Management Accounting - Answer 1

As John is facing difficulty in identifying the cost allocation base for factory administration costs. The factory administration cost can be calculated using the basis of allocating the cost. As per findings, the cost can be allocated by the collection of data, classification, and providing a code to the overheads. The next step is to apportion the overheads into the production units. So, a process needs to be set up for the allocation of cost. Here is the computation of Sales given below for interpretation. As per the product information provided in Table 1, the sales amount is calculated.

Computation of Sales

Product

No. Of ornaments

Ornaments per box

No. of Box

Selling Price per box

Total Sales

Small Ornaments

9,60,000.00

8.00

1,20,000.00

20.00

24,00,000.00

Large Ornaments

5,80,000.00

4.00

1,45,000.00

18.00

26,10,000.00

Crystal Palace Ornament set

1,50,000.00

1.00

1,50,000.00

14.00

21,00,000.00

Total Sales

16,90,000.00

13.00

4,15,000.00

52.00

71,10,000.00

The apportionment of the cost is done on the basis table 2 related to the additional information provided based on the allocation of cost. Factory Annual overhead cost is given in table 3 for calculation of cost based on the cost information provided. Computation of the allocation and apportionment of cost is mentioned below:

Statement showing allocation and apportionment of cost

Details

Details of basis of apportionment

Basis

Total

Small Ornaments

Large Ornaments

Crystal Palace Ornament set

Production scheduling

No. Of Batches

03:04:06

1,90,000.00

43,846.15

58,461.54

87,692.31

Machine set ups

Machine operations per ornament

02:03:06

6,00,000.00

1,09,090.91

1,63,636.36

3,27,272.73

Equipment Depreciation

Machine operations per ornament

02:03:06

4,40,000.00

80,000.00

1,20,000.00

2,40,000.00

Factory depreciation

Factory area per box

0.07:0.07:.21

2,00,000.00

40,000.00

40,000.00

1,20,000.00

Quality Inspection

Inspection per box

01:02:08

2,40,000.00

21,818.18

43,636.36

1,74,545.45

Packaging

DM and DL per box

09:11:07

4,70,000.00

1,56,666.67

1,91,481.48

1,21,851.85

Factory Administration

Factory area per box

0.07:0.07:.21

4,00,000.00

80,000.00

80,000.00

2,40,000.00

 

Total factory overhead cost

 

25,40,000.00

5,31,421.91

6,97,215.75

13,11,362.34

Basis of cost allocation

The number of batches: One of the bases mentioned in the case study is the number of batches involved in production scheduling. This is one of the basis through which the interpretation of the apportionment and allocation of the cost is done and in this way the apportionment is done based on the ratio of batches i.e 3:4: 6

Machine operations per ornament: The basis of this cost allocation used in the computation of apportionment of Machine set up overhead cost and in calculating the apportionment of the cost of equipment depreciation as they both are directly related to the no. of machine operations done for set and cost in machine set up and depreciation charges on the machine. The ratio used in the calculation or apportionment is 02:03:06.

Factory area per box: This is another basis of cost allocation that has been discussed in the case study. It means that how much factory area is required per box it is a very useful measure in the apportionment of factory depreciation cost and factory administration cost distributed between each product in the ratio of 0.07:0.07:.21.

Inspection per box: No. of inspection done per box which is related to the quality department so the quality inspection cost is apportioned based on it and the apportionment done in the ratio of 1:2:8.

Packaging: As packaging cost is directly related to DM and DL per pox so the cost of packaging is apportioned based on it in the ratio of 9:11:7.

Economic plausibility is that the base of allocation used for cost allocation and has cause and effect relationship as it is impacting the overhead cost of Production scheduling. As per the analysis drawn for another cost basis also the same conclusion has been drawn.

The goodness of fit is that accurate computation helps management in making a decision related to which ornament is performing well and the best cost apportionment technique is adopted. The basis defines the product line performing well. As pert the apportionment it is found that small ornament with small-batch has less cost involved in comparison to large ornament and crystal ornament. So, for another cost also if the comparison is made than the higher the ratio more is the cost for each product line.

 The significance of the independent variable is that the basis of cost allocation is not impacted by any other factors it is independent and not dependent on any other factor. The batch no is impacted by any other factors but the cost of production scheduling is dependent on it higher the batch higher is the cost. There is no inverse relationship.

Each of the cost basis of allocation is an independent variable and not affected by any other factors that's why they are used as a basis of allocation and apportionment of cost and neither they have an inverse relationship with the cost.

