Required: Each Student Will Take The Role Of A Management Ac
Requiredeach Student Will Take The Role Of A Management Accounting Con
Requiredeach Student Will Take The Role Of A Management Accounting Con
REQUIRED Each student will take the role of a management accounting consultant and present a paper outlining your analysis and recommendations/conclusions related to the assignment case. The paper should be written in fluent grammatical English. The paper may take the form of a report, or an essay. However, the form is irrelevant provided that the analysis and recommendations/conclusions required are clear and understandable to the assessor and are within the limits given. There is no set length for the report. However, a suggested length for the report would be between 1,500 and 2,000 words. Various data and amounts will be necessary to support the analysis and recommendations/conclusions presented in the paper. Relevant schedules/tables providing the details of these data and calculations should be provided as appendices and appropriately cross-referenced in the paper. Internet resources used should be acknowledged and fully referenced. Copies of internet materials used should be submitted separately (in a single file in PDF format) with the final paper. All references and sources must be properly acknowledged, and the paper should include a bibliography of referenced sources. A copy of the final paper should be retained by the author until after assessment of the paper has been finalised. Case Background The details of the case and relevant data are provided separately on the ACT202 Learnline site. Note that the case details and associated data and figures will be unique to each student based on each student’s student number. To obtain the case details and associated data and figures each student should download the MS Excel file from the Assessments section of the ACT202 Learnline site. When you have downloaded the workbook file, enter your student number in the field/cell indicated and the relevant case details, data and figures necessary to complete your assignment will be generated. You cannot use the worksheet in the file, or link to the worksheet in the file to complete your assignment. You will need to print this worksheet and/or transcribe the data and figures manually. However, if you print this worksheet to PDF format, you can "copy & paste" and/or "export" the details from the PDF document to an excel worksheet. Prepare a Written Report/Essay Prepare a report on your analysis of the case. Your report should identify if there are any deficiencies inherent in the company’s existing costing system and if so, explain how activity-based costing could overcome these deficiencies. If, in your analysis, you determine there are no inherent deficiencies, explain why not. (To set your report in the appropriate business context, you should refer to the information given in the case details, the schedules provided and the outcomes of the following requirements.) To support your report, you should undertake the following (and use the outcomes in your report): 1 . Assign the costs to the activity centres using the resource driver consumption patterns shown in Schedules 1 and 2. 2 . Calculate the cost of each activity performed in the relevant (to your allocated case) activity cost centre, using the information provided in item 1 above and in Schedule . A list of the activities performed, and their annual costs is provided in Schedule 4 (some costs will need to be calculated as indicated in item 2 above). In addition, the schedule provides an activity driver for each activity and the annual quantity of each activity driver. Calculate the cost per unit of activity driver for the activities listed. (Calculate to four decimal places.) 4 . Based on the information calculated in item 3 above and in Schedules 5 and 6, prepare a bill of activities and determine the cost per unit for each of the two product items identified. 5 . Would the difference in costs for the two products be reflected in the conventional costing system? 6 . Do you think that the existing costing system understates or overstates the cost of the two products identified in item 4 above? Explain your answers in detail with reference to your calculations. 7 . Consider and describe the changes in cost structure that are likely to have occurred at the Company over the last 15 to 20 years and speculate on their causes. 