FNSACC527 - Provide Management Accounting Information Assignment

Assignment Task

1. Previously, Big Gear Manufacturing has used a single, factory-wide overhead application rate. Recently the owner, Hamish Gear, has approached you to discuss ways the business can charge overheads to products more accurately. In your role as the Cost Accountant, you agreed to establish a process for developing overhead application rates by department to accomplish this.

Estimates of direct departmental factory overheads and the factory-wide overheads for the year are below.

Big Gear Manufacturing Pty Ltd has two production departments, Machining and Finishing, and a service department, Stores.

Factory overhead budget July – June		$	$
	Machining	9,900
	Finishing	18,050
	Stores	5,400	33,350
Indirect materials
	Machining	12,900
	Finishing	14,900
	Stores	75,000	102,800
Insurance on premises			2,400
Staff amenities			20,000
Council rates (factory)			4,200
Electric power for machinery			15,000
Depreciation – machinery			15,000
Insurance on machinery			2,500
Material handling costs			9,000
Total factory overhead budget			204,250

 

Additional Information:

• As part of this process, you are required to obtain operating statistics from relevant sources within the organisation. Organisational statistics can be found with your assessment documents in Connect.
• You are also required to locate and download the approved organisational template to prepare the budgets. Organisational templates can be found with your assessment documents in Connect.
• Consultations with the managers from each production department determined that the most appropriate cost driver for the Machining department is Machine hours, while direct labour cost shall be used for the Finishing Department.

Required

1. Obtain the relevant statistics and operating data you will use to allocate the factory-wide overheads to each department.

2. Prepare the overhead budget by department using the approved organisational template (separate document).

3. Allocate the service department costs to the production departments.

4. Calculate the factory overhead application rate for the production departments based on your discussions with the managers of the production departments

5. In a brief report, confirm with Hamish that you have prepared overhead application rates by department as he requested (you should state the relevant overhead rates). In your report, outline the process you followed and the resources you used. Finally, briefly explain to Hamish why you think your process should be adopted as the new system to generate departmental overhead application rates.

2. Inspired Ltd manufactures spurs. Organisation policy requires Factory overhead to be applied to the production of spurs using a predetermined rate based on budgeted direct labour hours. Budgeted cost of production (for 30,000 units) for the year to 30 June was:

Direct materials	$ 225,000
Direct labour (6,000 hours)	75,000
Fixed factory overhead	39,000
Variable factory overhead	30,000

 

Actual factory overhead incurred in the year to 30 June was $72,000. Actual direct labour hours were 6,100.

You are the cost accountant for Inspired Ltd. As part of the company responsibility accounting system, you are required to provide performance reports to various levels of management, based on the organisations management and operational structure. You are to prepare the following information for the Factory overheads.

Required

i. Calculate the factory overhead application rate for the year.

Formula:

Total budgeted FOH/Budgeted Level of Activity=$ per Unit of Activity

39000/30000=$1.30

30000/30000=$1

$1.30+$1=$2.30 per unit

ii. Calculate the total amount of factory overhead for the year applied to the production of spurs. 6.000*11.50=69.000

iii. As part of your role as the Cost Accountant for Inspired Ltd, you are required to prepare various performance reports and analyse variances as per management information requirements. Prepare the factory overhead variance report, using the approved company template (separate document), and analyse the over/under applied factory overhead for the period ending 30 June. Management requires that your analysis include the calculation of the Spending Variance and the Capacity Variance, indicating if the variance is favourable (F) or unfavourable (UF).

iv. You have been asked to have a meeting with the managers of each business unit to discuss the variances you calculated in part (c) and evaluate the effectiveness of the cost assignment process used by Inspired Ltd.

To complete this task, you are required prepare and deliver a brief (2-3 minute) presentation to an audience. It is recommended that you prepare a PowerPoint to present your findings. To simulate your role in the scenario outlined above, your audience are required to assume the role of management of the business units. Members of your audience are required to ask you at least 2 questions during your meeting/presentation Online students are required record a video of your meeting and provide a copy of the video with your assessment submission. You must have access to digital technology to record the video and audio of your interaction, e.g. using a smart phone or PC webcam. Your assessor will then assess your submitted digital recording.

• Use effective communication skills – at minimum you must demonstrate an ability to:
• use clear and concise language and vocabulary
• demonstrate active listening by asking open questions and seeking feedback from the audience
• use a non-monotone delivery
• pace / speed maintains interest and effective interactions.

v. With reference to the below organisational structure chart for Inspired Ltd, identify who you would address this performance report to?