The most appropriate basis of cost allocation is Machine operations per ornament and Factory area per box as both are suitable and used for the apportionment of depreciation and another cost also which seems to be a cost-effective technique and involves fewer hours.

Management Accounting - Answer 3

If suppose three products are using three allocation methods the cost and profitability depend on the allocation. The three allocation methods are:

Primary distribution Method: As per this method of cost allocation there is no linkage between the service department and the production department. The cost is simply allocated as per the simple process as shown in the above analysis used.

Direct Distribution Method: It is based on the assumption that one department doesn't exchange the distribution of the other department. The cost is directly loaded to the production department. This is a simple way of allocation but the conclusion drawn for it is that it might not be correct. So, the quality inspection team cannot say that we are not inspecting the quality of the product. So, in the above example, the direct distribution method is used.

Step Distribution Method: The service department might render service to other service departments but don't receive any kind of service from that department. The cost of that service is distributed first which renders service to the maximum no. of the service department. So, this process continues until all the service departments are over. This helps in identifying the large department for which more focus needs to be given, but don’t help in interdepartmental transactions.

Repeated distribution Method: As per the repeated distribution method there is a continuous distribution of overhead costs over all the departments. The decided ratio of direct labor cost has been used as the basis of calculation in the given example. This is a continuous process and waits until the time figures get zero or nil.

As per the analysis drawn the best method of distribution is the repeated distribution method as the time taken is long but it involves details analysis of cost allocation of the department with the highest cost and the focus of the largest department will be more on earning profit and not in reducing the cost, so apportionment allows doing so.

Basic

Small

Large

Crystal

Check

As per primary distribution

5,31,421.91

6,97,215.75

13,11,362.34

25,40,000.00

Direct Labour Cost

6,00,200.00

8,30,600.00

10,43,200.00

24,74,000.00

Apportionment on direct labour cost basis Crystal cost

3,18,140.53

4,40,265.79

-7,58,406.32

-

Allocation 1

8,49,562.44

11,37,481.54

5,52,956.02

25,40,000.00

 

1,34,148.83

1,85,644.81

-3,19,793.64

-

Allocation 2

9,83,711.27

13,23,126.35

2,33,162.38

25,40,000.00

 

56,565.91

78,279.98

-1,34,845.89

-

Allocation 3

10,40,277.18

14,01,406.33

98,316.49

25,40,000.00

 

23,851.88

23,851.88

-47,703.76

0

Allocation 4

10,64,129.06

14,25,258.21

50,612.72

25,40,000.00

       

0

 

12,278.80

16,992.29

-29,271.09

0

Allocation 5

10,76,407.87

14,42,250.50

21,341.63

2540000

       

0

 

5,177.55

7,165.06

-12,342.61

0

Allocation 6

10,81,585.41

14,49,415.56

8,999.03

2540000

­

     

0

 

2,183.19

3,021.26

-5,204.45

0

Allocation 7

10,83,768.60

14,52,436.82

3,794.58

2540000

       

0

 

920.58

1,273.96

-2,194.54

0

Allocation 8

10,84,689.18

14,53,710.78

1,600.04

2540000

 

388.17

537.18

-925.36

0

Allocation 9

10,85,077.35

14,54,247.96

674.68

2540000

 

163.68

226.51

-390.19

0

Allocation 10

10,85,241.03

14,54,474.48

284.49

2540000

 

69.02

95.51

-164.53

0

Allocation 11

10,85,310.05

14,54,569.99

119.96

2540000

 

29.10

40.27

-69.38

0

Allocation 12

10,85,339.15

14,54,610.26

50.58

2540000

 

12.27

16.98

-29.25

0

Allocation 13

10,85,351.43

14,54,627.25

21.33

2540000

 

5.17

7.16

-12.34

0

Allocation 14

10,85,356.60

14,54,634.41

8.99

2540000

 

2.18

3.02

-5.20

0

Allocation 15

10,85,358.78

14,54,637.43

3.79

2540000

 

0.92

1.27

-2.19

0

Allocation 16

10,85,359.70

14,54,638.70

1.60

2540000

 

0.39

0.39

-0.78

0

Allocation 17

10,85,360.09

14,54,639.09

0.82

2540000

Control Check

25,40,000.00

Management Accounting - Answer 4

The possible decision that that crystal can consider to improve profit is to get the work done with timeliness and accuracy. That is what activity-based management is all about. Removal of waste appropriate strategies need to be followed and improved product design needs to be designed. The waste needs to be reduced. There is a need for allocation of cost to the lowest possible hierarchy, pick a new pattern. Initiate modification of equipment. Increase the price of the product that was designed below the ABC cost and drop non- profitable one from unprofitable product line from the production schedule. Setting priorities for improvement as shown in the above example which shows one of the techniques to deal with it. Cost drivers form the basis of allocation of cost. The two measures that Crystal needs to focus on is performance and another important measure is cost measure (BB, 2020).

