Managerial Accounting

One of the major benefits of expansion is the reduction of fixed cost (fixed and selling). The cost is absorbed by 85,000 units instead of 80,000 units resulting in saving of $0.42 per unit.

Safety Monitoring Devices, Inc. (SMD) was without the proper cost allocation framework. The company was in dire need of a system that would look at overhead costs and direct costs as it pertained to their two products, the simpler ODD and the more complex TGD. The company already had a traditional existing cost method in place, but had suggesting to changes to an activity-based costing (ABC) method. Before implementation, discussion of identifying costs and profit levels using ABC are discussed along with providing management with data to support this decision.

This spreadsheet allows you to ensure that you are able to meet MetalWorks short term needs (2010) as well as that in 2011 and

Determine the actual costs incurred during the month of May for direct materials, direct labor, and manufacturing overhead.

Accounts receivable (net) increased by $500,000 during the year. This increase has what effect on cash flow?

Company Wide Overhead Rate equal Forecast Overhead divided by Expected Machine Hours Overhead Rate equal $480,000 equal $6 per machine hour 80,000. Company Wide Rate: Direct Material Costs x Batch Size plus Direct Labor Costs x Batch Size Maxiflow: Alaska: 135 x 20 equal 2700 110 x 20 equal 2200 75 x 20 equal 1500 95 x 20 equal 1900 equal $4200 per batch equal $4100 per batch Departmental Rate. Direct Materials Costs plus Direct Labor Costs divided by Each Department Hour Maxiflow: 135 plus 75 equal $210 Radiator Parts Fabrication: 210 divided by 28 equal $7.50 per batch Radiator Assembly, Weld, and Test equal 210 divided by 30 equal $7 per batch Compressor Parts Fabrication: 210 divided by 32 equal $6.60 per batch Compressor Assembly and Test: 210 divided by 26 equal $8.10 per batch Alaska: 110 plus 95 equal 205 Radiator Parts Fabrication: 205 divided by 16 equal $12.80 per batch Radiator Assembly, Weld, and Test: 205 divided by 74 equal $2.70 per batch Compressor Parts Fabrication: 205 divided by 8 equal $25.60 per batch Compressor Assembly and Test: 205 divided by 66 equal $3.10 per batch. There was only a $100 difference between Maxiflow and Alaska when it came to company-wide rates per batch.

We must calculate the average stock on hand for each item (safety stock + ½ order lot size), and must calculate the cost per item (unit cost plus freight). For the first item—gas ranges—a safety stock of 40 units is maintained, and ½ the order lot size is 100 units, for a total inventory in stock of 140 units. Unit cost ($100) plus freight ($20) equals $120. Multiplying average inventory (140) times $120 equals $16,800. Doing all the items on table gives a total of $96,175. Because this is a 10% sample, the total parts inventory would be worth $961,750. Inventory carrying costs on this, at 20% per year, would be

3) Using the budget Data, what was the total expected cost per unit if all manufacturing and shipping overhead (both variable and fixed) were allocate to planned production? What was the actual cost per unit of production and shipping?

Under the existing cost system for the turning machine area, there are two direct costs and three cost pools for overhead costs. The two direct costs are simply Direct Labor and Direct Material, which are traced to the cost object, which is Machine Parts. The total overhead is split into three cost pools, which are the following: overhead applied on direct labor, overhead applied on material dollars, and overhead applied on ACTS machine hours. Furthermore, each cost pool is broken down into direct and period sub categories. The mentioned cost pools for the following cost drivers: Direct Labor dollars, Material dollars, and machine hours.

The unit selling price at 150,000 units is $0.17. The expected unit selling price for 25,000 units is $0.1.

The above graph suggests that volume based computation of overhead costs does not reflect the real overhead costs based on actual production per product line (computed maximum in excess over actual). On the other hand, if we follow the allocation of overhead costs based on prime costs as illustrated in Exhibit 2 of the case, we need to consider other quantitative factors: 1. No data is available to determine the amount of raw materials used in producing each of the products. While we can assume that the production of small, colored glass ornaments uses fewer raw materials (e.g. glass) than large, colored glass ornaments, the amount of glass used to produce specialty ornaments cannot be derived from the facts of the case. 2. There is also no data available to determine the number of direct labor hours consumed for producing each product type, although evidently, specialty ornaments use more direct labor hours. Based on the above considerations, we deem it inaccurate to base overhead on prime costs, a common practice in traditional costing. In addition,

Traditional costing (absorption) allocates all costs associated related to the manu-facturing process. These costs are then allocated using the overhead absorption rate, which is calculated by dividing budgeted total activity by total budgeted activity. It should be noted that total budgeted activity depends wholly on what method of allocation as company uses. Which you would usually find to be either labour hour or machine hours. In order to gain a clear understanding of absorption costing, it is important to understand what an overhead are; since the method of allocation over-heads is what the costing system is based upon. Overheads, also known as direct costs are expenditure which cannot be ‘’economically identified with a specific saleable cost unit’. Furthermore, Overheads are important to management because they want a clear understanding of what caused costs to occur.

For instance, the concept of cost estimation which assists in estimating future expenditure as the expenditure depends on the cost of the respective activities can be applied in the setting of a budget which is simply an estimate and schedule of all costs required to be assigned to an activity. One can make an estimation of the resources required for an activity by applying the cost estimation techniques. Since there are limiting factors to each activity such as scarcity of resources for activities, the concept of constraints can be applied together with the concept of cost volume profit analysis to ensure that maximum benefits are driven from the scarce resources and the number of activities that are available. This facilitates the allocation of resources that most equitable and profitable. The theory of constraints is also applicable in the process of setting up budgets. In setting up budget one considers the amount of resources that are available and cannot therefore set a budget plan that exceeds the amount of resources that are available. This implies that the budget is constrained by the amount of

Managerial Accounting do practices on the limited resources not on the High level resources because its gave accurate information and by being getting well defined information market competitors are increases and its results on technology it would be also increase and from all above managerial accounting came directly proportional to the labor relations its means higher the labor relation advance innovation and great deal being with market

First, we must look at all costs relating to the manufacturing of the product in house. This would consist of our use of labor, material cost, labor cost, machinery required and time to manufacture. We would also have to look at the time to assemble, package and ship the products. Would we perhaps want to change the material we are using? That is a question to consider.