Cost Accounting. A managerial emphasis - Essay Example

Q9. In general, an outlet selling only hamburgers would have higher overhead costs. This is because fixed costs are costs which do not change with changes in level of activity or output over a certain time period or relevant range (Horngren and Foster, 1987). Hence, the fixed costs of an outlet selling only hamburgers would be spread over fewer outputs as compared to an outlet selling hamburgers, pizza, and chicken.Q10. Examples are rent, telephone, and utilities.Q11. Allocation of common costs can lead to less usage of such common activities by managers in order to shift the costs to other departments.

This in turn drive up fixed costs due to imperfect factor substitution as managers turn to other less efficient activities or resources to substitute the activity that is used as the cost driver. The fixed cost is in turn costed over a lower level of activity, making the activity seem costly when in fact it might be a lucrative market or product (Doogar, 2001).Q12. In activity based management, cost driver analysis, cause-and-effect diagram, pareto analysis, and performance measurement are performed.

Activity based analysis examines, quantifies, and explains the effects of the cost driver on the cost of an activity. Cause-and-effect diagram maps out causes that affect an activity, process, stated problem, or outcome. In pareto analysis, histogram of cost drivers that contribute to the total cost is constructed. Performance measurement identifies the work performed and the results achieved by an activity process or organizational unit (Porter, 2006).Q13. Andrew Carnegie installed weigh scales at all points in his mills to see whether material was saved or not.

Rather than checking quality after the products have been produced, Edward Deming's ideas of Total Quality Management propounded a cease in dependence on mass inspections-quality must be designed and built into the processes, preventing defects rather than attempting to detect and fix them after they have occurred. Also, whereas Andrew Carnegie compared every man in a particular job with all other men in that job, Edward Deming proposed the removal of barriers that rob people of pride of workmanship and that individual performance reviews are a great barrier to pride of achievement.

Third, rather than supervising by way of cost sheets as Andrew Carnegie did, Edward Deming proposed adopting and instituting leadership instead. Fourth, while Andrew Carnegie was concerned with costs, Edward Deming propounded constancy of purpose for improvement of product and service, that is, organizations must allocate resources for long-term planning, research, and education, and for the constant improvement of the design of their products and services. And while Andrew Carnegie was obsessed with volume, Edward Deming called for the elimination of slogans, exhortations, and targets for the work force, since problems with quality and productivity are caused by the system, not by individuals.

Edward Deming also called for the elimination of numerical quotas for the work force and numerical goals for people in management. Reason being in order to meet quotas, people will produce defective products and reports. Lastly, while Andrew Carnegie treated labour like any other inputs, Edward Deming thought that fear should be driven out and employees should be made to feel secure enough to express ideas and ask questions. Edward Deming also advocated the institution of training. Training at all levels is a necessity and not optional.

He encouraged education and self-improvement, that is, continuous learning for everyone. Labour should also not be treated like other inputs because in order to accomplish the transformation, commitment on the part of both top management and employees is required (Poole, 1999; TQM - Fourteen points of management, 2006). Q14. The four types of costs in costs of quality (COQ) are internal failure costs, external failure costs, appraisal costs, and prevention costs. Internal failure costs include the cost of evaluating, disposing of, or other action on a part that has failed inspection.

Some examples are; rework, scrap, retesting, and troubleshooting. External failure costs are all costs associated with failure of parts after they are shipped to the customer. They are usually a result of not meeting the needs or specifications of the user. Some examples are; recalls, complaints, returns, and replacements. Appraisal costs are the cost of evaluating a product or a service throughout the process of design until the product is shipped. The evaluation is to test conformance to set standards.

Some examples are part inspection, testing, and audits. Prevention costs are those associated with preventing defect in products or processes. Some examples are training and quality planning (Costs of quality, n.d.)Part B.a. Buildings 90,000Cash 35,000Mortgage Payable 55,000This represents the purchase of buildings costing $90,000 using cash of $35,000 and financed with mortgage payable of $55,000.b. Cash 25,000Capital Stock 25,000This represents raising capital of $25,000 in cash through issuing capital stock.c. Cash 40,000Loan payable 40,000This represents issuing capital in cash of $40,000 through loan payable.d. Salary expenses 12,000Cash 12,000This represents salary expenses of $12,000 incurred for the period paid by cash.e. Inventory 12,500Accounts payable 12,500This represents the purchase of $12,500 of inventory on credit from suppliers.f. Accounts Receivable 84,000Sales 84,000Cost of goods sold 51,000Inventory 51,000This represents the credit sales of goods costing $51,000 at $84,000.g. cash 62,000Accounts Receivable 62,000This represents the payment of outstanding balances of $62,000 by debtors or accounts receivable.h. Accounts payable 38,000Cash 38,000This represents the payment of outstanding balances of $38,000 to suppliers or accounts payable.

Part CPractice16-13 the C-V-P equation.Profit = Sales revenue - variable costs - fixed costs= 375 lawnmowers X $895/lawnmowers - 375 lawnmowers X $520/lawnmowers - $84,500= $56,125Practice 16-14 Break - Even units. = 188Practice 16-17 Break even sales revenue.= $260,000Exercise 16-17 C-V-P Analysis= 134 per month= 300 = 100= 17222-2 Importance of Manufacturing Overhead allocation.Company A would probably improve its product costing accuracy most by converting to activity- based costing (ABC) because it has the highest manufacturing overhead as a percentage of product cost.

This is where traditional costing systems based on direct costs are the most inaccurate since the majority of product costs are allocated to products based on the minority of product costs, resulting in serious cost distortions.22-3 product cost Hierarchy1.Machine fine - tunning adjustment cost (requiere after the production of each unit) U2. Salary of vice president of finance. F3. Machine inspection cost (require after the completion of each day's production) B4. Cost of the external audit firm F5.

direct labor U6. Product testing cost (performed at the start of each day's production) B7. Direct materials. U8.Factorysefurity cost F9.Machine straight-line depreciation cost (generally, machines are dedicated to producing a particular type of product.) P10. Warehousing cost (Each type of product has its own warehouse.) P11.employee training cost (training is generally specific to different types of products). PREFERENCESCosts of quality. (n.d.). Retrieved October 4, 2006, from College of Engineering and Technology, Brigham Young University Web site: http://www.et.byu.

edu/groups/mfg340/qualitycourse/coq1.htmDoogar, R. (2001). ACCY 403: Managerial accounting. Retrieved October 3, 2006, from College of Business, University of Illinois at Urbana-Champaign Web site: http://www.business.uiuc.edu/doogar/Accy403/Accy403MSAfa01Review1.docHongren, C.T., & Foster, G. (1987). Cost accounting: a managerial emphasis. NJ: Prentice Hall. Poole, K.T. (1999). Andrew Carnegie. Retrieved October 4, 2006, from University of California Web site: http://voteview.com/carnegie.htm Porter, D. (2006). Advanced manufacturing costing techniques.

Retrieved October 3, 2006, from Oregon State University Web site: http://classes.engr.oregonstate.edu/ie/fall2006/ie475/Lectures/Lec03.IE475.ABC.v06.woNotes.pptTQM - Fourteen points of management. (2006). Retrieved October 4, 2006, from Value Based management.net Web site: http://www.valuebasedmanagement.net/methods_deming_14_points_management.html