ACCOUNTING ANALYSIS

Accounting Analysis

Accounting - Analysis

Answer of question 1

Material handling departments budget

 

payroll

180000

employee on costs

36000

telephone

38000

other utilities

22000

material and supplies

6000

depreciation

6000

Total

288000

Direct material budget

 

Government contracts

2006000

commercial products

874000

Total

2880000

Material handling rate that would have been used by smith is

= Total material handling department budget / Total direct material budget

= 288000 / 2880000

= $ 0.10

Answer of question 2

1. Revised material handling cost

Material handling department budget excluding cost allocated to government contracts

Material handling departments budget

 

payroll

180000

employee on costs

36000

telephone

38000

other utilities

22000

material and supplies

6000

depreciation

6000

Total

288000

Material handling departments budget

 

payroll (180000- 36000)

144000

employee on costs (36000-20% of 36000)

28,800

telephone (38000-2800)

35200

other utilities

22000

material and supplies

6000

depreciation

6000

total

242000

Number of purchase orders

 

Government contracts

80000

commercial products

156000

marketing

1800

finance and administration

2700

human resources

500

Maintenance

1000

total

242000

Revised material handling costs to be allocated on a per purchase order basis

= total material handling costs less government cost / total number of purchase order

= 242000 / 242000

= $ 1

2. Number of purchase orders a more reliable cost driver

Using the number of purchase order is a more reliable cost driver than the dollar amount because of following three factors

The cost is distributed according to the work completed on the activity and in this case the number of purchase order processed (Hilton, 2008, pp. 206)

Using the amount of direct material budget as the cost driver is unfair in the allocation of cost due to the high dollar and low volume material use by the government contract

Other administrative departments also use the material handling services on a limited basis but was never charged

Answer of question 3

Difference due to change to the new method allocating

Old method of costing

= 0.10 * 2006000

= 200600

New method of costing

= 1.00 * 80000

= 80000

Add 46000 Direct Government cost

= 80000 + 46000

= 126000

Difference is 200600 minus 126000

= 74600

Hence $74600 less dollar amount will be allocated to the government costs under new method of allocation

Answer of question 4

Forecast over a three year period

Number of orders increases 5 percent per year

 

 

 

 

 

 

 

 

current year

2nd year

3rd year

Government contracts

80000

84000

88200

commercial products

156000

163800

171990

marketing

1800

1890

1985

finance and administration

2700

2835

2977

human resources

500

525

551

maintenance

1000

1050

1103

total

242000

254100

266805

total direct materials increase 2.5% per year

 

 

 

 

 

 

 

 

Current year

2nd year

3rd year

Government contracts

2006000

2056150

2107554

commercial products

874000

895850

918246

total

2880000

2952000

3025800

material handling costs over the next three years with Government costs

 

 

 

 

 

 

 

 

 

 

 

 

current year

2nd year

3rd year

payroll

180000

184500

189113

employee on costs

36000

36900

37823

telephone

38000

38950

39924

other utilities

22000

22550

23114

material and supplies

6000

6150

6304

depreciation

6000

6150

6304

Total

288000

295200

302580

remain the same percentage of direct materials cost

10%

10%

10%

Direct Government costs - Constant

 

 

 

 

Current ...