Metalworks Ltd produces metal fences and is keen to improve its financial position. To date, the only Accounting expert on site has been the Finance Director and he has only had time to prepare the Annual Accounts and supervise key tasks such as preparing the VAT returns and supervising the payroll and ledger clerks. However, he has recently persuaded the other Directors to employ an Accountant to help to grow the business. You have been appointed as this new Accountant. Your first project is to prepare a briefing paper for the next Board meeting. You are currently considering two aspects of this explaining different types of accounting and preparing figures regarding a possible introduction of Management Accounting.

Management Accounting as well as Financial Accounting?

The Finance Director has briefed you that the other Directors do not naturally like numbers. He would like you to prepare a briefing note for the Directors which explains what the different types of accounting are about.

Figures re Overhead Absorption Rates

As a first step towards introducing Cost Accounting, you have gathered the following information for each of the Companys Departments Welding, Grinding and Finishing. You have agreed with the Finance Director that the rate for Welding should be based on Direct Labour Hours and that for Grinding should also be based on Direct Labour Hours. However, he thinks it would be best to base the rate for Finishing on Machine Hours.

To help to calculate the rates, you have met with key factory staff and pulled together the following budgeted information for the current financial year.

Department Overhead Labour Hours Machine Hours

Welding 60,625 48,500 30,000

Grinding 71,000 35,500 25,000

Finishing 55,000 25,000 25,000

Total 186,625 109,000 80,000

1. Explain to the Directors of Metalworks plc the key differences between Financial Accounting and Management Accounting. Your answer can also explain why each type of accounting is important to Metalworks plc.

1. Using the information provided, produce a schedule for the Directors of Metalworks plc in which you calculate the Overhead Absorption Rates for each of the Welding, Grinding and Finishing Departments.

Prepare a schedule for the Directors which costs out Job 1512. You should clearly show Total Prime Cost, Total Production Cost and Total Cost. You should also use the Overhead Absorption Rates you have already calculated.

Figures to Cost an upcoming job

The Directors are soon meeting with one of their key clients, Roadworks Ltd. They are going to discuss an upcoming job. The Production Manager advises the following costs and hours are involved in Job 1512:

• Direct Material 30 kg at 12 per kg
• Direct Wages: Welding: 16 hours at 5.00 per hour

Grinding 12 hours at 4.00 per hour

Finishing 4 hours at 6.00 per hour

Also, the machine time booked for this job in the Finishing Department is 10 hours.