Cost Accounting: A Managerial Emphasis

One

Favorable price variance means that the firm has generated more revenue or incurred less expense than what was budgeted ( DRURY, 2013) . On the other hand, unfavorable price variance occurs when the actual revenue is less or expenses incurred are more than standard or budgeted.

Two

Conversion cost is the cost that a firm incurs when transforming raw materials into finished goods. Similarly, it comprises of direct labor and manufacturing overhead costs of changing raw materials to consumer products.

Three

Balanced scorecard is a tool of management that is used to align strategies with daily operation of the firm. It communicates the goals of prioritizing products, services, and products through measuring and monitoring their progress ( Widener, et al. 2014) . Thus, its objective is to cover perspective of the customer, finance, internal business, and innovation and learning.

Four

Gross Profit = Sales + Purchases + Opening Inventory – Closing inventory

GP (120,000*40%) = 120,000 + Purchases + 21,600 – (30%*108,000)

48000 = 120,000 + purchases + 21,600 – 32400

Purchases = 61,200 unfavorable

Five

In this case, the netting mark-up is 20% and the customer has a mark-up of 10% price level. Thus, the 10% mark-up should be applied to $ 216 and the sale price should be (10%*216 + 216) = $237.6

Six

Sales Revenue 1,000,000

Direct Mat. Cost (300,000)

Conversion Costs (250,000) 

Operating Income 450,000 

Eight

Budgeted Ratio (unit of production to gallons of inputs)

1:1.95 (1 unit per 1.95 gallons)

Actual Ratio (unit of production to gallons of inputs)

1:0.9421 (1 unit per 0.9421 gallons)

Nine

Reengineering in accounting is the process of revising workflow of processes and reducing non-value adding activities. For instance, the business may reengineer accounts payable and pay roll.

Cost Leadership is the marketing strategy where the business becomes the market leader by reducing the overall cost of operation in order to reduce the prices for products and services.

Downsizing is an approach of business in lowering the operating cost by reducing the number of employees in the payroll.

Product differentiation is the marketing strategy where business attempt to acquire competitive edge by producing different products or services from the competitors.

Ten

The price recovery increases when the net operating income increases from successfully implementing production efficiencies.

Eleven

Relevant cost influences the decision making and majorly future costs that differ among alternatives. These costs include cash expenses, avoidable costs, opportunity costs and incremental costs.

Twelve

The major problem of identifying relevant costs is differentiating between avoidable costs and unavoidable. Further, one should avoid including costs that result from past decisions that cannot be changed. Also, the managers should avoid including accounting loss when identifying relevant costs.

Thirteen

In the decision making process, some of the qualitative factors include the external reputation, labor relations, creditor’s effects and quality.

Fourteen

Sales price is the major determinant of the manager’s decision as it affects the contribution margin and the profit. Thus, to increase profit as well as contribution margin the manager may decide to increase the sales price and reduce variable costs.

Fifteen

Average rental per week = (2,300 + 2,500)*10,000 = 48,000,000

Variable Cost per week = 12*40*10,000*7= 33,600,000 

Contribution Margin = 14,400,000 

Contribution Margin Ratio = 48,000,000/14,400,000 = 3.3

Marketing Cost= 15,000,000

Customer Service Cost= 2,500,000

Total Operating cost = (15,000,000 + 2,500,000 + 33,600,000)

Break-Even Ratio = Total Operating expense/Contribution Margin

= 51,100,000/ (3.3*10000) = $ 1548 is the minimum charge during peak days

Sixteen

Value engineering maybe defined as the systematic method of improving the value of products or services to offer appropriate functions in a project at minimum cost.

Seventeen

Gross Revenue= (25*2*5000) + (28*2*5000) + (31*2*5000) = $840,000

Eighteen

Locked in costs includes costs that have not been incurred but decision has been made to be incurred in future. Cost incurred includes the cost which has been recorded as they become liable to the firm even if invoice has not yet received from the supplier. Thus, it affect accrual basis of decision making.

Nineteen

Target Cost = Expected Selling Price – Desired Profit

= 300 – (25%*300) = $ 225 per television

Twenty

Post investment audit involves the process of getting an overview whether the expected result of the project are being achieved ( Patten, et al. 2017) . It is conducted immediately after the project has been approved and implemented.

Twenty One

Depreciation is not part of the operating cash flow since it is not source of cash. Though it is reported as a positive amount, it is intended to adjust the net income reduction as an expense in the income statement.

Twenty Two

Yes, since the break-even point for selling 500 units at $76 is equal to 1. It means that $ 76 is the minimum price the company can sell their products (Total revenue (76*500= 3800) Total cost (60*500+16*500 = 3800).

Twenty Three

The option of purchasing the jeep is better as it will be saving $180 every year. However, the salvage value of the jeep will be lower compared to that of the truck at the time of disposal.

Twenty Six

Actual variable costs are the real costs other than the budgeted. Variable type of cost varies with the level of activity or output. For instance, the most common type of these costs includes raw materials and direct labor in the manufacturing process.

Twenty Seven

Activity based budgeting (ABB) uses activity framework as the cost driver in setting the budget and the process of variance feedback. Thus, the ABB requires cost driver and activity identification, forecast on the number of units require for the activity level and cost rate driver.

