Act202 Management Accounting And Costing Assessment Answers

Answer:

Assign the costs to the activity centres using the resource driver consumption patterns shown in Schedules 1 and 2:

The following table shows the assignment the costs to the activity centres using the resource driver consumption patterns shown in Schedules 1 and 2:

Calculate the cost of each activity performed in the relevant (to your allocated case) activity cost centre, using the information provided in item 1 above and in Schedule 3:

The following are the various calculations:

A list of the activities performed and their annual costs is provided in Schedule 4 (some costs will need to be calculated as indicated in item 2 above). In addition the schedule provides an activity driver for each activity and the annual quantity of each activity driver. Calculate the cost per unit of activity driver for the activities listed:

The following table shows the desired calculations:

Based on the information calculated in item 3 above and in Schedules 5 and 6, prepare a bill of activities and determine the cost per unit for each of the two product items identified:

The cost per unit is as follows:

Would the difference in costs for the two products be reflected in the conventional costing system?

No since the conventional method allows the division of the costs on the basis of the labour hours or the machine hours.

Do you think that the existing costing system understates or overstates the cost of the two products identified in item 4 above? Explain your answers in detail with reference to your calculations:

The existing system understates the costs since the actual costs under ABC are $16.29 and $37.98 for Wettwurst and Csabai respectively.

Consider and describe the changes in cost structure that are likely to have occurred at the Company over the last 15 to 20 years, and speculate on their causes:

The company must follow the ABC system since the costs are allocated on the basis of the labour hours or the machine hours and not on the basis of the number of activities that are consumed in the manufacture of the product. ABC helps in the efficient allocation of these expenses and so, is much more meaningful.

If ABC would have been followed, then selling price of both the products would have been higher.

Now complete your analysis and prepare your report. Your report should identify if there are any deficiencies inherent in the existing costing system and if so explain (using the outcomes from items 1 to 7 above) how activity-based costing could overcome these deficiencies. If, in your analysis, you determine there are no inherent deficiencies, explain (again using the outcomes from items 1 to 7 above) why not:

The concept of activity based costing is the method wherein the overheads are totalled and then the same along with the direct expenses that relates with the important business activities are allocated in the most systematic way. This is the process which includes the owners of the business and the managers and gives them an opportunity to define out the areas of the manufacturing or sales which generates the maximum amount of profit. Am inherent weakness in the system is the fact that the company uses conventional costing method wherein the costs are allocated on the basis of the labour hours or the machine hours and not on the basis of the number of activities that are consumed in the manufacture of the product. ABC helps in the efficient allocation of these expenses and so, is much more meaningful.

Include in your discussion, what factors the management accountant should consider when deciding whether to use an Activity-based system that includes both manufacturing overhead and non-manufacturing costs. And furthermore outline the benefits, costs and limitations of activity-based costing:

Once the company has decided to implement the method, they are required to decide as to how the system must be implemented which involves the 6 stages of IT implementation initiation, adoption, adaptation, acceptance, routinization and infusion. Each one of the stage is affected by many of the factors and this is of an equal importance when it comes to the motivation of the adaptations of the systems and the opinions of the external experts (Wordpress, 2017).

The following are the advantages of the system:

• It is more accurate when it comes to the costing of the products and the services
• It helps in gaining an insight into the overheads
• It is easier to understand
• It helps in the utilisation of the costs per unit rather than just the total cost
• The system integrates well with the 6 sigma and other programs of improvement
• It helps in ascertaining the non-value added activities
• It supports the performance management and the scorecards
• It helps in mirroring the work that has been done
• It facilitates benchmarking
• It enables the process of costing, supply chains and the value streams (Small business chron, 2017).

The following are the limitations of ABC:

• The implementation of the system requires an enormous amounts of the resources.
• The reports produced by the system cannot be used by the management and so, traditional coting method has to be used when the reports have to be produced.
• It produces the numbers such as the margins for the products etc which is very much against the numbers that are produced by the traditional costing system. And the so, the data provided by ABC cannot be easily understood.
• ABC produces the reports that are not in line with the GAAP (Accounting explanation, 2017).

References:

Accountingexplanation.com. (2017). Advantages, Disadvantages and Limitations of Activity Based Costing (ABC) System - AccountingExplanation.com. [online] Available at: https://www.accountingexplanation.com/advantages_disadvantages_and_limitations_of_activity_based_costing.htm [Accessed 16 May 2017].

quytrinh.files.wordpress.com. (2017). Factors influencing the implementation of Activity-Based Costing in Thailand: a case study of a Thai Telecommunications Company. [online] Available at: https://quytrinh.files.wordpress.com/2014/11/factors-influencing-the-implementation-of-activity-based-costing-in-thailand-16.pdf [Accessed 16 May 2017].

Smallbusiness.chron.com. (2017). Advantages and Disadvantages of ABC Analysis Inventory. [online] Available at: https://smallbusiness.chron.com/advantages-disadvantages-abc-analysis-inventory-34202.html [Accessed 16 May 2017].