T217 ACC202 Management Accounting Assignment Solution and Analysis

This assignment solution for ACC202 Management Accounting analyzes a manufacturing scenario involving canister production and a potential outsourcing opportunity. The solution calculates the cost per unit under the traditional approach, determines whether to manufacture or purchase canisters, and evaluates the profitability of accepting an external offer. It considers relevant costs, avoidable fixed costs, and various decision-making factors. The analysis includes profit comparisons between different scenarios, such as manufacturing canisters, purchasing canisters, and manufacturing coffee cups. The solution also considers other factors like ensuring regular supply, market demand, and competitor strategies. The assignment demonstrates the application of financial principles in practical business decisions, using references to support the analysis.

T217 ACC202 MANAGEMENT ACCOUNTING ASSIGNMENT

Solution (A):
Cost per unit of producing the canisters under the traditional approach
Statement to calculate the total cost of producing 760000 canisters under traditional
approach
Particulars Amount
Add: Direct materials
$
300,000.00
Add: Direct labour
$
180,000.00
Add: Variable overhead
$
120,000.00
Total Variable cost
$
600,000.00
Add: Fixed Overhead
$
540,000.00
Total Cost for 760000 units
$
1,140,000.00
Number of Units 760000
Cost per unit
$
1.50
(Walton, 2000)
Solution (B):
Should the company purchase the canisters or continue manufacturing them
Here we have to calculate per unit cost of canister without adding the unavoidable fixed
cost.
Calculation of Avoidable fixed cost
Supervisors salaries $

80,000.00
Machinery depreciation
$
28,000.00
$
108,000.00
Cost of per unit of producing the canisters without including the fixed cost
Particulars Amount
Add: Direct materials
$
300,000.00
Add: Direct labour
$
180,000.00
Add: Variable overhead
$
120,000.00
Total Variable cost
$
600,000.00
Add: Avoidable Fixed Overhead
$
108,000.00
Total Cost for 760000 units
$
708,000.00
Number of Units 760000
Cost per unit
$
0.93
(Bierman and Smidt, 2007)
Cost of purchasing from the Canister company
$
1.00
So it can be said that company must manufacture in house due to cost of manufacturing is much less
than the purchasing cost (Besley and Brigham, 2008).
Solution (C):

In order to accept the offer it is essential to check the relevant
Relevant cost of producing 1 unit of canister
$
0.93
Offer price received for 1 canister
$
1.40
Profit per canister
$
0.47
It is advised to the company to accept the offer if company has extra capacity and there is further
demand in the market (Bull, 2007).
Solution (D):
Other factors that should be consider before taking decision in scenario given
in question D:
 Company to ensure that extra capacity exists within the
manufacturing plant
 There is no more demand of canister in the market at $1.40 to
$2.20 level of price (Fridson and Alvarez, 2011).
Solution E
In this scenario we have to compare the profit in both the cases
CASE A
Profit when company chooses to manufacture the canisters
Particulars Amount
Add: Direct materials
$
300,000.00
Add: Direct labour
$
180,000.00
Add: Variable overhead
$
120,000.00
Total Variable cost
$
600,000.00
Add: Avoidable Fixed Overhead $

108,000.00
Total Cost for 760000 units
$
708,000.00
Sale price of 760000 units (2.20 * 760000)
$
1,672,000.00
Profit (A)
$
964,000.00
CASE B
Profit when company chooses to purchase the canister and start manufacturing the
coffee cups
Particulars Amount
Add: Direct materials (0.60 *400000)
$
240,000.00
Add: Direct labour (0.20 *400000)
$
80,000.00
Add: Variable overhead (0.10* 400000)
$
40,000.00
Total Variable cost
$
360,000.00
Add: Avoidable Fixed Overhead (0.15)
$
60,000.00
Total Cost for 760000 units
$
420,000.00
Sale price of 400000 units (1.20 * 400000)
$
480,000.00
Profit
$
60,000.00
Profit when canisters are purchase and sold
Sale Value $

1,672,000.00
Less: Purchase Value
$
760,000.00
Profit
$
912,000.00
Total Profits (B)
$
972,000.00
Comparing both the profits it can be said that company should purchase the
canisters from the Canister company and start manufacturing coffee cups
(Drake and Fabozzi, 2012).
Solution F
Other factors that should be consider in mind while taking decision in scenario given in
question E:
 Company should ensure regular and quality supply of canister at 1$ from the
Canister Company
 Company should also ensure that there will regular demand of coffee mugs in
future
 Company should view the competitors strategy regarding your change in
manufacturing process (Sagner, 2010)

References
Besley, S. and Brigham, E. F. 2008. Essentials of Managerial Finance. Cengage Learning.
Bierman, H. and Smidt, S. 2007. The Capital Budgeting Decision, Ninth Edition: Economic
Analysis of Investment Projects. Routledge
Bull, R. 2007. Financial Ratios: How to use financial ratios to maximise value and success for
your business'. Elsevier.
Drake, P. P. and Fabozzi, F. J. 2012. Analysis of Financial Statements. John Wiley & Sons.
Fridson, M. S. and Alvarez, F. 2011. Financial Statement Analysis: A Practitioner's Guide. John
Wiley & Sons.
Sagner, J. 2010. Essentials of Working Capital Management. USA: John Wiley & Sons.
Walton, P. 2000. Financial Statement Analysis: An International Perspective. Cengage Learning
EMEA.