ACC200 INTRODUCTION TO MANAGEMENT ACCOUNTING T219
Assessment Type: Case study – 2000 + 10% word report and analysis - Individual Assignment.
Purpose: This assessment is designed to allow students to demonstrate their ability to analyse given financial information relating to a management accounting problem, and present their findings and analyse the information as it applies to accounting concepts. It relates to learning outcomes a, b, c and d.
Submission: Students must upload their submission to the Moodle Assignment Link and Turnitin on the KOI Moodle Subject Home Page no later than 9:00 am Monday of Week 10. This is the submission due date and time. A printed copy should also be handed to the Tutor during that Week’s tutorial to assist with marking. All submissions must be accompanied by a signed KOI Assignment Coversheet.
Topic: Job costing system
Task details: Voltus Communications, a manufacturer of communications equipment, uses a job costing system. Manufacturing overhead is applied based on machine hours and it uses a predetermined overhead rate with budgeted overhead of $3,600,000 for the year and 80,000 machine hours.
Voltus uses a financial year of 1 July 2018 to 30 June 2019 and all the activities for the year have been carried out. Summarised details for period 1 July 2018 to 31 May 2019 and for June 2019 follow. Jobs B12- 008,K12-009 and K12-011 were completed during June 2019 .All completed jobs except K12-009 have been sold by 30 June 2019.
|Jobs in process at 31 May 2019|
Balance at 31 May 2019
|Work carried out during June 2019|
Actual Manufacturing Overhead incurred
1July 2018 -31 May 2019
During June 2019
1July 2018 – 31 May 2019
During June 2019
|Raw Material purchases *||$2,895,000||$294,000|
|Direct labour cost||2,535,000||240,000|
|Account balances 1July|
Raw Material Inventory
|Work in Process Inventory||180,000|
|Finished Goods Inventory||375,000|
|Account balance 30 June 2019 Raw Material Inventory|
*Raw material purchases and raw material inventory consist of both direct and indirect materials
Research requirements: Students need to support their analyses with references from the text and a minimum of six (6) suitable, reliable and academically acceptable sources. Check with your tutor if you are unsure of the validity of sources. Students seeking Credit or above grades should support their analysis with increased number of reference sources comparable to the grade they are seeking.
Introduction to management accounting
With the increasing business complexities, job costing system has very complex in organization. However, to strengthen eh accounting and job costing process, proper absorption and allocation of expenses are required. Continuous changes are occurring in the business environment and economy of a country. Therefore, it is required that business enterprises will use appropriate methods of job costing to absorption and allocation of expenses in the organizational department. This will assist in managing and controlling expenses related to cost. Overhead produced to apply for jobs will be the main part of this report. Voltus Company communication has been chosen for deeply analyzing the problems related to the topic of study. It is amongst the largest organization producing equipment related to communication. Job costing methods are used for the assessment of goods and services of this company. It is useful for dealers of personalized products as it assists in classifying expenditures related to manpower, equipment and operating cost. Prices of jobs can be determined by using this system and it also suggests ways through which cost could be reduced. In the starting of this report, proper job costing methods related to the Produced overhead for applying to jobs- From 01/07/2018 to 31/05/2019 have been given. After that Manufactured overhead used for work, the June work has been given. After that, manufacturing overhead over and under applied have been assessed. In the end, the assessment of the job costing method concerning the completed product account details on the year-end is done.
The complete financial plan related to the overheads of this organization is $4.6 million. This data belongs to fiscal year 01/07/19 to 31/05/19. $90 thousand are calculated as complete instrument hours. The overhead manufactured has been calculated through pre-set overhead prices which are based on the timing of equipment (Burns and Scapens, 2000).
Formula- Cost of manufacturing overheads= Projected manufacturing overhead
Total expected equipment timing
= $4600000 = $51 / equipment hour
Equipment time required for doing work during the period of 01/07/18 to 31/05/19 = 75000 Hours
Voltus Company could have used the charge of manufacturing overhead to completing the work for period 01/07/18 to 31/05/19 and it is to be calculated in the following manner-
Equipment hours used * preset overhead cost
= 75000 * $51 = $3,825,000
Manufactured overhead used for work (June’ 2019)
Manufacturing overheads amount = $51 / machine hour
Total of machine-hours taken by all work completed in June'19 = 7000 hours
The total amount of manufacturing overhead that Voltus Company can use to complete work during June’19 =
Equipment hours used * preset overhead cost
= 7000 * $51 = $357,000
Therefore, above given computation of the manufacturing overhead used for the June work shows that the equipment hours used a present overhead cost both will be multiplied to compute the manufacturing overhead of the Voltus Company.
Manufactured overhead underapplied or over applied (30/06/2019)
The under and over applied overhead is created from the balance between manufacturing overhead cost applied for work to be done in the process and manufacturing overhead actually occurred (Childress and et.al., (2015)). If there is more balance of manufacturing overhead cost as compared to actual manufacturing overhead cost then it is known as over applied manufacturing overhead. Overhead record includes expenses related to the functional work of company. This account shows debit balance if overheads are under applied. If there is credit balance then it is result of over-applied overheads. Apart from this if there is less applied manufacturing overhead cost as compared to actual manufacturing overhead cost then it is called as under applied manufacturing overhead. At the end of the year it is required that this amount calculated as balance has to be transferred to cost of goods sold account (Dale and Plunkett, J. J. (2017)).