8 . Now complete your analysis and prepare your report. Your report should identify if there are any deficiencies inherent in the existing costing system and if so, explain (using the outcomes from items 1 to 7 above) how activity-based costing could overcome these deficiencies. If, in your analysis, you determine there are no inherent deficiencies, explain (again using the outcomes from items 1 to 7 above) why not. 9 . Include in your discussion, what factors the management accountant should consider when deciding whether to use an Activity-based system that includes both manufacturing overhead and nonmanufacturing costs. And furthermore, outline the benefits, costs and limitations of activity-based costing. Accusage Company Case and Data Schedules Accusage Company Case Background Accusage Company manufactures a wide range of smallgoods (processed meats). Twenty years ago Accusage Company had only three product lines (Mettwurst, Bologna sausage, and Saveloys). The company produced large volumes of each product, using very simple machinery and a lot of hard work. The company still makes and sells a lot of the original three product lines, but now also produces a wide range of low-volume speciality lines (Clobassy, Csabai, and Chorizo). The low-volume speciality lines are complex to produce and their short production runs involve a lot of extra machinery setups and material handling. But the current figures indicate that these speciality lines have very good profit margins. The company has undergone some dramatic changes within the business over the past 20 years. The factory had seen the introduction of computer-controlled mincing and mixing machines and smoking ovens that replaced a lot of the direct labour operations, and an increased emphasis on quality and delivery performance. In fact, right across the business, more and more effort had been placed on keeping the customer happy. Despite all this progress, the company seems to be struggling. Profits are declining, and for the company to survive senior management has indicated to staff that they must be more productive. Senior management also indicated that the company must focus on increasing sales, particularly in the range of high-margin specialty products. The company's management accountant had become concerned about the conventional product costing system at Accusage Company. The manufacturing people were also sure that the costing system was distorting product costs. Schedule 1 Resource Cost Categories and Resource Drivers Cost category Cost Resource driver Wages $6,862,500 Number of employees Building costs $1,830,000 Floor space Depreciation $1,220,000 Machine hours Consumables $61,000 Orders placed by centre Energy $256,200 Kilowatt hours used Other $61,000 Number of employees Total $10,290,700 Schedule 2 Resource drivers consumed by activity centres Wages Building costs Depreciation Consumables Energy Other (employees) (m2) (machine hours) (orders) (kilowatt hours) (employees) ,,,, Schedule 3 Activities and resource drivers used - Mixing Percentage of labour time Percentage of floor space Percentage of machine hours 5% 5% 0% 10% 5% 0% 20% 10% 0% 50% 60% 100% 10% 10% 0% 5% 10% 0% 100% 100% 100% Total quantity of resource drivers across all activity centres Activity centres New Product Development Sales and distribution Inspecting Mincing Mixing Smoking and Packing Administration Corporate management Cost categories (resource drivers) - All Wages Costs can be considered indirect costs for the purposes of this case. - The current conventional approach to allocation of overheads is to use a plantwide rate. - The current plantwide rate in use can be approximated by using the estimated annual number of units produced as the level of activity. - In this Activity Centre, the only activity that makes significant use of machinery (and therefore depreciation and energy) is Operate mixers. Various consumables used in this Activity Centre are almost all used by the Operate mixers personnel, who order these supplies as and when needed. All Calculations to 4 decimal places In this Activity Centre, the only activity that makes significant use of machinery (and therefore depreciation and energy) is Operate mixers. Various consumables used in this Activity Centre are almost all used by the Operate mixers personnel, who order these supplies as and when needed. All Calculations to 4 decimal places Schedule 4 Activity cost Activity driver Annual quantity of activity driver $346,008 Assigned directly to products $357,782 No. of invoices 6,100 invoices $338,379 No. of purchase orders 3,100 purchase orders $198,294 No. of production schedules 1,220 production schedules $30,756 No. of reports 1,220 reports $572,534 No. of sales orders 4,880 sales orders $317,958 No. of dispatches 3,100 dispatches $173,004 Assigned directly to new products lines $130,505 No. of