CA206: Management Accounting - Browns Electronics Company Case Study - Accounting Assignment Help

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Introduction:

Browns Electronics Company is a manufacturer of small screen television models. The company produces three models called High definition (HD) televisions, LED-LCD televisions and Smart curved televisions. The company uses a job costing system with manufacturing overhead applied on the basis of direct labour hours. The system has been in place with not much change for the past 10 years. 

For the past 10 years, Brown Electronics Company’s pricing formula has been to set each product’s budgeted prices at 115 percent of its full product cost. Lately, however, the high-definition model has come under increasing price pressure from overseas competitors. As a result of this increased competition, the price on the High-definition model has been lowered to $175.00.  

Brown Electronics Company’s CEO recently asked the financial controller, ‘Why can’t we compete with these other companies? They are selling their high definition televisions for $165.00. That is only a few dollars more than our production cost. Are we really that inefficient?’  

The financial controller responded by saying, ‘I think this is owing to an outdated product costing system. As you may remember, I raised a red flag about our existing product costing system last year. In my opinion, our product costing system is distorting and misrepresenting our product costs. Let me run a few numbers to demonstrate what I mean.’  

After getting the approval of the CEO, the financial controller compiled the basic data needed to implement an activity based costing system.  

These data are displayed in the following table. The percentages given are the proportion of each activity driver consumed by each product line. 

Depreciation, taxes and insurance for factory and Miscellaneous manufacturing overhead costs 

Questions:  

1. Calculate the budgeted prices for the three models, based on the traditional product costing system.                       (6 Marks) 

2. Construct an excel spreadsheet showing new product costs for the three models, based on the new data collected by the financial controller. Round to the nearest cent. (10 marks) 

3. Calculate a new budgeted price for the three products, based on the activity based costing system. Compare the new budgeted target price with the current actual selling price for the High-definition model. (8 marks) 

4. Refer to the product costs developed in requirement 2 above. Prepare a table showing how Browns Electronics Company’s traditional product costing system distorts the product costs of the three television models.  (6 marks)

5. Comment on your findings from Q1 to 4 above (marks are as per questions above).

Oral Presentation Topic:

You are expected to present (using power point slides) the research findings on the possible costing system of a business of your selection and comment on the appropriateness. Each student has 5 mins to present. Your presentation should include an introduction and overview of the business you’ve selected.

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