3. Mrs Mac sells burgers and is considering whether to open a new outlet. The burgers have a single selling price and identical costs, regardless of where they are produced. Organisational policy dictates that a new outlet will only be opened if predicted profit is greater than $50,000.

Data per burger

Selling Variable price	$6.00
Purchase costs	$3.90
Selling & promotional costs	$0.50
Annual fixed costs:
Rent	$60,000
Salaries	$160,000
Other	$100,000

 

Required: (Consider each part independently)

i. Calculate the annual breakeven point in unit sales.

Price per burger: Selling Price:

$3.9+$0.5=$4.40 $6

Profit per burger: $1.60

Annual fixed costs:

$60.000+$160.000+$100.000=$320.000

$320.000/$1.60=200.000

The annual breakeven point are the sale of 200.000 burgers to cover the annual costs.

ii. Mrs Mac predicts that 220,000 burgers will be sold. Calculate the profit or loss and advise (based on organisational policy) whether the new outlet should be opened.

220.000*$1.60=$352.000

$352.000-$320.000=$32.000

iii. As the predicted profit is $32.000, it is not greater than $50,000, which is the minimum profit required for opening a new outlet. Considering this fact, a new outlet should not be opened.

iv. Calculate how many burgers must be sold to achieve a target profit before tax of $167,840.

$320.000+$167.840/$1.60=304.900

304.900 burgers will need to be sold to achieve a gross profit of $167.840.

v. Calculate how many burgers need to be sold to achieve an after-tax profit of $126,000 if the tax rate is 30%.

$126.000/70*30%=$54.000+$126.000=$180.000

$320.000+$180.000/$1.60=312.500

vi. If the budget is to sell 300,000 burgers, what is the Margin of Safety?

300.000-200.000/300.000*100=33.33%

vii. By investing more capital for equipment, the business would be able to reduce selling costs to $0.40 per unit, with a 15% increase in Other Fixed Costs.

• Calculate the annual new breakeven point in dollar sales if the investment is made.
• Advise Mrs Mac whether she should invest the capital or not, providing the reason for your conclusion.

viii. Discuss two assumptions which need to be considered regarding Cost volume profit analysis.

Cost volume profit analysis assumes that all costs are variable or fixed. However, some costs may be semi-fixed. For example, there may be a facility that charges a fixed base rate for using their facility and a variable charge based on how many hours that you use it.

Cost volume profit analysis also assumes that fixed costs remain constant. The most important assumptions underlying Cost volume profit analysis are: Selling price, variable cost per unit, and total fixed costs remain constant through the relevant range. Fixed costs are constant across changes of volume, where variable costs are in direct proportion to volume. Another assumption is that production and management policies are held constant during the period.

4. When preparing budgets, what are five key principles and practices that should be followed? Provide an explanation of each one.

5. A costing system is an aggregation of processes, reports and controls designed to monitor costs incurred by a business. Explain the relationship between variance analysis and costing system integrity.

6. Scenario – Job Costing (Part 2)

This task is Part 2 of the scenario assessed in AT2.  You will need to refer to the journal entries and job card summary you completed in Part 1 to complete Part 2.

You work as the assistant accountant for Night Owl Bedroom Design Pty Ltd; a bedroom furniture design company that manufactures high-end bespoke bedroom furniture for their clients. So that all the manufacturing costs are captured for each client, Night Owl utilises a job costing system as per company policy. Your role is to prepare all the necessary journal entries and ledger accounts and summarise monthly costs into the monthly job card summary template. This task requires you to identify and summarise costs as either direct or indirect costs. Your role also includes the preparation of the monthly Trading Statement.

The company policy and procedures (extract) outline all the processes you need to follow. You will need to refer to this document to record the transactions and prepare any reports.

The information you need to complete this task includes the journals and job card summary you prepared for AT2, as well as the “Additional Information” listed below. All tasks are required to be completed in the attached spreadsheet with approved company templates.

Additional Information

At the end of March Jobs 0302 and 0303 were still incomplete.

Jobs 0227, 0228 and 0301 were completed.

Jobs 0226, 0227 and 0228 were invoiced to customers at the mark up as per company policy.

This FNSACC527 - Accounting and Finance has been solved by our PhD Experts at My Uni Paper.