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    1. QUESTION

    Assessment 2: Assignment based on cases and problems

    This assessment is for these students only: Distance Education; Gold Coast; New Zealand – MIT; Papua New Guinea; SCU Melbourne; SCU Sydney.

    Assessment

    Group/
    individual

    Learning outcomes

    Grading indicator

    Min Score

    Weight

    Length/
    duration

    Due

    Professional accreditation

    Assignment based on cases and problems

    Individual

    3, 4

    Graded

    N/A

    30%

    TBA

    N/A

     

    ACC00724 – Accounting for Managers 2015, S3

    ASSIGNMENT 2 (30 MARKS)

     

    Question 1 (20 marks)                                                                  

     

    1. Explain, using examples, why it is essential to create and use flexible budgets when evaluating past performance of a profit centre which manufactures and sells a product. What might be the objective of such a performance evaluation?

    4 marks

     

     

    1. When preparing a cash budget for a manufacturing business for the following year, there may be many other budgets that will need to be produced before the cash budget is completed.

    List three (3) other budgets that must be prepared at the same time or before the cash budget is prepared, and for each one, explain the likely timing of cash flows that will occur and how this will impact on a cash budget.

    4 marks

     

     

     

    1. Why might a business decide to make a product internally when it could easily acquire it at a cheaper price from an external supplier? Explain.

    4 marks

     

     

     

    1. Accounting isn’t as important in the government organisations as it is in private enterprises, since the government does not have to worry about earning a profit. Do you agree? Explain.

    4 marks

     

    1. What are the essential purposes of any costing system? Explain.

    4 marks

    Question 2 (10 marks)

     

    Wonder Products Pty Ltd builds beautiful things to order for customers. When quoting prices on jobs Wonder Products allocate manufacturing overheads on the basis of estimated machine hours to complete the job. They allocate administrative overhead costs on the basis of direct labour hours estimated to complete the job.

     

    Below is a budget for the current year showing budget total figures.

     

    Budget for the year

    Direct labour costs for the year                  $537,600

    Manufacturing overheads for the year    598,080

    Administrative overheads for the year     695,520

     

    Direct labour hours for the year                                    14,000

    Total machine hours for the year                                    7,000

     

    1. a) Calculate a manufacturing overheads allocation rate for Wonder Products.

    2 marks

     

     

    1. b) Calculate an administrative overhead allocation rate for Wonder Products.

    2 marks

     

    1. c) Bushy George has asked Wonder Products Pty Ltd to make an especially wonderful creation to his specifications that will require the following inputs:

     

    Direct materials                $19,000

    Direct labour                      750 hours

    Machine usage                 400 hours

     

    Assuming a mark up of 40% on total costs, what price should be quoted to Bushy to build him this especially wonderful creation?

    2 marks

     

    1. d) Why is it so important to carefully allocate overhead expenses when quoting on jobs or when generally deciding on prices? Discuss problems that are encountered with overhead allocation methods and alternative approaches that might be taken.

    2 marks

     

    1. e) Why do companies use predetermined (budgeted) overhead allocation rates rather than using actual overhead costs in allocating overhead costs to units of product? Explain.

    2 marks

     

 

Subject Business Pages 10 Style APA

Answer

ACC00724 – Accounting for Managers 2015, S3

ASSIGNMENT 2 (30 MARKS)

 

Question 1 (20 marks)                                                                  

 

  1. Explain, using examples, why it is essential to create and use flexible budgets when evaluating past performance of a profit centre which manufactures and sells a product. What might be the objective of such a performance evaluation?

4 marks

Flexible budgets are essential and important in evaluating past performance since it allow the testing of efficiency and varied scenarios.  As such, when analysing a particular profit center revolving around production and disposal of products, the maneuvererbility allowed by flexible budgets, makes them the ideal tool for examining past performance.  Their ability to allow multiple manipulations of a variety of factors make them ideal for determining whether the most effective end efficient decisions were made for the best of the organisations.  The ability to compare a number of scenarios makes it possible to analyse past performance and arrive at a relatively subjective decision.  Similarly, from such a performance evaluations, decisions that influence how the future is tackled are addressed in depth.

 

  1. When preparing a cash budget for a manufacturing business for the following year, there may be many other budgets that will need to be produced before the cash budget is completed.

List three (3) other budgets that must be prepared at the same time or before the cash budget is prepared, and for each one, explain the likely timing of cash flows that will occur and how this will impact on a cash budget.

4 marks

Together with and in some cases, slightly before the cash budget is prepared, so too are the appropriation, capital and flexible budgets.  The appropriation budget will affect resource allocation.  The challenge will be establishing how best to allocate the scarce resources.  With this will be the capital budget.  This will especially focus on the potential investments that must be made and will mostly rely on employing the discounted cash flow techniques. In this class, will be plant and equipment.  As such, will affect the long-term part of the cash flow not to mention the most significant and rare activity. 