|Manufacturing overhead that is incurred actually to work on 31/05/2019||$3825000|
|The manufacturing overhead incurred as on June’ 2019||$357000|
|Total of manufacturing overhead incurred for work done during particular financial year||$4182000|
|The manufacturing overhead that occurred actually on 31/05/2019||$3300000|
|The manufacturing overhead took place during June 2019||$288000|
|Total of manufacturing overhead actually occurred from work done till 30/06/2019||$3588000|
|Total of manufacturing overhead that is underapplied||$3300|
The under and over applied overhead is created from balance between manufacturing overhead cost applied for work to be done in the process and manufacturing overhead actually occurred. However, it has been analysed that in this case, actual manufacturing and applied manufacturing overheads are not similar then it results in creation of balance. This balance is to be treated as cost of over applied and under applied overheads. It is required that this balance is to be closed for closing its accounts (Drury, 2013). Actual manufacturing overheads are to be transferred to manufacture overhead account for calculating expenses occurred on the organization. The overhead record includes expenses related to functional work of company (Obeidat, et al. 2016). This account shows debit balance if overheads are under applied. If there is credit balance then it is result of over-applied overheads. In case of Voltus Company communication there is debit balance which reflects that its overheads are under applied (Ellul and et.al. 2015). In addition to this, actual manufacturing overhead is further transferred to manufacturing overhead and by using the cost drivers the actual cost of the process is determined. However, there are several ways for Ways for settling over and underapplied overhead for company.
There are 2 ways for under and over applied overheads-
Relocate to Cost of goods sold accounts-
It is amongst simplest methods to dispose under or over applied overheads. Entry of COGS accounts are as follows-
|Amount of goods sold||XX|
The entry of over applied manufacturing overhead is as follows-
|Name of account||Debit||Credit|
|Amount of sold products||XX|
This method is considered appropriate and less time-consuming.
Relocate on-going job-
Another way to deal with under applied overhead is relocation of on-going job. It includes transfer of expenses to three consecutive accounts that is completed product account, on-going product account and COGS account (Fisher and Krumwiede, 2012). Over and under applied overheads that are continuing are to be transferred to in-process job account. Finished or reserved overheads are to be sending to incomplete product account. Finished or sold overheads are to be transferred to COGS account. Entries for under applied overheads are as follows (Revellino, and Mouritsen, 2015).
|Name of account||Debit||Credit|
Entries related with over applied overheads are as follows-
This method is also appropriate but it is quite time consuming as compare to another. Therefore, First mode is more suitable for Voltus Company communication (Garrison and et.al., (2010).). The entry for it's under and over-applied overheads is as follows-
|Cost of goods sold account||44000|
Under applied overheads are to be transferred to COGS account.
ABC is an important method of costing as it assists in determining cost that is required to complete a work or job (Gordon, (2011).). In this costing method, allocation of the job overhead and expenses is done by absorbing it in different department and process. This costing method firstly determines the job costing drivers and on the basis of the same the total overhead is distributed in each process department. This method is helpful in identifying activities that are essential for manufacturing of products and expenses that will occur in this project (Tupa, Simota, and Steiner, 2017). There are different expenses for specific activities. Due to this cost occurred in particular activity is transferred to goods and work based on it. Indirect expenses that are occurred for doing work are to be ensured through estimation based on activity required for manufacturing (Widiastuti, Subagyo, and Pardadi, 2017). In Voltus Company communication work of individual is to be charged based on work done. Data of this organization shows that there is minimum number of equipment hours whereas time of work done by manpower is more. There is less work done as compared to actual expenses due to more use of machine time for overhead. By adoption of ABC costing this organization can estimate tasks and costs involved in an activity. Therefore, it reflects that it is more appropriate and accurate operating cost of manufacturing. It is very important for this organisation to calculate the work done properly. Apart from this, activity based costing is a time consuming and costly process (Haladu, (2016).). There is grown up need for adopting ABC costing method because of various reasons. These are as follows-
Factors affecting ABC costing-
1. It is required that organization has to divide different jobs through which expenses could be affected.
2. There is need for higher capital and more time to adopt this method of costing.
3. Activity-based costing system is quite complicated as compare to other modes as it requires high degree of estimations (Horngren and et.al., (2010)).
From the completed product account of Voltus Company communication, it could be seen that there is total Job of K12-009. This is total of finished work related to this financial year but it is still unsold. However, completed product account of Voltus Company communication for the unsold finished goods is given as below.
|Balance at 31/05/2019|
|Expenses related to month of June||$162000|
|Applied manufacturing overheads||$38000|
The amount that is the balance of this account is to be transferred to Completed product account as $229000.
However it has been found that the under and over applied overhead is created from balance between manufacturing overhead cost applied for work to be done in process and manufacturing overhead actually occurred Since, some amount has been sent to cost of goods sold account so, the complete over and under applied overheads are difficult to be visible.
From the above report, it can be seen that management accounting plays an important role in the development of an organization. This study includes an assessment of job costing methods. It can be concluded that it is very important to compute overheads, actual overheads from manufacturing. It assists in determining acquired expenses that are to be transferred to the manufacturing overhead account of this organization. it has been determined that relocation of expenses to cost of goods sold account is best suitable for this company as it is less time consuming and cost-effective as compared to other ways. Activity-based costing is an important method used for estimating different costs that could occur during a job. It has been analyzed that functional manufacturing overhead is to be transferred to overhead record as it is part of expenses occurred from functional activities of the company. Now in the end, it could be inferred that proper job costing system with the implication of the job system is used to strengthen the costing work in organization.