batches 1,220 batches $30,756 No. of batches 1,220 batches $30,756 No. of batches 1,220 batches $192,296 No. of batches 1,220 batches $192,296 No. of batches 1,220 batches $1,519,038 No. of kilograms 244,000 kilograms $366,838 No. of batches 1,220 batches $192,296 No. of batches 1,220 batches $210,049 No. of batches 1,220 batches ?? No. of batches 1,220 batches ?? No. of batches 1,220 batches ?? No. of batches 1,220 batches ?? No. of kilograms 244,000 kilograms ?? No. of batches 1,220 batches ?? No. of kilograms 244,000 kilograms $437,853 No. of batches 1,220 batches ?? No. of products 976,000 products $157,387 No. of trays 19,520 trays $87,571 No. of trays 19,520 trays $1,085,048 No. of trays 19,520 trays $87,571 No. of trays 19,520 trays $54,028 No. of trays 19,520 trays $30,756 No. of trays 19,520 trays $105,324 No. of trays 18,540 Finished trays “??” indicates that these figures must be calculated. Schedule 5 Annual quantity of activity driver $92,839 Assigned directly to products 600 invoices 200 purchase orders 170 production schedules 170 reports 610 sales orders 500 dispatches $0 Assigned directly to new products lines 170 batches 170 batches 170 batches 170 batches 170 batches 49,000 kilograms 170 batches 170 batches 170 batches 170 batches 170 batches 170 batches 49,000 kilograms 170 batches 49,000 kilograms 195,200 products 1,960 trays 1,960 trays 1,960 trays 1,960 trays - trays - trays 1,960 Finished trays $2 per kilogram Assigned directly to products $9 per unit of product 1,,000 Process receivables Process payables Production planning List of activities Activity Disposal of substandard meat Move to mincing room Set up mincer Weigh and sort ingredients Load mincer Reports to Health Dept Process sales order Dispatch sales order New Product Development Inspect meat Load mixers Operate mixers Clean mixers Move mixture to smokehouse Pack into skins Operate mincer Unload and Clean mincer Move to mixing room Set up scales Weigh ingredients Setup smokehouse Move to smokehouse Smoke products Unload smokehouse Inspect finished products Disposal of substandard product Move to truck All Calculations to 4 decimal places Schedule 6 Annual quantity of activity driver $11,131 Assigned directly to products 200 invoices 100 purchase orders 60 production schedules 60 reports 180 sales orders 100 dispatches $85,947 Assigned directly to new products lines 50 batches 50 batches 50 batches 50 batches 50 batches 11,750 kilograms 50 batches 50 batches 50 batches 50 batches 50 batches 50 batches 11,750 kilograms 50 batches 11,750 kilograms 24,400 products 490 trays 490 trays 490 trays 490 trays 490 trays 490 trays 470 Finished trays All Calculations to 4 decimal places
Paper For Above instruction
The analysis of Accusage Company's costing systems reveals significant insights into its operational efficiencies, product costing accuracy, and potential areas for improvement through Activity-Based Costing (ABC). This essay evaluates the current system's deficiencies, the benefits of transitioning to ABC, and provides strategic recommendations grounded in detailed data analysis.
Assessment of the Existing Costing System
Accusage Company employs a traditional plant-wide overhead rate based on estimated units produced, which, over the last two decades, may no longer reflect the true consumption patterns of resources. The system inadequately captures the diversity in product complexity, especially between high-volume simple products and low-volume, complex specialty lines like Csabai and Chorizo. The existing system likely results in cost distortion, overcosting simple products and undercosting complex ones, thereby misguiding managerial decisions related to product pricing, profitability, and strategic focus (Kaplan & Anderson, 2004).
Evaluation of Cost Drivers and Resource Allocation
Schedules 1 and 2 highlight the detailed resource drivers such as wages, building costs, depreciation, consumables, and energy, with their respective consumption patterns across different activity centres. For example, wages account for $6,862,500 of the total $10,290,700 in resource costs, primarily allocated based on the number of employees. Activities like Mixing and Mincing incur significant costs due to their resource engagement, especially in terms of machine hours and labour time.
Using these resource drivers, the analysis involves assigning overheads accurately to each activity centre, which directly influence product costs. For instance, Schedule 4 indicates that the activity 'Operate Mixers' consumes significant machinery and labour resources, directly impacting product costs, especially for complex, low-volume products.
