ASSESSMENT BRIEF
Subject Code and Name	ACCT6004 ManagementAccounting
Assessment	Assessment 2 - Case Study
Individual/Group	Individual
Length	(1,800 words +/- 10%)
Learning Outcomes	Identifyandanalyseethicaland organisational issuesconfrontingcontemporarymanagementaccountants. Categoriseandidentifythenatureofvarioustypes ofcosts,costobjectsandcostbehavioursandusecost estimation techniques to develop cost functions. Applycostaccountingtechniquestocalculatethe costofarangeofcostobjects,aswellasanalysecosts. Applycostinformationtoplanning,controlanddecision-making. Criticallyevaluatetherelevanceofbothquantitativeandqualitativecostinginformationtomanagementdecisionmaking.
Submission	By11:55pmAEST/AEDTSundayofModule5.1(week9)
Weighting	30%
Total Marks	100 marks

Context:

Thepurposeofthisassessmentistoestablishtheskillsneededintheworkplacefor costing products and services using the appropriate processes and tools and applyinganalyticalprocessestoconstructaccountingsystemsandmodelsusing workplacetools.Eachquestionusesrealisticdataandtheprofessionalpractices similartothatfoundinworkplaces.

Referencing

ItisessentialthatyouuseappropriateAPAstyleforcitingandreferencingresearch.Pleaseseemore informationonreferencinghereintheAcademicWritingGuidefoundviatheAcademicSkillswebsite

Academic Integrity

All students are responsible for ensuring that all work submitted is their own and is appropriately referenced and academically written according the Academic Writing Guide. Students also need to have read and be aware of Torrens University Australia's Academic Integrity Policy and Procedure and subsequent penalties for academic misconduct. These are viewable online.

Students also must keep a copy of all submitted material and any assessment drafts.

Question 1: Support Department's Cost Allocation

Nano Limited manufactures two products. The production of Product 1 is entirely carried out in the Green department.TheentireproductionofProduct2takesplaceintheYellowdepartment.NanoLimitedisable to produce these two products with the help of two support departments: Brick (a materials-handling department) and Hebel (a power-generatingdepartment).

An analysis of the work done by departments Brick and Hebel in a typical period follows:

	Used By
Supplied By	Brick	Hebel	Green	Yellow
Brick	-	100	250	150
Hebel	500	-	100	400

IntheBrickdepartment,theworkthatisdoneismeasuredbythedirectlabour-hoursspentonthehandling ofmaterials.IntheHebeldepartment,theworkdoneismeasuredbythekilowattsofpowerthatareused. For the coming year, the following budgeted costs have been outlined for the supportdepartments:

	Brick Department (Materials Handling)	Hebel Department (Power Generation)
Variable indirect labour and indirect materials costs	$ 70,000	$10,000
Supervision	10,000	10,000
Depreciation	20,000	20,000
	$100,000	$40,000
	+Power costs	+Materials-handling costs

For the coming year, the budgeted costs of the operating departments are $1,500,000 for the Green department and $800,000 for the Yellow department.

The cost of supervision is a salary cost. In Hebel department, depreciation is calculated based on straight- line depreciation of power-generation equipment which has reached its 19th year of its estimated 25-year useful life. This is an old, but well-maintained piece of equipment.

Required

1. What is the allocation of costs of support departments Brick and Hebel to operating departments Green and Yellow? Use the following methods to report yourresults.
   1. the directmethod,
   2. the step-down method (allocate department Brickfirst)
   3. the reciprocalmethod

1. There is an outside company that has offered to supply all the power required by the Nano Limited and to provide all the services that are currently provided by the Nano Limited's power department. There will be a fee of $40 per kilowatt-hour of power that will be charged for this service. Do you think Nano should accept the offer? Explain and justify youranswer.

Question 2: Overhead Cost Allocation

The Visteon Limited company manufactures a wide range of motor parts for the automotive industry. The company uses a job-order costing system with a predetermined overhead rate on a plantwide basis, based on the number of direct labour hours. The controller of the company made an estimate of the company's overhead rate for 2022 on 20th July, 2021. This new rate was calculated based on $2,475,000 in manufacturing overhead costs and 52,000 total direct labour hours estimated for 2022:

Predetermined overhead rate = $2,475,000/ 52,000 hours = $47.60 per direct labour-hour

In a meeting on 21st July, top managers were informed of this new predetermined overhead rate. Because ofthefactthatthisoverheadratewaswithinafewdollarsoftheoverheadratewhichhadbeenusedduring the year 2021, no comments were made about it. During the meeting, the production manager proposed buying an automated milling machine built by the Evotec Group. In order to discuss the proposal further, Visteon Limited's president, Steven Richards, agreed to meet with Evotec Group's regional sales representative.

A day after the meeting, Mr. Richards met with Alex Smith, a sales representative from Evotec Group. Following is the discussion that took place:

Richards:Philip Potter, our production manager, requested that I meet with you regarding the installation of an automated milling machine. To be honest, I am sceptical. It's going to be up to you to convince me that this is not just another expensive toy that Philip's people will play with.

