ACC512 Management Accounting for Costs and Control

Solution1:

Part a.

Calculation of Equivalent unit using Weighted average
Particulars	Input	Output	Material % - Weights	Equivalent material units	Conversion Costs % - Weights	Equivalent conversion cost units
Opening inventory - WIP	3,000
Units Introduced	12,000
Units completed		9,000	100	9,000	100	9,000
Abnormal Loss		1,000	100	1,000	100	1,000
Closing inventory - WIP		5,000	100	5,000	60	3,000
Total Equivalent Units	15,000	15,000		15,000		13,000

Part b.

Cost per equivalent unit
Particulars	Opening Inventory - WIP	Units Introduced	Total
Units	3,000	12,000
Total Material Cost	2,100	9,000	11,100
Material- equivalent units			15,000
Material cost per equivalent unit			0.74
Total Conversion Cost	485	10,045	10,530
Conversion Cost- equivalent units			13,000
Conversion Cost per equivalent unit			0.81

Part c.

Value Of Ending Inventory
Particulars	Units	($)	Total
Direct Materials	5,000	0.74	3,700.00
Conversion Costs	3,000	0.81	2,430.00
Total			6,130.00

Part d.

Value Of Abnormal Loss
Particulars	Units	($)	Total
Direct Materials	1,000	0.74	740.00
Conversion Costs	1,000	0.81	810.00
Total			1,550.00

Note: due to lack of information we have ignored the normal loss.

Part e.

Value Of Goods Completed And Transferred
Particulars	Units	($)	Total
Direct Materials	9,000	0.74	6,660.00
Conversion Costs	9,000	0.81	7,290.00
Total			13,950.00

Solution 2:

Part a.

Production Budget (In Units)
Particulars	January	February
Sales	48,000	84,000
Less : Opening Stock	69,000	99,000
Add : Closing Stock	99,000	78,000
Total	78,000	63,000

Working:

Calculation Of Closing Stock :
Month	Jan	Feb	Mar	Apr
Unit Sales	48,000	84,000	60,000	72,000
Closing stock	99,000	78,000	72,000	-

Part b.

Material Usage Budget
Particulars	January
Production	78,000
Raw material per unit	2
Total Material - unit	1,56,000
Total Material - amount	31,20,000

Part c:

Material Purchase Budget
Particulars	January
Raw Material Required	1,56,000
Less : Opening Stock	62,400
Add : Closing Stock	50,400
Total Material Purchase	1,44,000

Working:

Calculation Of Stock :
Month	Jan	Feb
Unit Produced	78,000	63,000
Raw Material Required	1,56,000	1,26,000
Opening stock -Raw material	62,400	50,400
Closing stock	50,400

Part d.

There are various types of budgets that are prepared by the managers of the company in order to assist them with the workings. The budget which is prepared to forecast the revenues and cost for the organisation is known as the operating budget. An operating budget is prepared in the format of income stamen stating all the revenues and cost. These revenue and cost are estimates set by the management which is based on various assumptions and factors. A detailed study and market research is conducted in order to prepare the operating budget including the amounts and units. There are various advantages of an operating budget, few of which have been listed below:

- Helps in tracking the fixed costs: the fixed cost of the company does not change. When a budget is prepared a thorough investigation of each and every item of cost and revenue are done which also include fixed costs. If there are any changes found in the fixed cost of the company during such research then the management can compare and find the reasons for such changes. This will help control the fixed cost and provide maximum benefits (Atkinson, 2012).

- Helps in planning the availability of the resources: when an operating budget is prepared it makes an estimate of the resources that would be required for the upcoming production cycle. This gives the management a chance to take to the suppliers regarding the resources at pre determined rates. This prevents the situations of shortages of raw materials (Berry, 2009).

- Helps in cost control: since the production is carried out taking the budget as a base, the resources allocated are also based on the budget. The departments are motivated to work within the set allocated resources, which helps to promote efficiency and cost control within the organisation (Boyd, 2013).

- sets a direction for the company to move forward: all the organisations need a path or a direction which helps them plan the activities. The operating budgeted helps the management set such a path for the company (Datar, 2015).

- helps to improve efficiency: the operating budget prepared estimates the production requirement for the products. While setting these requirements, a proper study and research can helps the management plan the resources in such a way that provides maximum output with minimal resources. This helps to improve the production efficiency (Datar, 2016).

Therefore, we see that there are a lot of advantages of creating a operating budget for an organisation.

Solution 3:

Part a.

Calculation Of Flexible Budget Variance
Particulars	Standard Cost per unit	10,000 Units		Variance
		Standard Cost	Actual Cost
Direct Materials	20	2,00,000	2,02,500	-2,500
Direct Labour	25	2,50,000	3,25,000	-75,000
Variable Overhead	6	60,000	1,00,000	-40,000
Fixed Overhead	10	1,50,000	1,50,000	-
Total Cost	61	6,60,000	7,77,500	-1,17,500

Part b.

Calculation Of Various Variance :
Particulars	Standard Cost ($)	Actual Cost ($)	Amount ($)	Status
Direct Materials Price Variance	225000	202500	22500	Favourable
[(Actual Qty * Standard Rate)- Actual Cost ]
Direct Materials Efficiency Variance	200000	225000	(25000)	Adverse
[(Standard Qty - Actual Qty)*Standard Rate]
Direct Labour Price Variance	312500	325000	(12500)	Adverse
[(Actual Hours*Standard Rate)-Actual Cost]
Direct Labour Efficiency Variance	250000	312500	(62500)	Adverse
[(Standard Hours - Actual Hours)*Standard Rate]
Variable Manufacturing Overhead Spending Variance	75000	100000	(25000)	Adverse
[(Actual Qty * Standard Rate)- Actual Cost ]
Variable Manufacturing Overhead Efficiency Variance	60000	75000	(15000)	Adverse
[(Standard Hours - Actual Hours)*Standard Rate]
Fixed Manufacturing Overhead Spending Variance	150000	125000	25000	Favourable
(Standard Cost-Actual Cost)
Fixed Manufacturing Overhead Efficiency Variance	100000	125000	(25000)	Adverse
[(Standard Hours - Actual Hours)*Standard Rate]

Solution 4:

Part a.

