Advanced Management Accounting

Advanced Management Accounting

Management accounting involves partnering in management decision making, devising performance management systems, and providing expertise in financial reporting  to assist management in the formulation and implementation of an organization's strategy

Below is the first assignment (Example 3, sheet 1)

At the end, a scanned copy of the lecture sheet is attached (Examples 1,2 & 3)

 

Example (3)

The following information is extracted from the production budget of Guman ltd, a manufactming company which is producing and selling 3 products:

 Information from the Budget

Product

X

Y

Z

Direct material weight (kg per unit)

2.5

2.0

1.9

Direct material cost(SDG per unit)

70.0

56.0

53.0

Direct labour hours (hours per unit)

2.5

2.5

2.5

Direct labour cost (SDG per unit)

45.0

4.5

105.0

Machine hours per unit

4.0

4.5

1.0

Budgeted production (units)

15,000

20,000

25,000

The budgeted production overheads for the period are as follows:

Budget Overheads for the period

SDG

Spare parts consumption

1,050,000

Labour supervision and health care

850,000

Power consumption

735,000

Material handling cost

550,000

Machinary repairs

420,000

Total budgeted production overheads

3,605,000

 Currently the company is using a traditional absorption costing method and the production overheads are absorbed into the cost of the unit produced by a budgeted absorption rate calculated on the basis of direct labour hours.

The company is thinking to introduce an Activity Based Costing (ABC) method, and the following Cost Drivers are to be used for the absorption of the relevant overheads in the cost of the unit produced.

 

Cost element

Cost driver

Spare parts consumption

Machine hours

Labour supervision

Direct labour hours

Power consumption

Machine hours

Material handling

Material weight

Machinary repairs

Machine hours

Required:

Calculate the cost of the production per unit assuming that:

(i) The company is using the traditional absorption costing method.

(ii) The company is using the Activity Based Costing method (ABC).

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