Accounting Assignment: Workplace For Costing Products And Services Using Tools

Question

Task: The purpose of Assessment item 1 is to establish the skills needed in the workplace for costing products and services using the appropriate processes and tools and applying analytical processes to construct accounting systems and models using workplace tools. Each question uses realistic data and the professional practices similar to that found in workplaces.

Your assignment consists of different question styles including discussion questions, reports, exercises, problem questions and spreadsheet questions. It assesses learning outcomes as listed in the assignment rationale below.

Question 1: Value Chains (20 marks)
Prepare a report which describes and explains the value chain of the organisation in which you work or for a business or organisation of which you have a deep understanding. Include in your report an evaluation of the value chain's ability to provide a suitable framework for considering management accounting issues within your organisation. Ensure that you have identified the key management accounting issues that are relevant to your organisation. Information on report writing is in the Resources section of this subject site. (500 words)

Question 2 Cost of Manufacturing Statement (20 Marks)
The following data refer to Portland Precision Engineering Co Ltd for the year ended 31 December 2018.

Required:
1. Prepare a cost of goods manufactured statement for the year ended 31 December 2018. This must be prepared in Excel and cut and pasted into your Word document.
2. What was the company’s cost of sales for the year ended 31 December 2018?
3. What was the company’s gross profit for the year ended 31 December 2018?
4. What was the company's net profit for the year ended 31 December 2018?

Question 3 Cost Allocation (20 Marks)
Bezos Ltd is developing departmental overhead rates based on machine hours for its moulding department and direct labour hours for its assembly department. The moulding department has 20 machines that each run for 2,000 hours per year. The assembly department employs 80 people, who each work 2,000 hours per year. The production related overhead costs distributed to the moulding and assembly departments are budgeted at $500,000 and $740,000 respectively. Two support departments, repairs and engineering, directly support the two production departments, moulding and assembly. These support departments have budgeted costs of $100,000 an $580,000 respectively. The production departments' overhead rate cannot by determined until the support department costs are allocated. The following schedule reflects use of the output of the repairs and engineering departments by the various departments.

Required
1. Calculate the overhead rates per machine hour for the moulding department and per direct labour hour for the assembly department. Use the direct method to allocate support department costs.
2. Estimate the overhead cost of a thingamebob, which is produced using 3 machine hours in the moulding department and 5 labour hours in the assembly department.
3. Using the step-down method to allocate support department costs, calculate the overhead rates per machine hour for the moulding department and per direct labour hour for the assembly department. Allocate the repairs department costs first.
4. Now estimate the cost of the thingamebob using the overhead rates estimated in part 3.
5. Using the reciprocal services method to allocate support department costs, calculate the overhead rates per machine hour for the moulding department and per direct labour hour for the assembly department.
6. Now estimate the cost of the thingamebob using the overhead rates estimated in part 5.
7. Prepare a short memo to the Chief Financial Officer of Bezos Ltd, explaining which of the three methods of support department cost allocation results in the most accurate overhead rates and product costs. Explain why this is the most accurate method and why accuracy is important.

Question 4 Job Costing (20 Marks)
Collaroy Products Ltd uses a job order costing system to control costs in its two production departments. Factory overhead is applied on the basis of machine hours to the Preparation Department and on the basis of direct labour cost in the Finishing Department.

The company budgeted the following for last year:

Required
1. Calculate the predetermined overhead rate for each department
2. Calculate the total cost of Job 842.
3. If the actual direct labour cost in the Finishing Department was $375,800 and the actual factory overhead was $682,500 was the overhead over-applied or under-applied?

Question 5 Process Costing (20 Marks)
Pure Cotton Ltd manufactures organic cotton fabrics for the clothing industry. The following data relate to the weaving department for March:

There were 20,000 units in process in the weaving department on 1 March (100% complete as to direct material and 40% complete as to conversion).

