The managerial accounting system at Bridgeton, as it is presented, seems to be lacking detail necessary for efficient analysis. The sections used are sales, direct material, direct labor and overhead by account number, each divided into individual accounts and summed to find totals. There is no separation of fixed and variable costs in any of the accounts, making it difficult to analyze exactly where operations are costing money and, therefore, how they could possibly be improved. The presentation of the information groups all sales together and the different categories of costs together and does not provide for individual product analysis. The products are analyzed (categorized into classes) based on their costs, with no consideration to revenues associated with these products, and no real understanding of the overhead applied to each product. The overhead costs are applied to accounts based on labor and materials of the company as a whole, rather than using considerations associated with the individual products.
The presentation of the material is in dollars only. Overhead is applied to products as a percent of direct labor dollar cost. Factory profit for each year is found by subtracting direct material, direct labor, and direct overhead costs from total sales. The overhead percentage is calculated at the same time budgeting and is applied as a single overhead pool throughout each model year. The consulting company used 435% of direct labor costs in 1987 for their study; the budgeted was actually 437% (OH/DL=107,954/24,682). A similar percentage applies in the following year (109890/25294=434.5%). However in the next two years, after the outsourcing of oil pans and mufflers was enacted, the allocation of overhead in...
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... doors and manifolds. Mufflers directly contributed $28,911 in 1987 and $30,975 in 1988 and oil pans contributed $36,997 and $39,566.
To improve the system at ACF, these numbers need to be considered. A product line should not be eliminated simply because it is not world-class; if it is still contributing, it is probably a positive product, assuming it is not hurting the image of the company significantly. It is difficult to determine exactly whether it is contributing because we do not know the fixed and variable portions of manufacturing overhead. Employee interviews coupled with regression analysis using data from multiple years, possibly without the outsourcing disruption, could help to effectively estimate these costs. It is always dangerous to make produce/outsourcing and other decisions based on allocated manufacturing overhead if it is not handled properly.
Overhead based on units sold includes only sales and marketing. Sales and marketing will be targeted mostly towards the products that are already on the market, and so units sold is the best way to associate the cost with each product. (Figure A)
[1] Noreen, Eric W., Brewer Peter C., et al., Managerial Accounting for Managers, Second Edition, McGraw-Hill/Irwin, New York, NY, 2011.
Wilkerson uses a simple cost accounting system in which each unit is charged for direct labor and material costs in addition to overhead costs, which are allocated depending on the percentage of production-run direct labor usage. Under this system, the overhead percentage set by Wilkerson was 300%. This standardized system, however, did not reflect the specific complexities of each
An organization costing system is a system that helps the management with the strategy planning while the system plays an important role in providing accurate cost information about the products and customers (Curtin, 2006). UPS utilizes the Activity-Based Costing (ABC) system. ABC assumes that activities cause costs and that cost objects create the demand for activities (Marx, 2009). The key to cost allocation under ABC is to identify the activities that are performed to provide a particular service and then aggregate the costs of the activities (Gapenski, 2012). This is a marked departure from the practice of sharing overheads costs equally or overheads becoming part of the overall profit-loss estimate instead of component product pricing (Nayab, 2011).
This case assignment will discuss managerial accounting and different income statements a business owner may use internal to the company. Divided into two parts, part one will discuss and analyze the difference between managerial and financial accounting, the needs for financial information used for internal purposes. Additionally, it will focus on the managerial accounting profession and how its roles have changed in today’s business. Expanding on the profession, it will comment on the Certified Management Accountant (CMA) certification and how it differs from the CPA certification. Part two of this assignment
Management accounting in organisation is very important for decision-making and to make the business more efficient and therefore increasing its profits. Is the process of preparing accounts that can help managers to make day-to-day and short-term decisions, by providing them with accurate and timely key financial and statistical information...
