Management Accounting Problem: Turramurra Furniture Company

This report analyzes the financial records of the Turramurra Furniture company, addressing key management accounting concepts. It begins by explaining the circumstances in which job costing can be used, then proceeds to calculate Work-in-Progress (WIP). The report also calculates the cost of chairs in finished goods inventory and determines over and under applied overhead. It explains different treatments for over and under applied overhead balances and discusses approaches to adjust under application of overhead. The report concludes with the use of Activity-Based Costing (ABC) to determine activities in a particular operation. The analysis uses formulas and evaluations to provide insights into the company's financial performance and growth potential.

Management Accounting
Problem

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Q1. Circumstances in which job costing can be used............................................................1
Q2. Computation of WIP........................................................................................................1
Q3: Calculation for cost of chair in the finish good inventory...............................................2
Q4. Calculation of over and under applied overhead.............................................................2
Q5. Two various treatments for over and under applied overhead balances..........................3
Q6. Approaches those are use by company to adjust under application of overhead............3
Q7. Use of ABC ....................................................................................................................4
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Management accounting is an essential aspect for every business organization to manage
day to day operations. It is used to measure, analyse and make report on the basis of financial
and non – financial information generated by an organisation. There are certain problems those
are always present with the business operation (DRURY, 2013). The managers need to pay
careful attention to determine accuracy or credibility of inside financial reporting. This project
report is presenting analysis of financial records that are associated with the Turramurra
Furniture company.
Q1. Circumstances in which job costing can be used
Job costing system is known as one of the effective methods used in accounting to record
the costs of a production job rather than process. By the help of this particular system, a project
accountant can be used to track costing of each job. Basically, the job order costing is effective
in product manufacture that are separate from each other.
Purpose of using job costing consists of accumulation cost of production such as labour,
material and other overheads that are related at that time. A secondary analysis can be done in
order to see if any extra costs incur so that it can be billed to a customer. It is helpful to identify
and track total cost of labour those are used in a particular job. This is mainly used in
construction industry (Parker, 2012). For every business organization, they always plan to
increase profitability through using proper allocation of resources of company. Beside this, there
are large benefit of job order costing delivers can have unique advantages that is set in order to
attain future growth and sustainability for the company.
Q2. Computation of WIP
To calculate WIP is :
[Opening inventory of goods in process+ R. M consumed during the period+ direct
labour during the period+ factory cost overhead for period) - closing stock]
[$1,591,000+43000+5, 91,100+87000)-31800= $23, 08, 9200
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Q3: Calculation for cost of chair in the finish good inventory
Units of chairs in finished goods inventory on 31 May 2017
Particular Chair units
Finished goods stock 19400
Add: units completed in 31st May 2017 15000
Total unit available 34400
Less: Units shipped in June 21000
Finished goods inventory 31st may 2017 13400
Units cost of chair completed in 30st June 2017
Work in process inventory 431000
Add:
Direct material 13800
Direct labour 43200
Manufacturing overhead (4400*5) 22000 79000
Total cost 510000
Unit cost = Total cost / Unit completed 34
Cost of finished goods inventory = Unit cost * Quantity 455600
Q4. Calculation of over and under applied overhead
The under and over applied production overhead is known as comparison among
manufacturing overhead costs that are applicable in the procedure of determining exact cost of
overhead that are incur during that period.
The excess of overhead applied in WIP (Work in process) stock over the amount of cost
that are actually incur (Banerjee, 2012).This particular amount is included under budgeted
profitability at the end of accounting period of management record.
In case of over applied production overhead, the actual overhead cost is higher than
applied. Whereas, under applied manufacturing costs are less than applicable overhead.
Calculation of Actual overhead in June.
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Manufacturing overhead
Incurred 395000
Applied 217000
Under applied overhead 23000
Incurred(395000+440000) 835000
Applied 7*65000 900000
Over applied overhead 65000
Q5. Two various treatments for over and under applied overhead balances
As, it has been found that actual production costs would be recorded at the time when
they are actually incur. Total product costs at the accounting period should be based on actual
cost rather than applied overhead. Like for example:
Production overhead Manufacturing overhead in Hours
Actual Applied Actual Applied
$4105000 $4500000 900000 835000
According to the overhead cost for a job is
overstated
Under this situation, it has been indicating
understated
Over applied production cost explain information about extra expenses that are made
during formulation of furniture is more than from actually decided by the company.
In the other case, the situation is quite different the production overhead is under applied
as because actual overhead costs is higher than the practical target cost (Under applied and Over
applied Overhead, 2018).
Q6. Approaches those are use by company to adjust under application of overhead.
Deposition of under and over applied overhead depends on impacts of cost incurred by
the company. If the amount is immaterial, it is ended to cost of goods sold. When expenses are
under applied as debit balance. It can reflects that certain aspects that are too much expenses are
incur by the company at the time production of products and services.
Treatments under over applied
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Date Particular Debit amount Credit amount
1 Production overhead a/c....................DR
To COGS a/c.............................................CR
$40000
$40000
One of the vital importance of using under applied overhead is to make proper balance
under these accounts those are relatively different from actual costs (Fullerton, Kennedy and
Widener, 2014). Allocation can help to provide account balance to adjust as per the actual cost
those are based on historical cost. It is associated with the external reporting in the books of
accounts.
Q7. Use of ABC
Activity based costing is one of the effective accounting method which can be use by an
organisation to determine activities in a particular operation. It will be helpful in order to analyse
cost of each activities those are perform during production process. It is one of the latest
techniques used to allocate cost in a useful manner. The idea is to analyse activities those are
require to produce a product that consists of using various option. In order to analyse
performance development of finish goods and other purchasing material those are utilise at the
time producing products they need to use ABC costing techniques
CONCLUSION
From the above project report, it has been concluded that management accounting is a
crucial aspect that can help in recording financial statements of an organisation. The explanation
collected through proper evaluation by using plenty of formulas. Such as use of work in progress
in determine as total value of the company. Use of over and under applied techniques in making
analysis for incurring positive outcomes for the future time. It has been found that all of these
are effective enough to make future growth for company.
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REFERENCES
Books and Journals
DRURY, C. M., 2013. Management and cost accounting. Springer.
Parker, L. D., 2012. Qualitative management accounting research: Assessing deliverables and
relevance. Critical perspectives on accounting. 23(1). pp.54-70.
Banerjee, B., 2012. Financial policy and management accounting. PHI Learning Pvt. Ltd.
Fullerton, R. R., Kennedy, F. A. and Widener, S.K., 2014. Lean manufacturing and firm
performance: The incremental contribution of lean management accounting practices.
Journal of Operations Management. 32(7). pp.414-428.
Online
Under-applied and Overapplied Overhead. 2018.[Online]. Available through:
<https://catalog.flatworldknowledge.com/bookhub/reader/4402?e=heisinger_1.0-
ch02_s03>.
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