AYB225: Sneakers Unlimited - Management Accounting Assignment

Internal Code: MAS3517

Management Accounting Assignment:

The firm accounts for its products using standard absorption job costing, applying overhead to products using a plant-wide rate based on direct labour hours. Materials purchases are recorded at actual cost. Work in process and finished goods inventories are recorded at standard cost. All cost variances in the period are transferred to cost of goods sold at the end of the period. This existing costing system was established when only one type of sneakers was produced and when overhead was a significantly smaller proportion of total cost than it is now. Materials for sneakers are fabric, cottons, and depending on the styles, zippers, buttons, Velcro, laces and logos. At the present time the only material which is traced directly to the product is fabric. Cottons, buttons, zippers, laces, Velcro and logos are treated as indirect materials (overhead). All on-costs such as superannuation, payroll tax, provisions for leave on wages are treated as indirect costs (overhead). Standards are determined at the point when the product is initially designed, and are regularly updated to reflect all changes in the manufacturing process. The firm prides itself on its very efficient labour force, and in the past the company seldom had cost over-runs due to labour inefficiency. Furthermore, to promote efficiency, the firm uses a bonus system based on annual profits. In the period which is the focus of this review, two changes were made in the manufacturing process. First, a change was made in the layout of the manufacturing space which should reduce the standard time per product in the long run. The direct labour standards have not yet been updated to include this change. Secondly, a new type of material was purchased from the current supplier. The supplier had claimed that the new material (which is of high quality, yet cost a similar price to the old material) is easier to work with in terms of both cutting and sewing. The supplier is known to be reliable in terms of material supply. Questions: 1) Variance report related to units produced. 2) Calculation of standard costing cost variances relating to the product “Dance”. The firm calculates price variances for all manufacturing costs, efficiency variances for all variable manufacturing costs, and a fixed overhead volume variance. The material price variance is calculated on usage. 3) The Normal Absorption Costing Income Statement for the period, with relevant variances, expensed to the period and; recast the Income Statement 4) Show the journal entries for the period under the standard absorption costing system currently used by the firm. Journal entries must be presented in proper form.