Introductory Management Accounting Assignment
Unit Learning Outcomes covered in this assessment - The purpose of this assignment is to assess the following Learning Outcomes:
a. Describe and discuss the function and role of management accounting in the contemporary business environment.
b. Demonstrate broad knowledge of management accounting and explain appropriate approaches to generate cost information.
c. Produce business reports which present analyses of financial solutions to management issues.
d. Apply knowledge to generate adaptable and flexible approaches to problem solving and decision making.
e. Apply management accounting practices and theories to analyse and solve business and management problems.
Assignment Description - This assessment task is comprised of two parts.
In part 1, students review current literature relating to various product costing systems, approaches to applying overhead costs to each product, and write a report comparing costs and benefits of various approaches to applying overhead costs.
In part 2, students write a memo to the monthly management meeting comparing economic consequences of using different approaches to overhead cost allocations.
Part II: Calculation of costs
The telecommunication industry is one of the most price sensitive and consumer driven industries in Australia's business market. Singtel is a manufacturer of electronic products and assemblies for the telecommunications industry. The Singtel produces two different telephone systems for the corporate market, i.e. "Basic" and "Advanced" telephone systems. The cost estimates for the "Basic" and "Advanced" telephone systems for the current year are as follows.
Cost information of Basic and Advanced telephone models
|
|
Basic ($)
|
Advanced ($)
|
|
Direct material
|
800
|
1600
|
|
Direct labour (20 hrs @ $30 per hour)
|
600
|
600
|
|
Manufacturing overhead (Predetermined overhead rate is $40 per direct labour hour.)
|
800
|
800
|
|
Total
|
2200
|
3000
|
Each model of telephone system requires 20 hours of direct labour. The basic system requires 5 hours in Fixing Department and 15 hours in Testing Department. The advanced system requires 15 hours in Fixing Department and 5 hours in Testing Department. The budgeted overhead costs in these two production departments are as follows:
|
|
Fixing Department
|
Testing Department
|
|
Variable cost
|
$ 32 per direct labour hour
|
$8 per direct labour hour
|
|
Fixed cost
|
$400,000
|
$400,000
|
The Singtel's management expects to operate at level of 20000 direct labour hours in each production department during the current year.
The following table provides manufacturing overhead costs with the activity cost pools and activity driver data. Additionally, you are provided the information relating to various cost pools and activity drivers.
|
Activity
|
Activity cost ($)
|
Total
|
Activity drivers
|
|
Basic
|
Advanced
|
|
Machine setup
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200000
|
200 setups
|
50 setups
|
150 setups
|
|
Material receiving
|
120000
|
80000 kilograms
|
30000 kilograms
|
50000 kilograms
|
|
Inspection
|
160000
|
1600 inspections
|
700 inspections
|
900 inspections
|
|
Machinery related
|
840000
|
60000 machine hours
|
20000 machine hours
|
40000 machine hours
|
|
Engineering
|
280000
|
7000 engineering hours
|
3000 engineering hours
|
4000 engineering hours
|
|
Total overhead
|
1600000
|
|
|
|
Singtel plans to produce 1000 units of each model.
Required - Just need solution for first two questions;
1. Calculate cost per Basic telephone system and Advanced telephone system using departmental rates (traditional volume based approach).
2. Calculate cost per Basic telephone system and Advanced telephone system using Activity Based Costing approach.