Assignment 1 of Management Accounting ---------------------------------------------------Question 1 a) T accounts Materials Inventory B/L Purchased 27,450 21,200 48,650 B/L 22,620 26,030

WIP 22,620 B/L Material Labour MOHD37,772 110,272 B/L 76,740 33,532 Work in Progress Inventory 22,900 F/N Goods 22,620 26,980 76,740

Finished Goods Inventory B/L WIP 19,200 76,740 95,940 B/L 89,647 6,293 COGS 89,647 COGS

Manufacturing Overhead WIP 26,670 37,772

Accounts Receivable Sales 152,400

Factory Payroll WIP 26,980

Sales A/R 152,400 F/N goods

Cost of Goods sold 89,647 89,647 B/L MOHD 26,670 26,670 62,977

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Assignment 1 Management Accounting

b) Cost of units Cost of Goods Manufactured Opening WIP inventory Total Manu Costs Subtotal Closing WIP Inventory COGM c) Total cost of units sold Opening Finished Goods inventory Cost of good manufactured Cost of goods available for sale Closing Finished goods Inventory Less Over-applied OMOH Cost of good sold d) Ending balances e) Product unit cost Job No AJ-10 Required Total cost AJ-14 Required Total cost Direct Materials $3,220 $3,220 $3,880 $3,880 Direct Labour $1,810 $720 $2,530 $2,110 $1,140 $3,250 Manufacturing OH $2,534 =720x140%= $1,008 $3,542 $2,954 =1140x140%= $1,596 $4,550 Total cost Units completed 40 Product unit cost $232.30 Materials Inventory Work in Progress Inventory Finished Goods Inventory $26,030 $33,532 $6,293 19,200.00 76,740.00 95,940.00 6,293.00 26,670.00 62,977.00 22,900.00 87,372.00 110,272.00 33,532.00 76,740.00

$9,292

$11,680

55

$212.36

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Question 2 Part A a) The table shows that the Software Plus Corporation has been using the Reciprocal method, because the support departments provide services to each other as well as to the manufacturing departments. b) The direct method allocates the cost of support departments directly to the production departments. c) The reciprocal allocation method fully allocates the support departments cost to each other as well as to the production departments. d) The Step-down Method Allocation Info Systems Costs prior to allocation Allocation of Info Systems Allocation of Administration Allocation of Maintenance Total allocated $50,000 + $40,000 + $20,000 = $110,000 e) The Direct Method Allocation Service Department Info Systems Administration Maintenance Total allocated Total Costs $50,000 $40,000 $20,000 $110,000 Games Manufacturing 67% x $50,000 = $33,500 25% x $40,000 = $10,000 57% x $20,000 = $11,400 $54,900 Simulation Manufacturing 33% x $50,000 = $16,500 75% x $40,000 = $30,000 43% x $20,000 = $8,600 $55,100 50,000 (50,000) Administration 40,000 17500 (57, 500) Maintenance 20,000 2500 11500 (34,000) 20,000 11,500 19,380 50,880 10,000 34,500 14,620 59,120 Games Manufacturing Simulation Manufacturing

$50,880 + $59,120 = $110,100

$54,900 + $55,100 = $110,000

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f) The Reciprocal Method Allocation Games Manufacturing $7,897 $13,013 $37,094 $58,004 58,004 + 51,996 = 110,000 Simulation Manufacturing $23,689 $9,760 $18,547 $51,996

Administration Direct Costs Allocation of Info Systems Allocation of Administration Allocation of Maintenance Total allocated $40,000 ($78,964) $6,507 $32,457 -

Maintenance $20,000 $7,896 ($32,533) $4,637 -

Info Systems $50,000 $39,482 $3,253 ($92,735) -

$50,000 + $40,000 + $20,000 = $110,000

g) The step method offers improved accuracy over the direct method because it includes at least partial consideration that some service departments support the activities in other service departments as well as those in production departments. However it is slightly more complicated because it requires a sequence of allocations, by starting with the service department that provides the most service to the most number of other service departments. The last service department in the sequence is the one that provides the least service to the others. Once a departments costs are allocated to other departments, no subsequent service department costs are allocated back to it. h) The reciprocal method provides the greatest possible accuracy because while the step-down method, only recognizes the interdepartmental services, and no consideration of selfconsumption. The reciprocal method takes fully consideration of both reciprocal services among service departments and self-consumption of services by the same department.