Smith:Thatshouldn'tbeaproblem,Mr.Richards.Therearethreemajoradvantagestousinganautomated milling machine. First of all, it is much faster than the manual method that you are currently using. It is capable of processing approximately twice as many parts per hour as your current milling machines. The secondadvantageisthatitismuchmoreflexible.Itistruethattherearesomeup-frontprogrammingcosts, but once these have been incurred, almost no setup is required for standard operations on the machines. You simply need to punch in the code for the standard operation, load the machine's hopper with raw materials, and let it do therest.

Richards:Sure, but how much does it cost? We won't gain much by having twice the capacity in the milling machine area. The current milling machine is idle most of the time anyway.

Smith:I was getting there. The third advantage of an automated milling machine is its lower cost. In reviewing your current operations, Philip Potter and I calculated that the automated equipment would eliminatetheneedforapproximately6,000directlabourhoursperyear.Howmuchdoesyourdirectlabour cost perhour?

Richards:The average wage rate in the milling area is about $21 per hour. With fringe benefits, that figure rises to about $30 per hour.

Smith:Make sure you consider your overhead as well.

Richards:The overhead rate for next year will be approximately $48 per hour.

Smith:In other words, including the costs of fringe benefits and overhead, the cost per direct labour hour is about $78.

Richards:Yes, that's correct.

Smith:As 6,000 direct labour hours can be saved per year, the cost savings would be approximately

$468,000 each year.

Richards:That's pretty impressive, but you are not giving this equipment away, are you?

Smith:There are several options available, including leasing and outright purchase. In comparison, our 60- month lease plan would require annual payments of only $300,000.

Richards:Sold! I am interested in the installation of the equipment. When can you do it?

The company's controller was informed shortly after this meeting that Mr. Richards had decided to lease thenewequipment,whichwouldbeinstalledduringtheChristmasvacationperiod.Basedonthisdecision, the controller realised that the predetermined overhead rate for the year 2022 would have to be recalculated since the decision would affect both manufacturing overhead and direct labour hours. Following a discussion with both the production manager and the sales representative from Evotec Group, thecontrollerconcludedthat,inadditiontotheannualleasecostof$300,000,thenewmachinewouldalso requireaskilledtechnician/programmerwhowouldbepaid$45,000annuallytomaintainandprogramthe machine. Factory overhead would include both of these costs. In terms of total manufacturing overhead costs, which are almost entirely fixed, there would be no other changes. According to the controller, the new machine would result in a reduction of 6,000 direct labour hours for the year from the levels initially projected.

Assoonastherevisedpredeterminedoverheadratefortheyear2022wascirculatedamongthecompany's top managers, there was considerabledissatisfaction.

Required

1. Calculate the predetermined rate again assuming the new machine will be installed. Why is the new predetermined overhead rate higher (or lower) than the rate that was originally estimated for2022?

1. Could this new rate have any impact (if any) on the cost of jobs that do not require the use of the new automated millingmachine?

1. Can you explain why managers might be concerned about the new overheadrate?

1. Following the presentation of the new predetermined overhead rate, the production manager admitted that he probably would not be able to eliminate all of the 6,000 direct labour hours. Initially, he had hoped to achieve the reduction by not replacing workers who retire or quit, but this was not possible. Therefore, the real labour savings would be approximately 2,000 hours, or one worker. Taking into consideration the additionalinformationthatisnowavailabletoyou,evaluatetheoriginaldecisiontoacquiretheautomated milling machine from the EvotecGroup.

Question 3: Process Costing

RamicoLimitedmanufacturesavarietyofbicycleparts.Sincethecompanyproducesalargevolumeofeach type of product, the unit cost is determined by a process costing system. The Moulding Department manufacturesbicyclepartsandtransfersthemtotheAssemblyDepartmentforassembly.Uponcompletion of assembly, bicycle parts are delivered to the packing department. For the month of June, the following costs and production figures are presented for the AssemblyDepartment:

Production Data (in unit)
Beginning WIP Inventory (70% complete as to material;40% complete as to conversion)	70,000
Started in June	460,000
Completed and transferred out	450,000
Ending WIP Inventory (75% complete as to material; 25% complete as to conversion)	80,000

Cost Data (in dollar)
	Material	Conversion
Beginning WIP Inventory	$367,200	$131,600
Current period	$2,692,800	$1,748,400

Required

1. Determine the cost per equivalent unit for the Assembly Department's direct materials and conversion costs, and the total unit cost for the current period,underthe
   1. Weighted-Averagemethod
   2. FIFOmethod

1. Assigntotalcoststounitscompleted(andtransferredout)toPackagingDepartmentandtounits in ending work in process in the AssemblyDepartment.

Question 4: Cost Volume and Profit (CVP) Analysis

ThefollowinginformationistakenfromBaileyLimited'scontributionformatincomestatementforthemost recentmonth:

Sales (40,000 units)	$800,000
Variable expenses	560,000
Contribution Margin	240,000
Fixed Expenses	192,000
Net Operating Income	$48,000

Bailey Limited operates in an industry that is highly sensitive to economic cyclical movements. Profits vary greatly from year to year depending on general economic conditions. There is a lot of unused capacity at the company, and the company is looking for ways to improve profits.

