ACC2110: MANAGEMENT ACCOUNTING

Trimester 2, 2020

INDIVIDUALASSIGNMENT

WEIGHT OF MARKS: 30

DEADLINE FOR SUBMISSION: TUEDAY 22 SEPTEMBER 2020 via the Moodle Upload

Learning Outcomes Addressed:

This assessment item addresses the following unit learning outcomes (ULOs) as described in the Unit Outline:

1.Emphasise the critical role of the Management Accountants in proper costing and correct pricing decisions that helps value creation for customers and shareholders (ULO 1)

2.Clear understanding of various cost terms, cost behaviour and the role of overhead cost in pricing decisions (ULO 2)

3.Ability to choose alternative cost estimation and allocation techniques across products and services (ULO3)

4.Ability to apply Activity Based Costing (ABC) techniques to an actual business in order to arrive at the most accurate costing for products (ULO 5).

Instructions:

This is an individual assessment accounting for 30% of total marks in the unit. This assessment emphasises the management accountant's crucial role in accurate costing and pricing for products and services in order to enhance customer and shareholder value creation. This assessment consists of TWO independent case studies involving separation of joint costs into fixed and variable elements, estimation and application of fixed overhead to departments and units using traditional methods and using Activity Based Costing (ABC) methods. Use of Xcel spreadsheet will be helpful in completing the assignment.

Do calculations and analyses, and answer all questions mentioned in the cases.

Please note: All supporting workings and drafts must be submitted as separate files with each assignment.

Submission:

Upload an electronic version using Microsoft WORD or PDF with a signed copy of Assignment Submission Form (available on the Moodle site) upload.

Deadline for Submission: Monday 22 September 2020

CASE 1:

Bendix Ltd is a car parts manufacturer. It supplies you the following information regarding costs at various levels of monthly production:

Production volume

8 000 units

12 000 units

Direct materials

$80 000

$120 000

Direct labour

64 000

96 000

Indirect materials

24 000

36 000

Supervisors' salaries

12 000

12 000

Depreciation on plant

10 000

10 000

Maintenance

32 000

44 000

Utilities

15 000

21 000

Insurance on plant and equipment

1 600

1 600

Property taxes on plant

2 000

2 000

Total

$241 600

$342 600

In the above table there are some pure variable costs, some pure fixed costs and some mixed costs.

Required:

1.Identify and make separate lists of the pure variable costs, pure fixed costs and mixed costs and calculate their totals.

2.Split the total mixed costs into Fixed and Variable elements using High/Low method, calculate total fixed cost and develop the equation for total monthly production costs?

3.Explain to the management how to use the cost equation you developed in (2) above to predict total costs for the monthly production volume of 9 000 units and also calculate the correct unit cost.

4.In 2019 the company has produced 9 000 units. According to the Accountant's calculations the unit cost was $28.05 ($336 600 / 12 000). The company added 10% margin to the cost and had set a selling price of $30.85.

However, the financial results show that there was a gross loss in the year. The company management cannot understand this mystery.

Explain to the management why there was a loss.

CASE 2: (Activity-Based Costing)

Harvey Ltd. Produces three products: Fridges, Dishwashers and Washing machines. The company uses a single plant-wide factory overhead rate to all three products based on direct labour hours. The company currently uses plant-wide factory overhead allocation based on direct labour hours. The company also adds a 20% mark-up on the cost of production to cover administration cost and gross margin. The selling price per unit for the three products are as follows:

Fridge - $1043.85

Dishwasher$911.76

Washing machines 784.36

However, the company has noticed that of the three products the Fridges and Dishwashers are high in demand at the set price and are selling fast, but the Washing machines are not selling even if the quality is quite good. The management is asking you to find out the possible reasons for this. They suspect that there may be something wrong with their costing and pricing. They have heard that Activity Based Costing (ABC) is capable of producing more accurate costing and pricing. They supply you with the following information:

FridgeDishwasher Washing machines

Material cost (per unit)$700.00$300.00$500.00

Labour cost (per units)2.5 hours 5 hours3.0 hours

@ 40.00/hour@ $40.00/hour@ $50.00/hour

The total budgeted annual production overhead cost of the company is $1 400 000.The company has supplied you detailed information and breakdown about their overhead cost.

The company has determined the major activities and cost pools that account for the total overhead cost of the company. These activities, along with their budgeted activity costs, are as follows:

ActivitiesBudgeted Activity Cost

1.Machine Set Up$ 428 750

2.Production Control$ 245 000

3.Inspection and Quality Control$ 183 750

4.Materials Handling$ 367 500

5.Indirect Labour$ 175 000

Total:$ 1 400 000

Sorrento Ltd has estimated the following activity-base usage and units produced for each of its three products:

ProductsNo. of No. of No. ofNo of No. of Direct

unitsSetupsProduction Inspections materials Labour Hours

ordersmoves

Fridge10 00080803532025 000

Dishwasher 2 00040404040010 000

Washing machine 50 00055030140 000

Total62 000 12512575750175 000

Required:

1.Using the single plant-wide factory overhead rate method determine the applied factory overhead cost per unit for the Fridge, Dishwasher and Washing machines.

2.Calculate the total unit cost of production for each product using the material and labour cost information provided to you and the overhead cost you have calculated in 1 (above).