So, there is a need to define activities that support output, then there is a need to define the link between activities and output. Gathering of cost and then allocation method needs to be used. As per the process view, there are cost drivers, activities, and performance measures. To improve profit so crystal, need to adopt the ABC management strategy to earn more profit and cost drivers need to be focused on and performance measures need to be adopted to get the correct picture and reduce the wastages in the process and manage cost-effectively and efficiently (Bake, 1998).

The below computation is shown of profit and factory cost and the allocation of the cost and its analysis is shown above.

Computation of Factory Cost

Details

Small

Large

Crystal Place set

Total

Labour

6,00,200.00

8,30,600.00

10,43,200.00

24,74,000.00

Material

25,300.00

21,800.00

44,900.00

92,000.00

Overhead

80,000.00

80,000.00

2,40,000.00

4,00,000.00

Total Cost

7,05,500.00

9,32,400.00

13,28,100.00

 

Computation of Profit

 

Small

Large

Crystal Place set

Sales

24,00,000.00

 26,10,000.00

 21,00,000.00

Cost

7,05,500.00

9,32,400.00

 13,28,100.00

Profit

16,94,500.00

 16,77,600.00

7,71,900.00

References for Activity Based Management

Bake, J. J. (1998). Activity-based Costing and Activity-based Management for Health Care. Dallas Taxas: An Aspen Publication.

BB, T. P. (2020). Activity Based Management . Activity Based Management, https://search.proquest.com/openview/9ccf2ccf141514750711369db5f24870/1?pq-origsite=gscholar&cbl=48426.

Panfilova, E., Dzenzeliuk, N., Domnina, O., Morgunovа, N., & Zatsarinnaya, Е. (2020). The Impact of Cost Allocation on Key Decisions of Supply Chain Participants. International Journal of Supply Chain Management IJSCM, 9(1), 2051–3771. https://core.ac.uk/download/pdf/322571592.pdf

Joen Dahlberg. (2019). Cost allocation methods in cooperative transportation planning. Linköping University Electronic Press.

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Accounting and Finance Assignment Help

Get It Done! Today

Applicable Time Zone is AEST [Sydney, NSW] (GMT+11)
Not Specific >5000
  • 1,212,718Orders

  • 4.9/5Rating

  • 5,063Experts

Highlights

  • 21 Step Quality Check
  • 2000+ Ph.D Experts
  • Live Expert Sessions
  • Dedicated App
  • Earn while you Learn with us
  • Confidentiality Agreement
  • Money Back Guarantee
  • Customer Feedback

Just Pay for your Assignment

  • Turnitin Report

    $10.00
  • Proofreading and Editing

    $9.00Per Page
  • Consultation with Expert

    $35.00Per Hour
  • Live Session 1-on-1

    $40.00Per 30 min.
  • Quality Check

    $25.00
  • Total

    Free
  • Let's Start

Get
500 Words Free
on your assignment today

Browse across 1 Million Assignment Samples for Free

Explore MASS
Order Now

Request Callback

My Assignment Services- Whatsapp Tap to ChatGet instant assignment help

Hire Certified Experts
Ask your Question
Need Assistance on your
existing assignment order?

We care

MyAssignmentServices uses cookies to deliver the best experience possible.
My Assignment Services acknowledges the academic integrity guidelines prescribed as per Australian Universities to ensure that the services, sample material, and study resources available on our website, in no way are utilised to commit academic misconduct of any type. All users of our services must adhere to and affirm acceptance of all conditions elucidated in our policy document on academic integrity.

Please accept and affirm the following to be able to continue exploring our website and services: I agree to NOT use any educational material, study resources, assignment samples, online mentoring services, available on the web domain www.myassignmentservices.com and all its subdomains to commit any academic misconduct. I have read and been made fully aware of the academic integrity policy of My Assignment Services and by clicking on the button below, I am in principle, wilfully and legally bound to adhere to guidelines of the academic integrity policy in whole and in part.
View Cookies policy | How we ensure Academic Integrity?