Twenty Nine

Revenue budget require a specific budgeting period or duration with expenditures divided depending on the department or sections being allocated the funds ( Vigna, 2014) .

Cost of goods sold budget is categorized into two, sales budget and sample budget. It requires manufacturing resources such as direct material purchases, direct labor cost and budget for factory overhead costs.

Capital expenditure budget reports the amount of money require for investment by the company in both long term assets and projects. The budget requires use of ROI to measure whether the expected targets have been met.

Thirty

60,000*PIVA (10, R) = 339,013.20

PIVA (10, R) = 5.650 (using the table)

R = 12%

Thirty One

All the listed financial situations, there is no after tax consequences.

Thirty Two

[25,000-(25,000*40%)]*5 = $75,000

Thirty Three

Physical cost method of joint costing involves use of physical unit of output such as volume, weight to measure the benefits accrued from joint distribution of costs. Every joint product is allocated equal proportion of joint costs.

Thirty Four

Post investment audit involves the process of getting an overview whether the expected result of the budget are being achieved ( Burns and Walker, 2015) . It is conducted immediately after the project has been approved and implemented.

Cost benefit analysis involves measuring the economic value of the budget by comparing the cost involved and accruing benefits.

Audit trail is a system that monitors transactions that relates to particular accounting records.

Management control is the process by which an individuals or groups performance is monitored in the effort to achieve organizational objectives ( Kim, 2015) . The management control can either be regulative or normative. In the process of control, management set the standard, measure actual performance and then takes corrective course of actions.

Thirty Five

Physical cost method of joint costing involves use of physical unit of output such as volume, weight to measure the benefits accrued from joint distribution of costs. Every joint product is allocated equal proportion of joint costs.

Thirty Six

Physical measures as the cost allocation method cannot be applied in solving the conflict between performance evaluation and decision making. Its difference from other methods is that it disregards interdepartmental services. Further, it allocates all costs in the manufacturing department using specified ratios.

Thirty Seven

The physical-volume allocation to joint costs will be equal to 59% and 41%:

=147,500/250,000 = 59%

Thirty Eight

Change in working capital is part of the economic benefit accruing from the project and should be included as the net initial investment.

Thirty Nine

Discounted cash flow method focuses time value of money while making long term projects. The method assesses the present value of future investment’s benefits ( Kaplan and Atkinson, 2015) . Also, it incorporates the risk factor of the project measured by the discounting rate.

Forty

Purchasing new asset is a relevant cost as it affects the future decisions and it is avoidable.

Forty One

Accounting requires that costs of byproducts to be assigned to the production value either using production or sales methods. In the production method, the company will separate cost of byproducts from products costs.

Forty Two

The nominal method helps in converting real cash flows of the NPV to nominal cash flow by incorporating nominal discount rate.

Forty Three

Physical cost approach of joint costing involves use of physical unit of output such as volume, weight to measure the benefits accrued from joint distribution of costs ( Bhakar, et al. 2016) . Every joint product is allocated equal proportion of joint costs.

Forty Four

Value adding activities are those activities that improve the value of the final product in the manufacturing process.

Forty Five

Downsizing is an approach of business in lowering the operating cost by reducing the number of employees in the payroll ( Jebb, et al. 2015) . These activities of adding value involves costs which are fixed as well as variable costs.

Forty Six

Spending variance is also known as overhead rate variance is the difference between standard variable and actual variable overhead rate. Efficiency variance measures efficiency of converting input to output in terms of labor, time, and materials.

References

DRURY, C. M. (2013).    Management and cost accounting . Springer. 

Fullerton, R. R., Kennedy, F. A., & Widener, S. K. (2014). Lean manufacturing and firm performance: The incremental contribution of lean management accounting practices.    Journal of Operations Management ,    32 (7), 414-428. 

Vigna, E. (2014). On efficiency of mean–variance based portfolio selection in defined contribution pension schemes.    Quantitative finance ,    14 (2), 237-258. 

Marteau, T. M., Hollands, G. J., Shemilt, I., & Jebb, S. A. (2015). Downsizing: policy options to reduce portion sizes to help tackle obesity.    BMJ ,    351 , h5863. 

Nègre, E., Verdier, M. A., Cho, C. H., & Patten, D. M. (2017). Disclosure strategies and investor reactions to downsizing announcements: A legitimacy perspective.    Journal of Accounting and Public Policy . 

Kalkhambkar, V., Kumar, R., & Bhakar, R. (2016). Joint optimal allocation methodology for renewable distributed generation and energy storage for economic benefits.    IET Renewable Power Generation ,    10 (9), 1422-1429. 

Kaplan, R. S., & Atkinson, A. A. (2015).    Advanced management accounting . PHI Learning. 

Burns, R., & Walker, J. (2015). Capital budgeting surveys: the future is now. 

Kim, B. C. (2015). Integrating risk assessment and actual performance for probabilistic project cost forecasting: A second moment Bayesian model.    IEEE Transactions on engineering management ,    62 (2), 158-170. 

Mestry, N., Menneer, T., Cave, K. R., Godwin, H. J., & Donnelly, N. (2017). Dual-Target Cost in Visual Search for Multiple Unfamiliar Faces.    Journal of experimental psychology: human perception and performance .