Required

1. There is new equipment on the market that could allow Bailey Limited to automate a portion of its operations.Itwouldreducevariablecostsby$6perunit.Thefixedcostswouldhoweverincreasetoatotal of $432,000 each month. Using proper format, prepare two contribution format income statements, one reflecting current operations and one reflecting operations if the new equipment were purchased. In each statement, you should include a column for Amount, a column for Per Unit, and a column for Percentage. Please do not include percentages for fixedcosts.

1. Refer to the income statements in (1) above. As part of both present operations and planned new operations, compute (a) the degree of operating leverage, (b) the break-even point in dollars, and (c) the margin of safety both in terms of dollar amounts and in terms ofpercentages.

1. Referto(1)aboveonceagain.Inyourroleasamanager,whatfactorsaregoingtobethemostimportant one in deciding whether or not to purchase the new equipment? You may assume that there are sufficient funds available to make thispurchase.

1. Please refer to the original data. The marketing manager argues that the company should change its marketingstrategyratherthanpurchasenewequipment.Asanalternativetopayingcommissionsonsales, whichareincludedinvariableexpenses,themarketingmanagersuggeststothecompanythatsalespeople be paid fixed salaries and more investments be made inadvertisement.

Accordingtothemarketingmanager,thenewapproachwouldincreaseunitsalesby50%withoutchanging the price; the company's fixed expenses would increase by $240,000; and its net operating income would rise by 25%. Calculate the break-even point in dollar sales for the company based on the new marketing strategy. Would you agree with what the marketing manager proposed? Why or whynot?

End of Quesitons

Learning Rubric: Assessment 2

Assessment Criteria	Fail (Unacceptable) 0-49%	Pass (Functional) 50-64%	Credit (Proficient) 65-74%	Distinction (Advanced)75 -84%	High Distinction (Exceptional) 85-100%
Knowledge and understanding of thecost concepts and techniques used in the	Showsverylittletono understandingofhowto applythecostingsystem technique to the case	Shows limited understandingofhowto applythecostingsystem techniquetothecasestudy	Thorough knowledge orunderstanding of the costing system techniques relevant to	Highly developed understanding of the costing systemtechniques relevanttothecasestudy.	A sophisticated understanding of the costing systemtechniques relevanttothecasestudy.
case study.	study questions.	questions.	the case study.
	Key components of theassignment are not	Has answered some partsincorrectly.
	addressed.
	Demonstrateslittletonocapacitytoexplainand apply relevantconcepts.
	Has answered most parts
15%	incorrectly.
Knowledge and understanding of management accounting concepts,techniques and processes	Limited awareness of relevant managementaccounting informationrequired for business decisions Difficulty and/or confusion in identifying correct management accounting concepts, tools	Understanding and being able to identify relevant accounting informationfor business decisions Understanding a range of management accounting techniques and processes available for generatingand analysing information	Understanding rationalefor selecting specific management accountingtools and processes Understandingandbeing able to explain quantitative and qualitative characteristics of managementaccounting	Thoroughly understanding themanagement accounting concepts, techniques andprocesses Beingabletojustifyselection of specific accounting tools andprocesses	Thoroughly understandingmanagement accounting concepts, techniques andprocesses, and accountinginformation required forsolving practical problems Being able to critically justifyselection of applicable accounting tools and processes

30%	andprocessesrequired forcasestudyquestions	Abilitytouseappropriate management accountingtechniquesandprocesses	information useful for business decisions
Analysis and application of relevantethical principles, management accounting concepts,techniques and processes	No or little use of management accountinginformation for decision making Difficulty and/or confusion in preparingmanagement accounting reports	Applyingcorrectstepsin preparing managementaccountingreports Applying appropriateaccounting procedures	Identify and explain quantitative and qualitative characteristics of management accounting information, which areuseful for business decisions	Analysing quantitative andqualitative characteristics of accounting information, andapplying analysis to solve practicalproblems Correctlypreparingand interpreting different managementaccounting statements.	Correctly preparing andinterpreting different managementaccounting statements. Critically justifyingbusinessdecisions using relevant management accounting information
	Difficulty and/or confusion in identifyingand applying correct accounting procedures
45%
Effective communication 10%	Difficulty in explainingrationale for selectedaccounting tools and processes	Mostlyclearinformation presentation,withsomeminorerrors Evidence of attempts to makecleartoaudience,the rationaleandapplicationof selected accounting toolsandprocesses	Mostly clear and understandable presentation ofinformation	Clearly presented andadequately justifiedresponses Good references to quantitative and qualitativeinformation where applicable	Clearly presented and adequately substantiated responses, which indicate fullunderstanding and thoroughapplication of relevant accounting tools and processes Sufficiently substantiated discussion of quantitativeand qualitative information