3.Determine the factory overhead cost and total cost of production per unit for the Fridge, Dishwasher and Washing machines using the Activity Based Costing.

4.Which method provides more accurate product costing? Why?

5.Explain to the management of Harvey Ltd. why the Fridge and Dishwashers were selling fast and the Washing machines were not selling at the existing prices.

RUBRICS AND MARKING CRITERIA:

ASSESSMENT & MARKING CRITERIA

Assessment type:

Assessment Task 2: Case Study (30%)

Unit:

ACC2110 MANAGEMENT ACCOUNTING

Management Accounting provides explanation of how accounting information is used to guide management decision-making.Students will examine the budgeting process and understand the role of differing costing and processing systems such as activity-based costing. Evaluating financial and strategic performance analysis using tools such as Balanced Scorecard are also considered.

.

Unit learning

outcomes:

This assessment task is addressing the following Unit Learning Outcomes:

1.Emphasise the critical role of the Management Accountants in proper costing and correct pricing decisions that helps value creation for customers and shareholders (ULO 1)

2.Clear understanding of various cost terms, cost behaviour and the role of overhead cost in pricing decisions (ULO 2)

3.Ability to choose alternative cost estimation and allocation techniques across products and services (ULO3)

4.Ability to apply Activity Based Costing (ABC) techniques to an actual business in order to arrive at the most accurate costing for products (ULO 5).

Assessment task:

Assessment Task 2 - Case Study

Weighting: 30%

Due Date: 22 SEPTEMBER 2020

Submission style: online via Moodle.

Description of Assessment: This assessment emphasises the management accountant's crucial role in accurate costing and pricing for products and services in order to enhance customer and shareholder value creation. This assessment consists of TWO independent case studies involving separation of joint costs into fixed and variable elements, estimation and application of fixed overhead to departments and units using traditional methods and using Activity Based Costing (ABC) methods. Use of Xcel spreadsheet will be helpful in completing the assignment.

Do calculations and analyses, and answer all questions mentioned in the cases.

Please note: All supporting workings and drafts must be submitted as separate files with each assignment.

Rationale:

This assessment task is designed to test students' understanding and knowledge on topics covered in Weeks 1-4. The Assessment will assess students' ability to:

explain the critical role of the Management Accountants in proper costing and correct pricing decisions that helps value creation for customers and shareholders

distinguish between the various cost terms, cost behaviour and the role of overhead cost in pricing decisions

to choose alternative cost estimation and allocation techniques across products and services

to apply Activity Based Costing (ABC) techniques to an actual business in order to arrive at the most accurate costing for products

MARKING GUIDE (RUBRIC - ASSESSMENT TASK 2: CASE STUDY)

Performance Indicators

High Distinction

Distinction

Credit

Pass

Fail

80-100%

70-79%

60-69%

50-59%

0-49%

Knowledge and clear understanding of various cost terms and cost behaviour and the role of proper costing in management accounting

(5 marks)

Clear and accurate knowledge about the nature and role of various costs and their role in proper costing. A maximum of 20% inaccuracies is permitted in answers.

Clear and reasonably accurate knowledge about the nature and role of various costs and their role in proper costing. A maximum of 30% inaccuracies is permitted in answers.

Reasonable knowledge about the nature and role of various costs and their role in proper costing. A maximum of 40% inaccuracies is permitted in answers.

Limited knowledge about the nature and role of various costs and their role in proper costing. A maximum of 50% inaccuracies is permitted in answers.

.

Little knowledge about the nature and role of various costs and their role in proper costing. More than 50% inaccuracy exists in answers.

Distinguishing between various conventionalcost allocation methods and calculating their impacts on cost of production

( 6 marks)

Accurately calculate the relative impacts of various cost allocation methods on the cost of production using the numbers provided.

A maximum of 20% inaccuracies in answers.

Almost accurately calculate the relative impacts of various cost allocation methods on the cost of production using the numbers provided.

A maximum of 30% inaccuracies in answers.

Reasonably correctly calculate the relative impacts of various cost allocation methods on the cost of production using the numbers provided.

A maximum of 40% inaccuracies in answers.

Struggled to calculate the relative impacts of various cost allocation methods on the cost of production using the numbers provided.

A maximum of 50% inaccuracies in answers.

Failed to calculate the relative impacts of various cost allocation methods on the cost of production using the numbers provided.

More than 50% inaccuracy exists in answers.

Clear understanding and application of the Activity Based Costing (ABC) principle in allocating overhead costs to products

(15 marks)

Accurately allocate overhead cost using ABC method to calculate correct unit cost.

Not more than 20% inaccuracies exist in answers

Almost accurately allocate overhead cost using ABC method to calculate correct unit cost.

Not more than 30% inaccuracies exist in answers.

Reasonably accurately allocate overhead cost using ABC method to calculate correct unit cost.

Not more than 40% inaccuracies exist in answers

Inconsistent attempts to allocate overhead cost using ABC method to calculate correct unit cost.

Not more than 50% inaccuracies exist in answers

Failed to allocate overhead cost using ABC method to calculate correct unit cost.

More than 50% inaccuracies exist in answers

Analysis and drawing conclusions

(4 marks)

Perfectly precise analysis and consistent conclusion

Near perfect analysis and consistent conclusion

Very good analysis and conclusion

Average level of analysis and inconsistent conclusion

Failed to analyse and draw meaningful conclusions

Total Mark:/30

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