MANAGEMENT ACCOUNTING

Management Accounting



Management Accounting

Task 1

A) Apportion the production overhead costs

Apportion the Production Overhead Costs of Departments

£

Indirect labor

112500

Dep. Of machinery and equipment

112500

Rental of premises

69000

Heat and light

34500

Indirect material

127500

Salaries of supervisory staff

78000

Power

60000

Total

594000

B) Apportion the service department costs to the Production departments

Production Departments

Service Department

Manufacturing

Assembly

Canteen

Apportion of the Costs of the Departments

£

£

£

Direct labor cost

64000

96000

-

Direct material cost

70000

70000

-

Indirect labor

112500

112500

112500

Dep. Of machinery and equipment

112500

112500

112500

Rental of premises

69000

69000

69000

Heat and light

34500

34500

34500

Indirect material

127500

127500

127500

Salaries of supervisory staff

78000

78000

78000

Power

60000

60000

60000

Total

728000

760000

594000

C) Over head cost rate based on labor hours

Production Departments

Manufacturing

Assembly

Over head cost

£ 594000

£ 594000

Labor hours

8000

16000

Over head cost rate

74.25

37.125

D)

The activity based costing can be used to assign the over head cost to the products. It helps in the relationship to the planning, control and decision making.

- Standard costs are those in which should be incurred in a production process under normal conditions and meets the very purpose of a budget.

- Proposed Budget: Provide forecasts of today on a total cost basis rather than on a unit cost basis.

- Controllable and uncontrollable costs: are those on which they can directly influence managers for a period of time.

- Authorized fixed costs: arise inevitably when you have a structure basic organizational, property, plant, equipment and necessary paid staff.

- Discretionary fixed costs: It arises from the annual decisions to prepare for repairs and maintenance costs, cost of advertising, training executives, among others.

- Relevant costs, expected future costs are different among alternative courses of action and can be removed if you change or cancel any economic activity.

- Costs irrelevant: They are not affected by the actions of management, such as sunk costs (costs passed).

- Cost Differential: A differential cost is the difference between the costs of alternative courses of action based on article by article.

- Opportunity cost: When making a decision to pursue an alternative, abandon the benefits of other options. The benefit lost by discarding the next best alternative is the opportunity costs of the action chosen.

- Plant closing costs: These are fixed costs that would be incurred even if there were no production such as: leasing, retirement payments to employees, cost of storage, the insurance and salaries of security and others.

This classification provides management the information needed for the measurement of income and product pricing.

In light of the revolution is having on the world, we can expect substantial changes in accounting, after all, the traditional cost accounting that were designed in the previous era, conceived it: the direct labor and materials such as determining factors of production, stable technology, general activities stand the test of the production process and there was a limited range of products.

Precisely calculate product costing possible to obtain reasonable accuracy where it is consumed overall activities directly related to production volume. However, the product costs become inaccurate when the general activities not related to production volume grows in magnitude. For instance, the activities of the company such as engineering and support activities not related to current production volume (Groppelli and Ehsan, 2006, 23-39). Moreover, other activities such as purchasing, installation of machinery ...