Capital budgets will not be regular prepared.  There is also the flexible budget.  In this, the static amount already established is charged for fixed and variable costs in a manner that captures the weight in each rate under consideration.  It also direct and sheds light as to the activity measure for variable costs.

 

  1. Why might a business decide to make a product internally when it could easily acquire it at a cheaper price from an external supplier? Explain.

4 marks

To determine a buy or make decision, a company will consider a number of factors.  This will include but a qualitative and quantitative analysis.  A company will prefer to continue producing internally as opposed to buying if it has already made heavy production investments.  In most cases, the production capacity is not easily disposable and thus the company finds that producing – albeit at a loss, ultimately reduces the cost that would be associated with idle capacity.  This is especially where the fixed costs are significant. 

The qualitative reasons for the company producing as opposed to buying will be more subjectively judged.  The value one organisation attaches to its reputation or even reliability of its products will vary.  Similarly, businesses will have different view with regards to the long-term outlook pertaining to acquisition or generation of the product and the possibility of change or alteration in the future.  Tied in with this is the possibility of reversing any decision made and the ease and cost of the same.

 

  1. Accounting isn’t as important in the government organisations as it is in private enterprises, since the government does not have to worry about earning a profit. Do you agree? Explain.

4 marks

No.  Accounting is equally important if not more in government organisations as in private enterprises. Accounting need to be viewed as more important when profitability is the motivation.   Even where the public good is the sort, this has an equal if not higher importance that company profitability.  The essence of accounting has then to be allocation of expense that greatest benefits any organisation.  When this is achieved, the losses that could be synonymous with government organisations will fewer and far in-between.

  1. What are the essential purposes of any costing system? Explain.

4 marks

Any costing system has to meet the essential purposes of providing cost data to managers to help them plan, control, direct and make decisions.  It is important to appreciate that costing systems are not only influenced by internal factors alone but also external factors.  External financial reporting and tax reporting requirements have emerged as significant influencers of cost accumulation and summarizations on managerial reports.

Internally, the costing system enables the organisation monitor its costs and thus allow managers to have access to the appropriate information and operations not to mention its performance.  Similarly, external factors influence how managers adjust to ensure the organisation does not miss any arising opportunities that might arise and that the costs are minimised.  The influence of tax in affecting how costing systems are set up has been found to be quite significant.  This is especially so considering as a factor, it affects all manner of organisations.

 

Question 2 (10 marks)

 

Wonder Products Pty Ltd builds beautiful things to order for customers. When quoting prices on jobs Wonder Products allocate manufacturing overheads on the basis of estimated machine hours to complete the job. They allocate administrative overhead costs on the basis of direct labour hours estimated to complete the job.

 

Below is a budget for the current year showing budget total figures.

 

Budget for the year

Direct labour costs for the year                  $537,600

Manufacturing overheads for the year    598,080

Administrative overheads for the year     695,520

 

Direct labour hours for the year                                    14,000

Total machine hours for the year                                    7,000

 

  1. a) Calculate a manufacturing overheads allocation rate for Wonder Products.

2 marks

Manufacturing Overhead allocation rate = Manufacturing over heads / Total machine hours

                                = 598,080 / 7,000

                                = 85.44

  1. b) Calculate an administrative overhead allocation rate for Wonder Products.

2 marks

Administrative Overhead allocation = Administrative overhead / direct labour hour

                                = 695,520 / 14,000

                                = 49.68

  1. c) Bushy George has asked Wonder Products Pty Ltd to make an especially wonderful creation to his specifications that will require the following inputs:

 

Direct materials                $19,000

Direct labour                      750 hours

Machine usage                 400 hours

 

Assuming a markup of 40% on total costs, what price should be quoted to Bushy to build him this especially wonderful creation?

2 marks

Quoted Price = Direct labour x Administrative Overhead Allocation + Machine Usage x Manufacturing Overhead Allocation

                                = (750*49.68) + (400*85.44)

                                = $71,436

  1. d) Why is it so important to carefully allocate overhead expenses when quoting on jobs or when generally deciding on prices? Discuss problems that are encountered with overhead allocation methods and alternative approaches that might be taken.

2 marks

For jobs that are not generic – not done on a repetitive motion, it becomes hard to accurately estimate the time it would take to complete a particular job or task.  As such it becomes critical when allocation overhead expenses to try and estimate as close as possible to the actual time it will take to complete the job.  This is achieved concurrent to ensuring the price remains competitive.  Choosing to adopt the past jobs method has the potential of overpricing or underprice a job given the uniqueness of each job. 

  1. e) Why do companies use predetermined (budgeted) overhead allocation rates rather than using actual overhead costs in allocating overhead costs to units of product? Explain.

2 marks

                The main reason companies use predetermined overhead allocation rates is the flexibility it offers to the company.  This estimation that is the main platform of predetermined overhead allocation rates allows the company to adjust its overheads at the end of the accounting period.  The ability to dispose over or under applied overheads allows companies to operate profitably.  With time, the applied and actual overhead will more or less match as a company is able to accurately estimate the required inputs to completion.

THE END

 

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