Acct204 Management Accounting | Environment Assessment Answers

Questions:

1.The CEO, Luis Franco, and the financial controller, Arthur Batten, are currently evaluating the usefulness of Activity based costing (ABC). Provide an argument for and against the benefits of ABC. The arguments must be backed up by peer review journals and articles from the CPA/CA journals only.

2.Luis Franco is concerned that his manufacturing manager Julius Frino is not familiar with the Industrial award that should be used for his staff. Find an appropriate award and provide a summary of the hourly wages/weekly wages and associated penalties inclusion overtime.

3.Discuss the results of sensitivity analysis of the changes in the selling prices (Casual and Deluxe type) and costs of raw materials (XX and YY) have on the operating income of Stylish Ltd. The workings as well as the master budget (operating budget) needed for Stylish Ltd should be included at the back of the assignment as appendix and excluded in the word count.

4.Suggest what might be done to solve the problem or improve the situation of Frank Morton.

Answers:

1.In the particular assignment various budgets are being present by the assesse. In the present case study the Luis and the further working on the key positions of the management evaluated and worked out the importance of the concept of activity based costing to be implanted in the cost systems of its business organsiation. Benefits are evaluated by the analyst in terms of making comparison with the traditional costing approach (Kaplan & Atkinson, 2015). In the particular concept of the ABC costing approach the overheads are primarily distributed among the cost activities and then to the products manufactured by the business firm (Kapi?, 2014). Instead of allocating the fixed overheads using the single recovery rate the expenses are being distributed on the overall basis of the level of activities utilised by the concern. This brings correctness in the overall figures associated with the group (Zimmerman & Yahya-Zadeh, 2011).

2.Industrial award is the concept formulated by the Fair work commission. This supports the fair working environment in the business organsiation. Minimum wages, working hours and approapriate work place is viewed by the concept in order to formulate the better working conditions for industrial workers (Simons, 2013). Monthly and weekly wages inclusive of concept of the overtime has to be taken into the current consideration for this purpose.

Revenues’ budget
For the year ending 30 June 2017
	Quantity (units)	Selling Price	Total revenues
Casual	50000	600	30000000
Deluxe	10000	800	8000000
Total	60000		38000000

Production budget (in units)
For the year ending 30 June 2017
	Casual	Deluxe
Budgeted unit sales	50000	10000
Target ending finished goods inventory	11000	500
Total required units	61000	10500
Deduct: beginning finished goods inventory	-1000	-500
Units of finished goods to be produced	60000	10000

Direct materials usage budget (in units)
For the year ending 30 June 2017
	XX	YY
Direct materials required for Casual tables	720000	360000
Direct materials required for Deluxe tables	120000	80000
Total quantity of direct materials to be used	840000	440000

Direct labour cost budget
For the year ending 30 June 2017
	Output units produced	Direct labour hours per unit	Total hours	Hourly wage rate	Total
Casual	60000	4	240000	20	4800000
Deluxe	10000	8	80000	20	1600000
Total	70000		320000		6400000

Stylish Ltd applies activity-based budgeting whereby the following information is available:
	Casual tables	Deluxe tables
Quantity of tables to be produced	60000	10000
Number of tables to be produced per batch	50	40
Number of batches	1200	250
Setup time per batch	10	12
Total setup hours	12000	3000
Setup-hours per table	0.2	0.3

3.The change in selling price will have direct impact on the demand of the products in the current case scenario. When there is change in raw material prices required to develop the final product there will be immediate impact on the total associated cost of the products. The company in the case has two options either to reduce the profit proportion but this will minimise the expected return on investment to be attained by its investors. Alternatively company has an option to enhance its selling price of the goods delivered to its customers but in the case scenario the demand of the products in the external market will be reduced to the substantial extent.

4.To solve the overall problem of the price inflation of the product and the respective overheads, the company should work out effectively and efficiently to distribute the cost associated with the fixed overheads in the proportionate manner (Simons, 2013). This will effectively create a un-bias situation. The company can utilise the overall technique of Activity based costing in order to divide the overall fixed cost as per the level of activities utilised by the individual asset level. By this approach a true cost can be ascertained the manufacturer can work out its effective selling price for its customers (Kapi?, 2014).

References

Kapi?, J. (2014). ACTIVITY BASED COSTING-ABC. Business Consultant/Poslovni Konsultant, 6(32).

Kaplan, R. S., & Atkinson, A. A. (2015). Advanced management accounting. PHI Learning.

Simons, R. (2013). Performance Measurement and Control Systems for Implementing Strategy Text and Cases: Pearson New International Edition. Pearson Higher Ed.

Zimmerman, J. L., & Yahya-Zadeh, M. (2011). Accounting for decision making and control. Issues in Accounting Education, 26(1), 258-259.

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