Calculation Of Total Relevant Cost Of The Special Order
Particulars	Amount ($)
Direct Materials	100
Direct Labour	50
Manufacturing Support	90
Total Relevant Cost	240

Note: Assuming there is spare capacity.

Part b.

The relevant cost for the product is $240 per unit, whereas the customer is offering $350 per unit. Since the customer is offering more than what company will incur the special order should be accepted. This conclusion is based on the availability of spare capacity. If the company has no spare capacity then the conclusion may change.

Part c.

Calculation Of Total Relevant Cost Of The Special Order :
Particulars	Amount ($)
Direct Materials	100
Direct Labour	50
Manufacturing Support	90
Contribution Loss	225
Total Relevant Cost	465
Working:
Calculation Of Contribution Per Unit From Current Operations
Particulars	Amount ($)
Sales	500
Less :
Direct Materials	100
Direct Labour	50
Manufacturing Support	90
Marketing Costs	35
Contribution	225

Part d.

Relevant costing is the costing method that is used to evaluate the special offers. While conducting the relevant cost analysis for a product the two potential problems that should be avoided are as follows:

- Consideration of fixed costs- the fixed costs are irrelevant costs. These costs do not affect the decisions, as these costs will be incurred irrespective of what the decision is. Therefore, while conducting a relevant cost analysis of a product, we should make sure to not consider fixed costs.

- Consideration of Selling and distribution costs- while evaluating a decision of a special order which includes relevant cost analysis, one must make sure to eliminate the costs related to selling and distribution. The selling and distribution costs are incurred in order to sell more units. But when a customer is already present then no selling and distribution costs for such order are required to be incurred. Hence, we should make sure to not include the selling and distribution costs while analysing the relevant costs (Holtzman, 2013).

Therefore, while we calculate the relevant for a given order we must make sure to eliminate all irrelevant cots in order to ensure correct relevant cost information.

Solution 5:

Balanced scorecard is a management system of strategic planning which is used by the organisations for effective communication of the goals. Also, it helps to plan the work and set the strategies. This method helps to prioritise the work for a given time and also helps to measure and monitor the progress towards strategic targets. The other methods which are used by the organisations are basically used to evaluate the short term progress of the organisation. This method helps the management attain short tern objectives by keeping its eye on the long term goal. This means that the organisations keep taking small steps which contribute towards the accomplishment of the long term objective of the organisation (Horngren, 2012).

The method of the balanced scorecard helps to improve the communications in the organisation. Increased communication leads to awareness amongst various departments that helps to promote smooth functioning (Noreen, 2015).

This method helps the organisation to create a link between the various elements of the business in order to achieve the long term target. These elements include mission, vision, strategic core values, objectives measures, etc.

The balanced scorecard method is used to improve the internal functions of the company so that there resulting external outcomes can be improved. The quantitative data collected is interpreted by the management of the organisation which is used to make better decisions for the company. This method is extensively used by the various business organisations, industries and government worldwide (Seal, 2012).

Evaluating the internal elements of the organisation will help the management understand the areas with problems. The areas which create obstacles or slow the later processes can easily be identified because of the balances scorecard methods (Siciliano, 2015).

The balanced scorecard method helps improve the functioning by dividing the organisation into four major legs, which are finance, customers, growth and business process.

The financial data of the enterprise is very helpful in analysing the financial performance. The financial metrics such as ratio calculations, budget variances or targets, can be used to access the performance of the enterprise.

Customers form one of the most important parts of organisation. The workings of the organisation are done in order to satisfy the customer needs. The customer feedback should be taken into consideration as it provides scope for improvement.

The growth of the enterprise is very much dependent on the learning. It is important that the members are the enterprise is continuously trained in order to keep up with the changing trends. Continuous learning will help the organisation have a competitive advantage over the other enterprises of the same industry.

Lastly, there are business processes. These business processes are investigated by studying the product. The efficiency in production, savings in cost etc are the factors that help us evaluate the business processes

The best part of using the balanced scorecard method is that it very prominently links the various elements of the business with one another. The connection between the activities can very easily be identified which can be used to analyse the relation between the two elements. This helps to ensure smooth flow of data and recourses, which helps to promote organisational efficiency.

References

Atkinson, A. A. (2012). Management accounting. Upper Saddle River, N.J.: Paerson.

Berry, L. E. (2009). Management accounting demystified. New York: McGraw-Hill.

Boyd, W. K. (2013). Cost Accounting For Dummies. Hoboken: Wiley.

Datar, S. (2015). Cost accounting. Boston: Pearson.

Datar, S. (2016). Horngren's Cost Accounting: A Managerial Emphasis. Hoboken: Wiley.

Holtzman, M. (2013). Managerial Accounting For Dummies. Hoboken, NJ: Wiley.

Horngren, C. (2012). Cost accounting. Upper Saddle River, N.J.: Pearson/Prentice Hall.

Noreen, E. (2015). The theory of constraints and its implications for management accounting. Great Barrington, MA: North River Press.

Seal, W. (2012). Management accounting. Maidenhead: McGraw-Hill Higher Education.

Siciliano, G. (2015). Finance for Nonfinancial Managers. New York: McGraw-Hill.