Management Accounting Assignment: Costing, Overhead and Analysis

This document presents a comprehensive solution to a management accounting assignment. The assignment explores various aspects of cost accounting, including the selection of a base for predetermined factory overhead calculations, the differences between process costing and job order costing, and detailed cost analysis scenarios. The solution provides step-by-step calculations for cost of goods manufactured, unit costs, and overhead allocation. It also includes practical examples to illustrate concepts such as direct materials, direct labor, and manufacturing overhead. The assignment analyzes different scenarios to determine the impact of production volume on per-unit costs and profitability, providing valuable insights into management accounting principles. Additionally, the document covers over applied overhead, and cost of goods sold, making it a complete resource for understanding and applying management accounting concepts.

Running head: MANAGEMENT ACCOUNTING
Management Accounting
Name of the University
Name of the Student
Authors Note
Course ID

1MANAGEMENT ACCOUNTING
Table of Contents
Answer to question 1:.................................................................................................................2
Answer to question 2:.................................................................................................................5
Answer to question 3:.................................................................................................................5
Requirement 1:...........................................................................................................................5
Requirement 2:...........................................................................................................................6
Requirement 3:...........................................................................................................................6
Requirement 4:...........................................................................................................................6
Answer to question 4:.................................................................................................................6
Requirement 2:...........................................................................................................................7
Requirement 3:...........................................................................................................................7
Requirement 4:...........................................................................................................................7
Requirement 5:...........................................................................................................................8
Requirement 6:...........................................................................................................................8
Answer to question 5:.................................................................................................................8
Reference List:.........................................................................................................................10

2MANAGEMENT ACCOUNTING
Answer to question 1:
Factors that should be considered in making the selection of base while computing the
predetermined factory overhead are as follows;
Expense Projection:
Expense of projection is defined as the first step for measuring the predetermined
manufacturing rate. Generally, a company expects expense for a whole year while conducting
any projects. In case of projecting expenses, company is dependent on actual expenditure and
cost of production that the company is marked for the entire year (Drury 2013). Additionally,
company’s expenses also affect the forecasting of project expenses where internal and
external factors are considered for that particular project. These factors include the following:
financial environment, machine breakdowns, review of salaries and increment and decrement
in sales.
Base of Allocation:
The overhead rates are calculated based on the activity of production which is also
known as allocation base. These overhead rates are billed for the hours of production, which
a company is using (Fayard 2015). The direct labor hours are main elements for measuring
the production hours in case of one company which is using manual labor. However, the
machine hours are considered for production of automated systems. As an example, one
company can bottle 2,496,000 beverages within one year. Therefore, the company can use its
total production hours for applying its overhead rate.

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Indirect Cost
This type of cost is one of the crucial components for predetermined manufacturing
overheads. Overhead costs are not directly incurred into the production process. Overhead
rates are generally calculated on every indirect cost.
Type of Products
The product type of any organization determines the number of calculated overheads.
Overhead costs per type of product are generally measured for the companies those are
manufacturing multiple products or utilize several stages of production (Warren, Reeve and
Duchac 2013). If one company is dealing with single product then they have to calculate one
overhead rate for that product. As an example, if one business head is operating ice cream
parlor then overhead costs are applied but if he operates ne bottling company then he must
have considered multiple overhead rates that is required for plant, bottling and cleaning of
equipments.
Calculation of Overhead Cost
The determination of predetermined manufacturing overhead rate is dependent on the
indirect expenses with respect to the total production hours when all the indirect expenses are
divided. The determination of final charge on service or product is done with respect to cost
of raw materials and adding predetermined overhead on each product (Williams 2014). For
example, if the company sets total direct cost about $10 and predetermined overhead rate for
the company is $3, then product price must be above $13 for making profit.

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Example
Assume GX Company is using direct labor hours for assigning manufacturing
overhead cost for particular job orders. The overall budget for GX Company is showing as
calculated manufacturing overhead cost of $8000 for the imminent year.
With the use of above information, the computation of predetermined overhead rate is
calculated as follows:
Predetermined Overhead Rate = Estimated Manufacturing Overhead Cost/ Estimated
whole unit within allocation base
Predetermined Overhead Rate = $8000 / 1000 hours
= $8.00 per direct labor hour
Determination of factory of overhead rates based on the direct labour hours
Direct materials are defined as the raw materials, which are used within the
manufacturing. These can be directly or physically associated with the finished goods.
Conversely, these raw materials cannot be directly or physically associated with the
completed products and these are known as indirect materials. These materials are considered
as one part of manufacturing overheads (Garcia 2015). Direct labor is defined as the work of
factory workers who are involved within the practical making of products. Therefore, in this
way these products can be associated with the finished products. Indirect labour is considered
as the function of factory overheads. Different kinds of manufacturing costs apart from the
costs involved within the direct associations related to products are called as manufacturing
overheads (Otley 2016). The calculation of predetermined overhead rate establishes the
relation between factory overhead and direct labor. This is defined as one allocating tool that
is applied in factory overhead for finishing a product.

