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

    University: University of Chester

    • Unit No: 7
    • Level: Undergraduate/College
    • Pages: 12 / Words 2890
    • Paper Type: PPT
    • Course Code: L/508/0442
    • Downloads: 737
    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 :

    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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