Question 2 Part B
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a) Activity-based costing Activity rate Activity Pool Setup Estimated MOH Cost Quantity of allocation base Overhead rate $70,000 700 $100 Inspection $20,000 500 $40 Engineering $50,000 2,000 $25 Assembly $80,000 10,000 $8

Overhead costs Allocation to Rigger II $100 x 250 = $25,000 $40 x 150 = $6,000 $25 x 600 = $15,000 $8 x 5000 = $40,000 $86,000 400 $215 Allocation to BioScout $100 x 450 = $45,000 $40 x 350 = $14,000 $25 x 1400 = $35,000 $8 x 5000 = $40,000 $134,000 100 $1,340

Activity Pool Setup Inspection Engineering Assembly Total

Divide by Product Produced Total Overhead cost per unit Product unit cost

Rigger II Product cost per unit Direct materials Direct labour Applied manufacturing overhead Product unit cost $10,000.00 1,450.00 215.00 $11,665.00

BioScout $12,000.00 1,600.00 1,340.00 $14,940.00

b) The differences

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After comparing between the figures of two costing systems, it is noticeable that the activity-based costing (ABC) indicated higher costs for the BioScout and substantially lower costs for the Rigger II. The ABC cost per unit for BioScout is $1,340, which is $790 more than the $550 cost generated by the traditional costing system. The cost per unit for Rigger II is $215, which is $197.5 less than the $412.5 cost from the traditional cost system. As different products require different production activities level, the ABC allocates overhead costs to the products on a per-unit basis more apportion and might assist managers in order to make better products pricing decisions. Question 3 Discussion As professionals, both management and financial accountants have an obligation to themselves, their colleagues and their organizations to behave ethically. Lets assume that the case of Paula Woodward and Roland Randolph happens under New Zealands regulations. The Institute of Chartered Accountants of New Zealand has a code of ethics that set out the professional and ethical expectations of members and is based on five core fundamental principles. All members at all time must abide by these fundamental principles: Integrity (Paragraphs 16 to 30) Objectivity and Independence (Paragraphs 31 to 81) Competence (Paragraphs 82 to 91) Quality Performance (Paragraphs 92 to105) Professional Behaviour (Paragraphs106 to 177) Personally, I believe Randolphs behaviour is not ethical. As described in Code of Ethics under Competence principle paragraphs 82-91 Competence; Members must only undertake professional work in which they have the Competence necessary to perform the work to the technical and professional standards expected. this implies that he is obligated to seek continued professional development to be able to continue providing the professional standards expected. Randolph should familiarize himself with both current and new product costing systems. There have been various new product costing systems such as the ABC system that have been created since he was studied back in the 1970s. His reaction to Paulas suggestion shows that he wasnt prepared to listen and refused to update his accounting technical knowledge which is unprofessional. However, Randolph could argue with Woodward that, as he has been in the business for such a long time he has sufficient knowledge and experience to decide which system is best for the manufacture product lines. Moreover, he is thinking in terms of costs involved in adopting a new
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system which might seem beneficial on the surface but when a cost comparison analysis is performed it may well not make financial and economic sense. If Woodward wasnt satisfied with Randolphs reaction then she should consider discussing this issue with Randolphs superior, dependent on the companys structure. If the problem is still unresolved and Woodward believes that Randolph has breached his obligation then she can make a complaint about his unethical/ professional behaviour in confident to the Institute of Chartered Accountants of New Zealand. In my opinion ethical behaviour requires a professional to continually acquire the most up to date knowledge in their chosen profession. This can then be compared alongside the invaluable knowledge gained through years of experience for an outcome that is well informed and unbiased. Randolph is the companys controller but he is unwilling to embrace progress and hasnt familiarized himself with the latest trends, this in turn means he is unable to make informed decisions for the betterment of the company. He believes in his knowledge and experience, but to remain professional he should prepare himself for any opportunity to learn new ways that might lead to better profits. Woodward needs to be sure that the new systems will produce real, tangible results that increase profit before deciding to take any action.

Reference Management Accounting 2ed An Australian Perspective K Langfield-Smith Helen Thorne Ronald W Wilton www.nzica.com New Zealand Institute of Chartered Accountants: Code of Ethic Chapter 1 Page 1.23

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