Assignment: Cost Accounting
Overview
The final project for this course is the creation of a quantitative analysis with a memo to management.
Classifying a company's costs allows for an in-depth analysis of the impact that changes in output have on revenues, costs, and net income or net loss. A cost- volume-profit (CVP) analysis will be completed in order to determine the breakeven point. Relevant costs will be used to prepare a flexible budget. Additionally, an appropriate costing system should be selected and the choice should be substantiated with reasonable rationale. Finally, a memo should be prepared for management that summarizes the results of the quantitative analysis and makes recommendations for an optimal costing system to be ethically used bykey decision makers.
The project is divided into three milestones, which will be submitted at various points throughout the course to scaffold learning and ensure quality final submissions. These milestones will be submitted in Modules Two, Four, and Five. The quantitative analysis with a memo to management will be submitted in Module Seven.
In this assignment, you will demonstrate your mastery of the following course outcomes:
• Utilize cost behavior and cost analysis to assist decision makers in planning and adding value to the business
• Prepare a flexible budget for supporting informed managerial decision making
• Interpret variances for determining the optimal costing system to fit an organization'sinternal accountingneeds
• Interpret the role of ethics in cost accounting for determining its impact on decision making
Prompt
In this assignment, multiple analyses will be conducted in order to obtain a company's financial information specific to company costs.
MDE manufactures outdoor garden items such as lawn ornaments and bird feeders. MDE uses a standard costing system to set standards for direct materials, labor, and overhead costs. MDE reviews and revises standards as necessary. Recently, budget variances for bird feeders have caused some concern. You, the company's cost accountant, have been asked to examine the numbers for the product, explain the variances, and suggest ways to improve performance.
Specifically, the following critical elements must be addressed:
You will begin by using the MDE Manufacturing Budget (Table I) to analyze costs, contribution margin, and breakeven point for the bird feeder division. You will then analyze the actual costs and complete a cost-volume-profit (CVP) analysis to determine how many bird feeders must be sold at the current cost and sales price level to earn a $10,000 profit and how much the sales price would have to increase to earn a $10,000 profit at the same cost and sales volume level. Use Tabs 1 and 2 of the Student Workbook.
I. Costs
a) Classify all product and period costsappropriately.
b) Compute a cost-volume-profit analysis. What are the implications of thisanalysis?
c) Compute contribution margin per unit and contribution marginratio.
d) Determine the breakeven quantity and the breakeven revenueaccurately.
e) Determine if the company is breaking even. What are cost-volume-profit analysis implications on short-termplanning?
Your next step is to use the MDE Manufacturing Budget (Tables I, II, III, IV) to compare the budget and actual costs. Determine where variances occurred and explain why. Use Tabs 3 and 4 of the Student Workbook to present your budgets/variances and Tabs 5 and 6 for all budget/variance calculations.
II. Prepare andPerform
a) What are your fixed costs? Segregate them in the budgetmodel.
b) Determine how variable costs change as activity measures change. How can this information beapplied?
c) Create the budget model, ensuring fixed costs are hard coded into the model (variable costs are stated as a percentage of the relevant activity measures or as a cost per unit of activitymeasure).
d) Add actual activity measures to the model. Make sure all information is addedaccurately.
e) Add the flexible budget calculations to the budget model. Make sure all information isaccurate.
f) Compare the flexible budget to the actual expenses. What does this in form? Be sure to discuss the following variances:
i. Static budget variance, including sales volume and flexible budgetvariances
ii. Price and efficiency variances for direct materials and directlabor
iii. Spending and efficiency variances for variable manufacturingoverhead
g) Determine the aspects of the budgeting process that are in need of improvement. Justify yourresponse.
h) Interpret what budget variances represent. Should all variances beinvestigated?
You have also been asked to give management a recommendation on whether the company should switch from process costing to activity-based costing (ABC). This is an exploratory discussion, but management would like to know more about the difference between the two costing systems and if a different costing system might work better for the company.
III. Main Costing Systems - Activity-Based Costing vs. ProcessCosting
a) Identify the cost allocation system that would benefit this company most. Justify yourresponse.
b) Does this cost allocation system meet management planning and controlgoals?Explain.
c) What are the ethical implications that should be considered with this cost allocationsystem?
d) Describe thee thical implications of direct cost sversus in direct costs. What considerations should be made when selecting one of these two?
After all of your calculations and research, you are now ready to prepare your report.
IV. Prepare a Memo toManagement
a) Summarize your quantitative analysis based on your findings (include answers to all questions in SectionsI, II, and III).
b) Report the parts of the budgeting process that are in need of improvement. Provide suggestions to improve those parts.
c) Report over all improvement recommendations to management. Consider the ethical implications when communicating sensitive information.
Milestone One: Draft of Costs (Section I)
Milestones
In Module Two, you will submit a draft of the costs section of the final project. Use theMDE Manufacturing Budget (Table I) to analyze costs, contribution margin, and breakevenpoint for the bird feeder division of the company. In Tab 1 of your Student Workbook, classify costs as either product or period costs. Briefly explain the difference between the types of costs. Then, analyze the actual costs and, using Tab 2 of your Student Workbook, complete a cost-volume- profit analysis to determine how many bird feeders must be sold at the current cost and sales price level to earna 10% profit and how much the sales price would have to increase to earn a 10% profit at the same cost and sales volume level. Submit theStudent Workbook with Tabs 1 and 2 completed with your cost calculations and a 1-2 pageWord document that explains the implications of your findings and addresses all of the critical elements in Section I.
Milestone Two: Draft of Prepare and Perform (Section II)
In Module Four, you will submit a draft of the prepare and perform section of the final project. Analyze the budget and actual costs using the MDEManufacturing Budget (Tables I, II, III, IV). Determine where variances occurred and why. Submit the Student Workbookwith Tabs 3 and 4 completed with your budgets/variances calculations and a 1-2page Word document that discusses the implications of your findings on the company's financial considerations. Explain which aspects of MDE's budgeting process are in need of improvement and justify your response using your calculations. Address all critical elements in Section II. Use Tabs 5 and 6 of the Student Workbook for your budget and variance calculations.
Milestone Three: Draft of Main Costing Systems (Section III)
In Module Five, you will submit a draft of your main costing system recommendations. You have been asked to give management a recommendation on whether the bird feeder division should switch from process costing to activity-based costing. This is just an exploratory discussion, but management would like to know more about the differences between the two costing systems and if a different costing system might work better for the division. Submit a Word document that addresses the critical elements of Section III.
Final Submission: Quantitative Analysis With a Memo to Management
In Module Seven, submit your quantitative analysis with a memo to management. It should incorporate all milestones and include Section IV of the critical elements listed in the Final Project Document.
Attachment:- Attachments.rar