach, I.S., 2016. Activity Based Costing From the Perspective of
Competitive Advantage: A Study of Nigerian Manufacturing Firms. International Journal of
Finance and Accounting, 1(2), pp.1-23.
Saidi, F., 2018. Implementation of ABC System: A Case of a Center for Entrepreneurship. Afro-
Asian Journal of Finance and Accounting.(Scopus)(Forthcoming).
Shea, V.J., Waldrup, B.E., Xu, H. and Williamson, S., 2018. ERROR RATE IMPACTS ON
DECISION EFFICACY: ACTIVITY-BASED COSTING SYSTEMS IN SMALL
BUSINESS. QRBD, p.59.