Traditional cost accounting (TCA) method refers the absorption costing where all manufacturing cost, both fixed and variable are assigned to a unit of production (Garrison, Noreen, & Brewer, 2015). Under traditional cost accounting units of production include the distribution of manufacturing overhead cost to the products assembled and Indirect costs assigned to the Items manufactured on the basis of quantity produced such as the number of units manufactured and the direct labor hours or production machine hours that are used to make the product. A basic traditional costing example would be a company that makes widgets makes 1 million of them per year. To do it, it could require five full-time employees, each working 2,000 hours, plus another three supporters, also working 2,000 hours each. In the process of making widgets, it spends $1 million. Its overhead rate would be the result of dividing the $1 million in cost by the 10,000 hours of direct labor. This works out to $100 per hour (Lender,
2. Smith, K.L., Thorne, H., Hilton, R.W., (2004), “Management Accounting – an Australian perspective�, 3rd edition, McGraw Hill
An astute manager not only focuses on the internal cost management(ICM) but also the interorganisational cost managemen(IOCM)t.The scope of cost management is not limited to quantitative analysis but it is an overall concept. It is generally accepted that one of management’s primary roles is to optimize profits by controlling costs effectively. This includes costs associated with operating the day-today business, such as those related to labor, materials, and administrative functions, as well as more strategic costs, such as those for research and development (R&D) and capital investments in property and equipment. Traditionally, companies have focused on costs that they can control from within, which is known as internal cost management (ICM). But with the advent of technology capable of measuring and tracking costs along a supply chain, there is an emerging trend to manage costs associated with supply chain partners, too. Broadly speaking, a manager’s role in the context of
Crosson, S. V., & Needles, B. E., Jr. (2014). Managerial Accounting. Mason, OH: South-Western, Cengage Learning.
"Both methods estimate overhead costs related to production and then assign these costs to products based on a cost-driver rate. The differences are in the accuracy and complexity of the two methods" (1) , Now we will discuss why ABC can result in more reliable products costs than conventional labor based product costing system . In recent years, the nature of industrial production has fundamentally altered; we will discuss their characteristics. First we have machine production and capital intensive, Now machines are the main tool and at the heart of production; labors maintain machines and supervise them, and machines are the ones that dictates the pace and rate of production. The second characteristic is high level of overheads relative to direct cost; in modern businesses they tend to use overheads in different ways for example: some products need engineering time and some products require machine time so that products will use overheads differently. The third characteristic is highly competitive international market, transportation including fast freight and relatively cheap; one of the advantages is the use of internet ensures that customers can easily and quickly reach and find products and also cheaply, this environment is highly competitive so companies need to know accurately their range of prices in order to use this information to gain competitive advantage over other
Historical cost is all of the transactions or value of the item/asset are recorded in their original cost/value incurred in the past/time and the cost/value incurred when the transaction took place. By using the historical cost accounting concept, the firm calculates a more accurate and reliable value of the particular item/asset (Accounting-Simplified.com, 2017)
In its current practice, the roles and functions of cost accounting includes additional functions. More specifically, it can be described as more than an inventory tracking system. This is because cost accounting entails defining the charges of activities and goods (Horngren & Srikant, 2000). Because of its many roles and functions, this accounting method has been of great help to growth and expansion of business planning and management. Again, the reports offer assistance in the planning and growth projections for different business functions and units within the organization. The information cost accountants offer different uses, some of which aid in the controllership function, as well as the industrial
Since more than 40 years, Toyota Company was thinking how to develop the traditional process costing system and the production system. Some of the companies believe that the increasing of the production is a big profit, while Toyota proved the opposite. The more you increase the products out of the need of the market, the more losses you are going to gain. This kin...
...e highest in the industry (Figure 3). The design team plus representatives of each of the other redesign teams were brought together to develop a systemic analysis of the bigger picture of the company. Figure 4 illustrates the systems map which revealed that the root cause of the company’s high supply chain costs was ongoing effort by the sales and marketing organizations to increase product mix to improve profitability. The increasing of the product mix led to many unplanned consequences that both increased supply chain costs and eventually reduced revenues as well. From this new acquired knowledge the management streamlined its product line and achieved both higher revenues and lower costs. (Stroth, 2012)