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Answer to question 2:
Cost accumulation is simpler within any process costing system in comparison with
job order costing process. In case of process costing system, in spite of having trace cost of
different jobs, cost is traced only specific processing departments (Bhimani et al. 2013). A
significant Work in Process account is generally operated for single processing departments.
On the contrary, in case of job order costing system the complete organization might have
one Work in Process account. Completed production of single processing departments is
generally transferred into the Work in Process account that is required for another processing
department. However, after completion of further work within second department, the
finished units are relocated to Finished Goods.
Answer to question 3:
Requirement 1:
In the Books of Dmart
For the year ended May 2016
Particulars Amount ($)
Work in process June 1 10000
Direct Materials
Raw Materials Inventory June 1 40000
Raw Materials Purchase 150000
Total Raw Materials available for use 200000
Less: Raw Materials inevntory May 31 30000
Direct Materials Used 170000
Direct Labour 300000
Manufacturing Overhead
Insurance Factory 12000
Utilities 25000
Indirect labour 60000
Indirect materials 30000
Rent 120000
Maintenance 16000
Total Manufacturing Overhead 263000

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Total Manufacturing Cost 563000
Total cost of WIP 573000
Less: Work in process May 31 48000
Cost of goods manufactured 525000
Working Notes:
Working Notes
Work in Process
Beginning Inventory 40000
Less: Ending inventory 30000
Work in Process 10000
Finished goods inventory
Beginning inventory 85000
Add: Cost of goods manufactured 563000
Less: Cost of goods sold 560000
Finished goods inventory 88000
Direct labour
Cost of goods manufactured 563000
Less: manufacturing overhead 263000
Direct labour 300000
Manufacturing Overhead
Insurance Factory 12000
Utilities 25000
Indirect labour 60000
Indirect materials 30000
Rent 120000
Maintenance 16000
Direct Labour 263000

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Requirement 2:
Unit Cost of Direct Material 170000
Total Units Produced 40000
Cost Per Unit 4.25
Requirement 3:
Unit Cost of Direct Material 170000
Rent on Building 120000
Total Units Produced 50000
Cost Per Unit of Direct Materials 3.4
Cost Per Unit of Rent on Factory 2.4
Requirement 4:
The differences between the first two scenario is that in the first scenario it is found
that on producing 40000 units the cost of per unit stood 4.25. In the second scenario it is
found that at the time of producing 50,000 units the cost per unit of the rent on factory stands
2.4 per unit. Therefore, cost of per unit declines by producing higher number of units and it is
recommended that producing 50,000 units is better since the cost per unit falls with greater
chances of earning higher profit.
Answer to question 4:
Requirement 1:
1 Estimated Labour Hour / Estimated
total activity
Direct Labour 360 790 85 1140 850 115
Total Cost 1058 2272 263 3552 2480 477
Predetermined overhead 2.938888
889
2.875
95
3.094
12
3.115
79
2.917
65
4.147
83

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Requirement 2:
2 The amount over applied
Actual overhead incurred 1058 2272 263 3552 2480 477
Direct material 410 850 110 1500 950 270
Applied overhead =
Predetermined overhead rate *
direct material 1205 2445 340 4674 2772 1120
Overhead over applied 600 600 600 600 600 600
Adjusted Cost of goods sold 605 1845 -260 4074 2172 520
Requirement 3:
3 Job No Direct materials
216 410
217 850
218 110
219 1500
220 950
221 270
Actual amount of direct materials 4090
Requirement 4:
4 Job No Direct Labour Cost
216 360
217 790
218 85
219 1140
220 850
221 115
Actual amount of direct Labour 3340
Requirement 5:
5 Particulars Amount ($)
Direct Material 4090

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Direct Labour 3340
Manufacturing Overhead Assigned 2672
Cost of goods manufactured 10102
Requirement 6:
6 Beginning Inventory 2250
The cost of goods manufactured 10102
Cost of goods available 12352
Less: Ending Inventory 3550
Cost of goods sold 8802
Answer to question 5:
1. Direct material cost
2. Direct labour cost
3. Factory overhead cost
4. Fixed cost
5. Fixed Cost
6. Fixed Cost
7. Period cost
8. Period Cost
9. Sunk cost
10. Fixed Cost

10MANAGEMENT ACCOUNTING
Reference List:
DRURY, C.M., 2013. Management and cost accounting. Springer.
Fayard, D., 2015. A CASE FOR USING A FIXED-COST FUNDING MODEL FOR
STATE-FUNDED HIGHER EDUCATION INSTITUTIONS: A MANAGEMENT
ACCOUNTING PERSPECTIVE. AAUA, 30(1), pp.27-33.
Garcia, C., 2015. Individual and Dynamic Capital in Cost Accounting. 学学学学学学学学学, 52(3),
pp.145-155.
Bhimani, A., Horngren, C.T., Datar, S.M. and Rajan, M., 2013. Management and Cost
Accounting: UEL. Pearson UK.
Otley, D., 2016. The contingency theory of management accounting and control: 1980–
2014. Management accounting research, 31, pp.45-62.
Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2015. Financial & Managerial Accounting.
John Wiley & Sons.
Williams, J., 2014. Financial accounting. McGraw-Hill Higher Education.
Warren, C.S., Reeve, J.M. and Duchac, J., 2013. Financial & managerial accounting.
Cengage Learning.