Required
1. Prepare a spreadsheet to calculate each of the following amounts using weighted average process costing:
o cost of goods completed and transferred out of the weaving department during March
o cost of the 31 March work in process inventory in the weaving department.
2. Repeat requirement 1 using the FIFO method.
3. Cut and paste your spreadsheet solution into your the word document for your assignment.

Answer

Ethics and principles are the most important tools that are required to run a business. The concept of value chain analysis is a very important part of the business process which can be easily understood by your owner of a successfully running business organization which manufactures garments and products and is in the same industry. It is very hard for a business organization to you understand the needs of business and perform the cost-cutting analysis. This process is observed to be very slow in nature but once all establishment starts working properly, the classification and analysis of cost will be very helpful for taking important business decisions and father will help to generate revenue using least resources (Smith et. al, 2010)

Value chain analysis generally refers to a series of analytical steps that can help them to classify cost into primary and secondary divisions. These costs are generally termed on the basis of their direct contribution to the final product and later they are analyzed and measured so as to find ways to reduce the cost. Value chain also refers to the internal processes that take place inside an organization for converting the inputs into outputs by various methods (Charles, 2014).

For a garment manufacturing organization, the prime costs are labor cost and direct material cost whereas other kinds of material like the fabric, buttons, threads are referred to be direct materials send a part of primary costs that are directly added to the product. Labor is one of the most important costs for proper management. Cost of building a furnished infrastructure and warehouse will also be considered as an important cost element because they are directly being added to the value of the product.

All these costs should be analyzed carefully so that any scope of cost reduction can be utilized for generating more revenue. The secondary cost like sales, marketing, and logistics is also very important because they are the components which can be altered for reducing the final cost of the product. Products with new technologies, new ways of production, operations, sales, marketing, and logistics can help an organization to who makes innovative changes in their cost which can further help them for proper value chain analysis by improvised goods with good quality that is being sold at premium prices (Balakrishnan et. al 2014).

There are various competitive advantages that can be found out using the value chain analysis. Self-learning and training are also very important for a proper value chain approach because every weak link can be identified and eliminated if a detailed analysis is provided. Therefore this concept is considered to be a very important and cost-effective method that can be used to reduce the cost and improvise the balance sheet of the organization by increasing its revenue. This method of evaluation would also help the business to find ways for reduction of cost eventually e by finding of the wastage of material, leave because of logistics cost and other indirect materials that increase the price of the product and also affect the sales cycle by performing a proper value chain analysis.

Answer 2:
1. Cost of Manufacturing Statement
for the year ended 31 December 2018

2. COS for the year ended 31 December 2018= $1,173,966 :

3. Computation of gross profit (December 2018) = $226,034

Note – 1 How to derive at the figure of material consumed
= Opening stock+ purchases+ freight inward- closing stock
= $67,200+ $194,600+$2,800-$71,500
= $193,100

Answer – 3 Allocation of cost
Subpart 1
Computation of overhead rates

Working note – 1
Computation of Cost allocation

Working note 2
The cost of repairs will be allocated to the departments in terms of repair hours that is used by every department. The overall repair hour stands at 20,000

Repair cost used by the following:

Engineering will be allocated to the departments in terms of repair hours that is used by every department. The overall repair hour stands at is 20,000 kilowatt hour

Engineering cost used by:

Answer to 4

Answer to 5

Part – 2
Pure Cotton Limited
Process A/c - Weaving Department
Done as per FIFO basis

References
Balakrishnan, R., E. Labro, and Soderstrom, S. (2014) Cost structure and sticky costs. Journal of Management Accounting Research. 26 (2), p. 91–116. Available from: http://bs4e.auinstallation32.cs.au.dk/fileadmin/site_files/filer_oekonomi/subsites/DCAF/konferencer/Labro.pdf [Accessed 7 April 2019]

Charles, T.S. (2014) Cost Accounting: A Managerial Emphasis. Pearson Education

Smith, W.K., Binns, A and Tushman, M.L (2010). Complex business models: Managing strategic paradoxes simultaneously, Long range planning 43, 448-461. DOI: 10.1016/j.lrp.2009.12.003