L/508/0442 - Introduction to management accounting for Sewing Easy ltd

University: University of Chester

  • Unit No: 7
  • Level: Undergraduate/College
  • Pages: 8
  • Words: 2000
  • Paper Type: PPT
  • Course Code:

    L/508/0442

  • Country: AU
  • Downloads: 0
Question :

The purpose of this report is to develop appropriate understanding of learner in the context of management accounting by considering cost calculation approaches with reference to current traditional costing system.

  • Discuss cost per unit of basic and advance models with reference to current traditional costing system.
  • Analyze cost per unit of the two models in the context of Sewing Easy ltd.
  • Evaluate motive of overseas buyers in respect with buying advanced model in Sewing Easy ltd.
  • Identify the reason behind same overheads and suggesting ways in the context of fluctuations.
  • Discuss the benefits and limitations of Sewing Easy ltd.
Answer :
Organization Selected : Sewing Easy ltd

INTRODUCTION

Management accounting is the process of preparing reports and accounts which provides manager with accurate financial as well as statistical information for short-term decision making. In the context of business unit, management accounting ensures better planning and exerts control over the business organization. The present report is based on the case scenario of Sewing Easy ltd which mainly manufactures two models such as basic and advance. Now, with the motive to enhance customer base and maximize profit level business unit wants to explore operations at global level. Hence, in this, report will provide deeper insight about the cost of two concerned models under traditional and activity based costing method. Further, report also depicts the advantages and drawbacks associated with ABC system.

Calculating cost per unit of basic and advance models of sewing machines under current traditional costing system

 Traditional costing system

Overhead rate: Total manufacturing overhead / total labour cost

Particulars

Basic model (Figures)

Advance model (Figures)

 

 

 

Manufacturing overhead

$250000 (refer W. N. 1)

$451700 (refer W. N. 2)

Labour cost (refer W. N. 3)

240000

390000

Overhead rate

$1.04

$1.16

 

Working note 1: Computation of total indirect overheads for basic model

Particulars

Figures (in $)

Inspection

$20000

 

Assembly

$90000

 

Production Scheduling

$105000

 

Machine set-up

$35000

 

Total

$250000

 

Working note 2: Total indirect overhead cost assessment for advance model considering other operating expenses are enumerated below: 

Particulars

Figures (in $)

Total indirect expenses as per basic model

$250000

Add: selling and administration

$140600

Add: interest expense

$25200

Add: office rent

$35900.

 

Total

$451700

 

Working note 3: Computation of total labour cost

Particulars

Basic model (Figures in $)

Advance model (Figures in $)

Units produced and sold

1600

1500

Direct Labour cost per unit

150

260

Total labour cost

 

240000

390000

 

Calculation of total unit cost pertaining to basic and advanced model is as follows:

 

Basic model (Figures in $)

Advance model (Figures in $)

Direct material cost per unit

325

560

Direct Labour cost per unit

150

260

Overhead cost

(150 * 1.04) = 156

(150 * 1.16) = 174

Unit cost

631

994

 

Computing cost per unit of the two models of sewing machines under Activity based Costing

Unit cost assessment as per activity based costing

Particulars

Indirect / overhead costs

Relevant cost driver

Total  of activities

Indirect / overhead costs / related cost driver

Inspection

$20,000

Inspection

950

$21.05

Assembly

$90,000

Assembly

8000

$11.25

Production Scheduling

$105,000

Production Scheduling

550

$190.91

Machine set-up

$35,000

Machine set-up

350

$100

 

Particulars

Total Indirect / overhead costs

Total  of activities

Activity rate (A)

Activity Usage (Basic model) (B)

Activity Cost Assigned to basic model  [C = (A * B)]

Activity Usage pertaining to Advance model (D)

Activity Cost Assigned to advance model E = (A * D)

Inspection

$20,000

950

$21.05

200

$4,210.53

750

$15,789.47

Assembly

$90,000

8000

$11.25

4600

$51,750.00

3400

$38,250.00

Production Scheduling

$105,000

550

$190.91

50

$9,545.45

500

$95,454.55

Machine set-up

$35,000

350

$100.00

100

$10,000.00

250

$25,000.00

selling and administration

$140600

 

 

 

 

 

$140600 * 36% = $50616 (refer w. n. 4)

interest expense

$25200

 

 

 

 

 

$25200 * 6% = $1512 (refer w. n. 4)

office rent

$35900.

 

 

 

 

 

 

$35900 * 9% = $3231 (refer w. n. 4)

Total overhead cost

 

 

 

 

$75505.98

 

$229853

Per unit overhead cost

 

 

 

 

$75505.98 / 1600 = $47.19

 

$229853 / 1500 = $153.24

 

Working note 4:

Particulars

Total Indirect / overhead costs

Labour cost (advanced model)

 

selling and administration

$140600

390000

36%

interest expense

$25200

390000

6%

office rent

$35900.

 

390000

9%

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