Management Accounting

Topics: Cost, Costs, Cost accounting Pages: 5 (466 words) Published: October 13, 2014
Problem 1
A. Overhead: Department Rates
Production Departments
Assembly Packaging Total
Overhead $216000 $50400 $720000
Direct labor hours
Deluxe 10000 10000 20000
Regular 150000 10000 160000

Total DL 160000 20000 180000
Machine hours
Deluxe 2000 8000 10000
Regular 8000 72000 80000

Total machine hours 10000 80000 90000

Application rate 216000/160000=$1.35 504000/80000=$6.3
Per DL Per machine hour

Deluxe Regular
Assembly
10000×1.35 $13500
150000×1.35 $202500

Packaging
8000×6.3 50400
72000×6.3 453600 $63900 $656100
Units produced 20000 200000 Overhead per unit $3.195 $3.2805

Prime cost per unit Deluxe $160000/20000=$8
Regular $1500000/200000=$7.5
Per unit cost Deluxe $8+$3.195=$11.195
Regular $7.5+$3.2805=$10.7805
B. Plantwide Rate
Total overhead cost/Total direct labour hours= $720000/180000=$4 Overhead rate Overhead cost
Deluxe $4×20000=$80000
Regular $4×160000=$640000

Overhead per unit Deluxe $80000/20000=$4
Regular $640000/200000=$3.2
Per unit cost Deluxe $8+$4=$12
Regular $7.5+$3.2=$10.7

C. Activity rate
Setups: $240,000/100 = $2,400
Moves: $120,000/300 = $4 00
Machine hours: $200,000/90,000 = $2.22
Inspection: $160,000/18,000 = $8.89

Overhead cost
Deluxe Regular Setups
2400×60 144000
2400×40 96000 Moves
400×180 72000
400×120 48000 Machine hours
2.22×10000 22200
2.22×80000 177600 Inspection
8.89×2000 17780
8.89×6000 142240 255980 463840 Units produced 20000 200000 Overhead per unit 12.8 2.32 Per unit cost Deluxe $8+$12.8=$20.8

Regular $7.5+$2.32=$9.82

Problem 2
A. Hi-low method
#new hires:
Lowest activity: 196, $400,000
Highest activity: 444, $785,000
V= Change in cost÷Change in activity
= (785,000- 400,000)/(444 -196) = $1552.42
Y=F+ V(X)
F= Y-V(X) =785,000 – 1552.42 × 444 = 95725.52
Y = 95725.52 + 1552.42 X

#terminations
Lowest activity: 10, $403,000
Highest activity: 250, $569,000
V= Change in cost÷Change in activity
= (569,000 – 403,000)/(250 -10) = 691.67
Y=F+V(X)
F = Y – VX = 569,000 – 691.67 × 250 = 396,082.5
Y = 396082.5 + 691.67 X
I feel #new hires is a better driver than #terminations. Because the variable cost depending on new hires(1552.42) is bigger than termination’s 691.67, and the data of #new hires is more stable, the data of #terminations is like outliers, it cannot represent the HR cost line well.

The equation of the cost: Y = 267,262.81 + 791.80X

The equation of the cost: Y = 458,111.93 + 615.17 X
I feel #new hires is a better driver than #terminations. According to regression statistics, we know the R square of new hires is 0.26, which is higher than the terminations’ 0.12. R Square is the coefficient of determination and measuring the percentage of change in the dependent variable explained by changes in the independent variable.1...
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