Reference no: EM132311175 , Length: word count : 1900

Assignment

Subject Learning Outcomes

a) Analyse the links between management accounting, customers, suppliers and sources of external information and assess what is relevant to business decision-making

b) Apply costing techniques and explain their strengths and limitations in specific circumstances

c) Analyse management accounting information and present management accounting information in various formats using appropriate systems

d) Critically evaluate and apply relevant management accounting concepts and management control systems to organisational settings.

Topic: Management Accounting Problem (Case Study).

Connectta Ltd manufactures furniture for computer work stations. Connectta uses a job costing system. The work in process inventory on 30 November consisted of the following jobs.

Job. No.	Description	Units	Total cost
CC723	Computer caddy	20 000	$ 900 000
CH291	Chair	15 000	431 000
PS812	Printer stand	25 000	250 000
Total			$1 581 000

On 30 November, the company's finished goods inventory consisted of four items.

Item	Quantity and unit cost	Total cost
Computer caddy	7 500 units @ $64 each	$ 480 000
Chair	19 400 units @ $35 each	679 000
Printer stand	21 000 units @ $55 each	1 155 000
Desk	11 200 units @ $102 each	1 142 400
Total		$3 456 400

At the end of November, the balance in Connectta's materials inventory account, which includes both raw materials and purchased parts, was $668 000. Additions to and requisitions from the materials inventory during December included the following.

Additions and requisitions	Raw materials	Purchased parts
Additions	$242 000	$396 000
Requisitions:
Job CC723	51 000	104 000
Job CH291	3 000	10 800
Job PS812	124 000	87 000
Job DS444(5000 desks)	65 000	187 000

Connectta applies manufacturing overhead on the basis of machine hours. The company's manufacturing overhead budget for the year totalled $4 500 000. The company planned to use 900 000 machine hours during this period, which is the firm's estimated practical capacity. Through the first 11 months of the year, a total of 830 000 machine hours were used, and actual manufacturing overhead amounted to $4 140 000.

During December, machine hours and labour hours consisted of the following:

Account	Machine hours	Labour hours	Labour cost
CC723	12 000	11 600	$122 400
CH291	4 400	3 600	43 200
PS812	19 500	14 300	200 500
DS444	14 000	12 500	138 000
Indirect labour	-	3 000	29 400
Supervision	-	-	57 600
Total	49 900	45 000	$591 100

The jobs completed in December and the unit sales for that month are as follows:

Job No.	Production items	Quantity completed	items	Quantity shipped
CC723	Computer caddy	20 000	Computer caddy	17 500
CH291	Chair	15 000	Chair	21 000
DS444	Desk	5 000	Printer stand	18 000
			Desk	6 000

Required:

1. Describe when it is appropriate for a company to use a job costing system.

2. Calculate the balance in Connectta's work in process inventory account as at 31 December.

3. Calculate the cost of the chairs in Connectta's finished goods inventory as at 31 December.

4. Actual manufacturing overhead incurred in December amounted to $252 000. Calculate Connectta's overapplied or underapplied overhead for the year.

5. Explain two alternative accounting treatments for overapplied or underapplied overhead balances when using job costing system.

6. Explain how activity-based costing could overcome the deficiencies inherent in the existing costing system.