Estimate of the total cost for landscaping

Reference no: EM131983289 , Length: word count:3000

Management Accounting Assignment

Unit Learning Outcomes - The purpose of this assignment is to assess the following Learning Outcomes:

Produce business reports which present critical analysis and evaluation of financial solutions to management issues in writing.
Apply knowledge to review and analyse problems and generate adaptable, flexible, and ethical approaches to problem solving and decision making.

Assignment Description - This assessment includes two parts

Part I - Report

Greenery Pty Ltd offers a range of commercial landscaping services throughout Australia. The company's profits have declined over the past year, and in an attempt to restructure the company managing director recruited a management accountant (Mary Ellen). Mary was instructed to review the currently applied costing system and develop cost estimates that can be used to prepare competitive bids on jobs and present a report to the next Board meeting. Mary was also informed to prepare and submit a bid on a landscaping project consisting of 100 000 square metres along with the report.

Having studied the costing system, Mary came to know that the company has been using the following cost estimates for each 500 square metres of landscaping:

Direct materials	$ 500
Direct labour (6 direct labour hours @ $ 21 per hour)	126
Overhead (6 direct labour hours @ $ 19 per hour	114
Total cost for 500 square metres	$740

Mary realised that company has used a common method of estimating an overhead rate per direct labour hour because overhead costs cannot be traced directly to landscaping. The estimate of $ 19 per direct labour hour was based on the total actual overhead costs that were incurred, and total direct labour hours spent during the past 12 months, as given in the Table 1.

Table 1

Month	Total overhead	Direct labour hours	Direct labour hours (Overtime)	Total direct labour hours
January	61000	3100	200	3300
February	55000	2600	50	2650
March	52000	2500	30	2530
April	52000	2340	180	2520
May	63000	3300	280	3580
June	62000	3120	320	3440
July	64000	3050	650	3700
August	66000	3180	610	3790
September	60000	2780	250	3030
October	59000	2800	210	3010
November	59000	2730	220	2950
December	50000	2400	100	2500
	703000	33900	3100	37000

Mary too believes that total monthly direct labour hours influence overhead costs, and decided to carry out a regression analysis of overhead (OH) on total direct labour hours (DLH).

Required: Assume you are the management accountant (Mary Ellan) and write a report to the company board of directors explaining how the objectivity and accuracy of cost estimation can be improved by using statistical techniques such as regression analysis.

Report should incorporate the following sections.

Cover page
Table of contents
Executive summary

1. Introduction

2. Q1. Overhead cost equation developed based on regression results. (Perform regression analysis on Excel by using above data, and develop overhead cost equation for the Greenery Pty Ltd.) (Regression analysis results should be attached to the reports as an appendix).

3. Q2. Estimate of the total cost for 500 square metres of landscaping. (Calculate total cost for 500 square metres of landscaping using the overhead formula that was derived from the regression analysis).

4. Q3. Explain why the overhead rate calculated from the regression analysis is different from preliminary estimate of $ 19 per direct labour hour.

5. Q4. Calculate and include a bid on a landscaping project consisting of 100 000 square metres. Mary estimates that 20% of the direct labour hours required for the project will be on overtime.

6. Q5. Explain as to how Greenery Pty Ltd rely on the overhead formula derived from the regression analysis as the basis for the variable overhead component of its cost estimate.

7. Recommendations and Conclusion

8. Reference list (at least 2 references must be cited)

9. Appendices.

Part II - Literature Review

"Traditional costing systems use production volume as the cost driver. Costs are classified as fixed or variable relative to the level of production. However, many businesses are finding that an increasing share of their costs no longer vary directly with the volume of production" (langfield-Smith et al 2015, p85).

Required:

With reference to the above statement critically review the current literature under the following headings.

1. The key components of traditional costing systems, and how do contemporary cost management systems differ from traditional costing system.

2. Define and critically analyse terms of fixed and variable costs and provide examples at least from two business organizations (one service & one manufacturing).

3. Discuss the importance of identifying the cost drivers and compare and contrast cost drivers used in traditional costing system and contemporary management accounting systems.

Report should include the following sections of Table of contents, Executive summary, Review on 1,2 and 3 above, Conclusion and Reference list (at least 5 references must be cited (Text books and journal articles).

Attachment:- Assignment File.rar

Reference no: EM131983289

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Reviews

len1983289

5/15/2018 6:02:30 AM

Submission Guidelines - Group size: This assignment should be completed in groups of four. All work must be submitted on Moodle by the due date along with a completed Assignment Cover Page. The assignment must be in MS Word format, 1.5 spacing, 11-pt Calibri (Body) font and 2 cm margins on all four sides of your page with appropriate section headings. Reference sources must be cited in the text of the report, and listed appropriately at the end in a reference list using APA referencing style for School of Business.

5/15/2018 6:02:23 AM

Criterion -Body/contents - Accuracy of regression results, Accuracy of estimate of the total cost for 500 square metres of landscaping, Explanation as to why the overhead rate calculated from the regression analysis is different from preliminary estimate of $ 19 per direct labour hour. Accuracy of the calculation for a bid on a landscaping project consisting of 100 000 square metres. Explanation on appropriateness of the regression analysis as the basis for the variable overhead component of its cost estimate and Discussion on appropriate solutions/recommendations.

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