Exercise 15-5 Part Level Submission: IKerd Company Applies M

Exercise 15 5 Part Level Submissionikerd Company Applies Manufacturi

Construct a comprehensive academic paper addressing the assignment instructions below. The core task involves calculating manufacturing overhead rates, analyzing work-in-process inventory, and evaluating cost systems and decision-making processes for various companies. Use credible sources and in-text citations to support your analysis, aiming for approximately 1000 words, with proper APA referencing. Ensure the paper has an introduction, detailed body sections, and a conclusion that synthesizes insights related to cost accounting and managerial decision-making within manufacturing contexts.

Sample Paper For Above instruction

Introduction

Cost accounting and managerial decision-making are integral components in manufacturing organizations for enhancing operational efficiency and profitability. Accurate application and analysis of manufacturing overhead, work-in-process inventory, and cost systems provide management with insights to optimize production processes and strategic planning. This paper explores theoretical and practical aspects of these topics, emphasizing their significance within manufacturing entities such as Ikard Company, American Company, Saddle Inc., and Vin Diesel’s barbershop business.

Manufacturing Overhead Rate Calculation

The determination of manufacturing overhead rate forms a foundational aspect of cost allocation. Ikard Company applies manufacturing overhead based on machine hours used, with projected costs of $330,264 and estimated machine hours of 125,100. At year-end, actual costs incurred totaled $393,740 with machine hours used at 131,000. Calculating the overhead rate involves dividing the estimated overhead costs by estimated machine hours, yielding:

Overhead Rate = Estimated Overhead / Estimated Machine Hours = $330,264 / 125,100 hours ≈ $2.64 per machine hour (rounded to two decimal places). This rate is then applied to actual machine hours to allocate overhead costs to jobs, ensuring accurate product costing and profitability analysis.

Work-in-Process Inventory Analysis

The ledger details for American Company’s work-in-process inventory specifically related to painting include beginning balance, transfers, and ending balance, with various costs associated. The beginning inventory of 460 units, at 30% completion, combined with 1,690 units started and 1,400 units transferred out, indicates a dynamic production cycle. The ending inventory’s 40% completion level necessitates the calculation of units in process at May 31.

The total units in process are computed by considering units started, transferred, and in process, leading to the conclusion that the number of units in process at May 31 is approximately 750 units. This requires an understanding of weighted-average or FIFO methods and the application of percentage completion to assign costs appropriately. Materials are entered at the start, which simplifies the allocation, but the conversion costs depend on the completion percentage, impacting costing and production analysis.

Activity-Based Costing versus Traditional Costing

Saddle Inc. demonstrates a comparative analysis between traditional and activity-based costing (ABC). Using a plantwide overhead rate based on direct labor costs involves dividing total overhead by total direct labor costs. Given estimated costs and labor figures, the total overhead rate using traditional costing is calculated as:

Overhead Rate = Total Overhead / Total Direct Labor Costs

Substituting the provided figures, and rounding to two decimal places, results in an overhead rate indicative of how overhead absorption varies under different systems. While traditional costing allocates overhead uniformly, ABC allocates costs based on activity pools such as machining and setup, providing superior accuracy in product costing, especially when products consume resources differently.

Cost Behavior and Break-Even Analysis

Vin Diesel’s barber shop exemplifies CVP (Cost-Volume-Profit) analysis. Variable costs per haircut include commissions, supplies, utilities, and additional expenses, with fixed costs comprising wages, rent, advertising, and other fixed operating costs. Calculating the total fixed costs involves summing fixed expenses, while variable costs per unit are derived from per-cut costs, thus enabling break-even point computations.

The break-even point in units is computed as:

Break-Even Units = Total Fixed Costs / (Price per Haircut – Variable Cost per Haircut)

Similarly, the break-even sales dollar volume is obtained by multiplying unit sales at break-even by the unit price. This analysis guides the business in understanding minimum operational levels needed to avoid losses.

Decision-Making and Cost-Volume-Profit Analysis

Assuming maximum capacity of 1,800 haircuts allows plotting a CVP graph to visualize profit and loss zones. At 1,600 haircuts, net income can be estimated by subtracting total costs from total revenue. This informs pricing, staffing, and operational strategies vital for maximizing profitability.

Strategic Analysis and Recommendations

The considerations extend beyond simple cost calculations. For example, the decision by Easton Corporation’s CEO to cut production of fishing anchors to ramp up yacht anchor production underscores the importance of analyzing contribution margins and capacity constraints. A detailed analysis should include evaluating the contribution margin per unit, assessing the impact on overall profitability, and considering potential market and operational risks.

Similarly, the auditing scenario involving Walmart or Amazon highlights the importance of risk assessment, internal controls, and audit procedures. auditors must scrutinize revenue recognition, internal controls, and compliance with GAAP or IFRS to mitigate financial reporting risks and ensure accurate financial statements.

Conclusion

Effective cost management and strategic analysis are vital for manufacturing organizations seeking to optimize operational efficiency and profitability. Calculating accurate overhead rates, analyzing work-in-process inventory, and leveraging costing systems like ABC enable more precise product costing. Additionally, CVP analysis supports informed decision-making for pricing and capacity planning. For management and auditors alike, comprehensive evaluation of risk factors, internal controls, and operational data fosters better governance and financial integrity, ultimately contributing to sustainable business success.

References

• Drury, C. (2018). Management and Cost Accounting. Cengage Learning.
• Horngren, C. T., Datar, S. M., & Rajan, M. (2015). Cost Accounting: A Managerial Emphasis. Pearson.
• Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2018). Managerial Accounting. McGraw-Hill Education.
• Knights, P., & Willmott, H. (2018). Managing and Organizations: An Introduction to Theory and Practice. Routledge.
• Simons, R. (2000). Performance Measurement & Control Systems for Implementing Strategy. Pearson.
• Kaplan, R. S., & Anderson, S. R. (2004). Time-driven activity-based costing. Harvard Business Review.
• Horngren, C. T., Harrison, W. T., & Oliver, M. S. (2012). Financial & Managerial Accounting. Pearson.
• Hicks, J., & Gullet, D. (2020). Introduction to Management Accounting. Wiley.
• Moyer, R. C., McGuigan, J., & Kretovics, M. (2018). Contemporary Financial Management. Cengage Learning.
• Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2018). Financial Accounting. Wiley.