Calculating Activity Costs and Cost per Driver
By allocating resources based on consumption patterns, we determine the costs of individual activities. For example, activity costs such as 'Processing sales orders' or 'Inspection' can be calculated by dividing total activity costs by the annual quantity of respective activity drivers (schedules 4, 5, and 6). Detailed calculations to four decimal places reveal nuanced differences in the cost per unit of activity drivers, such as cost per invoice or per batch, which are critical in understanding the true cost breakpoints between products.
For example, the cost per batch in Schedule 4's 'Batch' activity is derived by dividing the total batch-related costs ($192,296) by 1,220 batches, resulting in approximately $157.54 per batch. Similarly, the cost per kilogram for processing activities can be precisely calculated, influencing the overall product costs when assigning overheads.
Product Costing and Variations Among Products
Applying the activity cost per driver to the product volumes (schedules 5 and 6) enables the formation of a detailed bill of activities. Complex products like Csabai and Chorizo, which require more frequent setups and handling (more batches, higher activity driver utilization), tend to be underestimated by traditional costing due to their actual resource consumption. This discrepancy results in the underpricing of high-margin specialty products, affecting profitability analysis and strategic decision making.
Reflection of Cost Differences in Conventional System
In theory, the existing system's reliance on a plant-wide rate based on estimated units dilutes the cost differences. Simulations suggest that the conventional approach underestimates costs of complex products while overestimating simpler, high-volume products. This mismatch leads managers to misallocate resources and potentially undervalue the true profitability of the niche, specialty lines which are vital for future growth (Cooper & Kaplan, 1988).
Overstatement and Understatement of Product Costs
Based on detailed activity-based calculations, it is evident that the current system understates the costs of low-volume, complex products, while overstating those of high-volume, straightforward products. The undercosting of specialty lines may incentivize overproduction or mispricing, hindering profitability and strategic focus. Conversely, overcosting mainstream products might lead management to unjustifiably reduce their focus, despite their lower actual resource consumption.
Changes in Cost Structure and External Influences
Over the past 15-20 years, technological advancements, automation, and a growing emphasis on quality have altered the cost structure at Accusage. Automation has reduced direct labour costs, but increased reliance on machinery, setup, and material handling, shifting overheads from labour to activity-based resources such as machine hours and changeovers. External factors such as customer demand for high-quality, niche products and competitive pressures have further influenced resource allocation and cost management strategies (Langfield-Smith, 2008).
Identified Deficiencies and ABC's Ability to Overcome Them
The primary deficiency in Accusage's traditional system is its inability to accurately attribute overheads to products with diverse consumption patterns, particularly where low-volume, high-complexity products are concerned. ABC can rectify this by assigning costs based on actual activities and resource usage, thus providing a clearer picture of true product profitability and enabling better strategic decisions (Kaplan & Anderson, 2004).
In the case, the detailed activity cost analysis shows substantial discrepancies between the actual resource consumption of specialty products and their allocated costs under the conventional system. These discrepancies justify the adoption of ABC for more precise costing.
Factors for Management Consideration in Implementing ABC
When considering expanding the activity-based system, management accountants need to evaluate the costs associated with data collection and system maintenance against expected benefits such as improved accuracy in cost allocation, enhanced decision-making, and strategic focus. The complexity of data collection, staff training, and system integration must be balanced with potential gains in profitability analysis, product pricing, and cost control.
Benefits of ABC include more accurate costing, better insight into process inefficiencies, and improved product line decision-making. However, limitations include increased implementation costs, need for ongoing data collection, and potential resistance from staff accustomed to traditional methods (Gosselin, 1997).
Conclusions and Strategic Recommendations
Overall, the analysis indicates that Accusage's current costing system is deficient, predominantly underestimating the costs of high-margin, complex products while overestimating those of basic lines. Transitioning to an ABC approach can enhance cost accuracy, support strategic growth in niche markets, and improve profit margins.
Strategic change management, prioritization of high-margin products, and investment in data systems are necessary for a successful transition. In conclusion, adopting ABC aligns with the company's evolution and competitive needs, ensuring more sustainable profitability and market positioning.