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This assignment will assess the following learning outcomes:

• LO1 Analyse costs in business organisations contexts

• L02 Apply cost estimation techniques in a range of business situations

• L03 Evaluate cost and revenue information and costing method for managerial decision-making

• L04 Effectively communicate cost and revenue information in a decision making context. co

ANSWER ALL THE QUESTIONS

Question 1:

ALFIRDOS LTD provides the details of the costs, volume and cost drivers for the three products A, B and C for the year 2015:


A B C Total
Production and sales (Units) 30,000 20,000 8,000
Raw material usage (quantity) 5 5 11
Direct material costs (per unit) 25 20 11 1,238,000
Direct labour hours 1 1/3 2 1 88,000
Machine hours               1 1/3 1 2 76,000
Direct labour cost (per unit) 8 12 6
Number of production runs 3 7 20 30
Number of deliveries 9 3 20 32
Number of receipts 15 35 220 270
Number of production orders 15 10 25 50

The overhead costs are as follows:

Set up costs  30000 OMR
Machines Overheads 760000 OMR
Receiving costs  435000 OMR
Packing costs  250000 OMR
Engineering costs 373000 OMR
  1848000 OMR

The cost drivers for overhead costs are as follows:

Set up costs Number of Production runs
Machines Overheads Number of machine hours
Receiving costs Number of receipts
 Packing costs Number of deliveries
Engineering costs Number of production orders
Total

The company used to allocate overheads to products based on direct labour hours. However, the management noticed that the majority of overheads are more closely related to machine hours than direct labour hours.

Recently, they decided to redesign the cost system by recovering overheads using two volume related bases: machine hours and a materials handling overhead rate of the receiving department. But both current and previous cost system reported low profit margins for product A, which is the company's highest selling product.

After appointing Mr. Khalil as a cost manager, he drew the attention of the management to the benefits of the use of Activity Based Costing and Mr. Khalil Suggested analyzing the overheads of the last period by the major activities in order to compute activity based costs.
Based on the previous information you are required to:

a) Calculate the product costs using a traditional volume related costing system based on the following assumptions:

(i) All overheads are apportioned on the basis of direct labour hours (former costing system)

(ii) The overhead of the receiving department are appointed based on materials handling overhead rate and the remaining overheads are recovered using a machine hour rate.(Current costing system).

(b) Calculate the product costs using activity based costing suggested by Mr Khalil.

(c) Analyse and critically evaluate the differences reported between the product costs in (a) and (b).

Question 2:

KERALA Ltd is a company manufacturing filing cabinets at customer's specific requests without carrying any stock of readymade cabinets. The only stocks held in the stores are raw materials from which the cabinets are produced.

In KERALA Ltd, there are two production departments: Cutting and Assembly. There are also two service departments the Stores and Canteen. All departments are located in the same building.

The information provided below shows the company's budget for the financial year 2015.

Overhead budget for financial year 2015:

Overhead OMR
Factory premises rent (including service departments)  440000
Factory premises insurance (including service departments) 22,000
Sundry expenses (Cutting department)  17,080
Sundry expenses (Assembly department) 8,300
Plant and machinery insurance 7,800
Depreciation of factory plant and machinerY 48,000
Assembly department material 20,000
Indirect labour (including service departments) 352,000
Administration salaries 48,000
Sundry Stores costs 26,740
Canteen costs 59,280
Total 1,049,200

The administration salaries will be apportioned equally to the cutting department, assembly department, and the stores department.

The following information is also provided:

Department Floor area sq meter Indirect labour Direct labour Value of palnt and machinery OMR
Cutting  100,000 12 employees 48 employees 220,000
Assembly 100,000 12 employees 80 employees 50,000

10,000 4 employees 4 employees 10,000
Canteen 10,000 4 employees 6 employees 20,000

Service centre costs are apportioned as follows:

Department Basis
Canteen Total numer of employees 
Stores 70 % for the cutting departement and 30 % for the assembly departement

Kerala Ltd has also budgeted for the following levels of activity for the year 2015:

Department Labour hours Machine hours
Cutting  2,900 4,700
Assembly 4,200 680

Based on the previous information you are required to:

(a) Prepare the overhead analysis sheet for Kerala Ltd for the year 2015.

(b) Using appropriate bases, secondary apportion the service department costs to the production department.

(c) Calculate appropriate overhead absorption rates for the production departments. Justify the choice of cost unit.

(d) Using the rates calculated in question (C) above, estimate the amount of overhead to be charged to batch BB125 that would require the following labour and machine hours:

Department Labour hours Machine hours
Cutting  29 40
Assembly 30 6

The actual overhead cost of Batch BB125 is 10000 OMR.

(i) Calculate and compare the budgeted cost and the real cost of Batch BB125.

(ii) Analyse the causes of the under/over absorption shown in your answer to (i) above. Total

Question 3:

On the PDF page, you will find a testimony of Leon Van Schalkwayk, a Strategic finance executive at Impala Platinum, discussing the importance of management accounting and costing methods in the company.

Based on this testimony, your background in the module and on other academic references (books and articles: bibliography is required a minimum of 15 references), you are required to:

(a) Highlight the importance of management accounting in a company compared to financial accounting.

(b) Explain how, according to you as an accounts manager, Impala platinum was able to reduce costs and drive those costs 20% lower than competitors.

(c) As a management accountant, suggest, explain and critically evaluate a managerial accounting method that will assess the effects of volume changes on a firm's costs, revenues, and profit.

(d) Explain how, using different costing methods, Year Management accounting can show different profit levels for the same year.

Attachment:- Testimony of Leon Van Schalkwayk.pdf

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M91594475
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