ACFI2003 Management Accounting Assignment: Cost Analysis and Methods

This assignment analyzes the application of traditional and Activity-Based Costing (ABC) methods for a manufacturing company, Newcastle Industrial Manufacturers (NIM), which produces three parts: A-12, P-37, and K-51. The assignment provides a comparison of unit costs calculated using both methods, including direct materials, direct labor, and overhead. It highlights the advantages and disadvantages of ABC costing, emphasizing its ability to allocate overhead more precisely and provide a more accurate view of product margins. The analysis also explores the context of NIM's challenges in meeting competitor pricing for the K-51 part and the need to set premium prices for the more complex A-12 and P-37 parts, reflecting the importance of accurate costing in strategic decision-making. The assignment concludes by referencing key academic sources 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........................................................................................................................................2
Question 3........................................................................................................................................3
Question 4........................................................................................................................................3
References........................................................................................................................................5

2MANAGEMENT ACCOUNTING
Question 1
The application of traditional cost has been well done for well determining the total unit costs for
each of the three products as follows:
Question 1
Particulars A12 P37 K51
Direct Materials $ 162,000.00 $ 363,600.00 $ 1,260,000.00
Direct Labor $ 486.00 $ 7,290.00 $ 18,144.00
Total Overheads $ 121,500.00 $ 135,000.00 $ 2,268,000.00
Total Cost $ 283,986.00 $ 505,890.00 $ 3,546,144.00
Question 2
The application of ABC Costing Method has been well done for well determining the total unit
costs for each of the three products as follows:
Question 2
Particulars A12 P37 K51
Direct Materials $ 162,000.00 $ 363,600.00 $ 1,260,000.00
Direct Labor $ 486.00 $ 7,290.00 $ 18,144.00
Total Overheads:
Production Setup $ 98,907.65 $ 151,658.40 $ 633,008.96
Machining of parts $ 24,300.00 $ 27,000.00 $ 453,600.00
Materials Handling $ 39,445.31 $ 65,742.19 $ 273,487.50
Quality Control $ 113,602.50 $ 136,323.00 $ 507,424.50
Total Costs $ 438,741.46 $ 751,613.58 $ 3,145,664.96

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Question 3
Total unit costs has been determined with the help of traditional costing whereby we have
calculated one plant wide allocation rate or we would have allocated an overhead rate for each of
the departments that have been analysed. The application of the traditional costing is generally
done when the overhead expenses for a company is generally low when we try to actual compare
the same with the direct costs of the company (Kumar & Mahto, 2013). On the other hand, the
application of ABC Costing has been done for the process which has well identified all the
specified sections for overhead operations that can be well related with the manufacturing of
each of the products analysed. The total units costs has been comparatively higher in the case of
ABC Costing as the same includes all the cost that are directly related or attributable to the
manufacturing for each of the products analysed or well considered (Elias & Mehrotra, 2018).
The allocation of fund in a more detailed manner would be well helping make precise and
accurate decision about the company. The ABC Costing method would better help the
management of NIM to view both customers and profitability analysis.
Question 4
Key Advantages and Disadvantages of ABC Costing are as follows:
Advantages:
 Provides a meaningful set of costs of manufacturing for specialized products
 Manufacturing overhead is allocated more precisely for products classified
 The method shows the margin of products concisely, which is more precise and done
on a more accurate basis (Levant & Zimnovitch, 2013).

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Disadvantages:
 Collection and preparation of the data set to be used are time consuming.
 Costs involved in applying or implementation would be more than the actual benefits a
company would be receiving.
 The data outputs that are generated or reports which are well made by applying the
principles of ABC Costing are generally said to be non-compliance with the US GAAP
Thus the same well, restricts one down for the usage in the case of external reporting
(Akhavan, Ward and Bozic, 2016).

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References
Akhavan, S., Ward, L. and Bozic, K.J., 2016. Time-driven activity-based costing more
accurately reflects costs in arthroplasty surgery. Clinical Orthopaedics and Related
Research®, 474(1), pp.8-15.
Elias, H., & Mehrotra, A. (2018). Activity-Based Costing of Library Services in Universities—A
Case Study of a Private University. Economics, 6(3), 165-176.
Kumar, N., & Mahto, D. G. (2013). Current trends of application of Activity Based Costing
(ABC): A review. Global Journal of Management and Business Research Accounting
and Auditing, 13(3).
Levant, Y., & Zimnovitch, H. (2013). Contemporary evolutions in costing methods:
understanding these trends through the use of equivalence methods in France. Accounting
History, 18(1), 51-75.