Impact of Characteristics and Environment †MyAssignmenthelp.com

Question: Discuss about the Impact of Characteristics and Environment. Answer: Introduction Activity-based costing (ABC) technique is advocated as a strategy of handling the logical distortions of conventional costing and for enhancing relevance in management accounting. Conventional systems report how money was spent and who spent the money, however as per the study conducted by (Ray, S., 2012) It fails to detail activity costs and costs of production. Several institutions in the manufacturing set up have implemented activity based costing technique and a number of them have indicated that the technique has two major purposes of ABC. It prevents cost distortion which transpires through the combination of all indirect expenses by the conventional costing techniques into one cost category. The study done by (Al-Saidi, S.H. and Gowda, H.N., 2015. ) indicated that Activity Based Costing prevents cost distortion by using a number of cost activities and cost drivers and its other rationale is to reduce wastage or activities that do not add value to the entity by implementing the use of a process examination. The study by (James, P.C., 2013) shows that ABC is aggravated in the belief that use of conventional accounting information is not useful to management who are concerned with the evaluation of the usefulness of capital allocation decisions in their businesses. Onat, O.K., Anitsal, I. and Anitsal, M.M., 2014 concluded that the conventional information is however used towards satisfying company accountants and stakeholders outside the company who are concerned in giving or relying on evidence of monetary accountability. Therefore, Managers should set up a useful technique that will enhance organizational transformation and success if the entity is to obtain benefits from the enhanced insights coming from an ABC implementation. The study by (Hughes Andrew, 2005) indicated in his research that ABC assists firms to concentrate on their activities and products; the technique traces cost-to-cost drivers. ABC information, by itself, does not invoke actions and decisions leading to improved p rofits and operating performance. Management must institute a conscious process of organizational change and implementation if the organization is to receive benefits from the improved insights resulting from an ABC analysis ABC technique is extensively advocated as a crucial instrument for enhancing the company, behavioral and accounting activities in an entity. A number of companies have realized that the pursuit of excellent performance can highly be realized by employing ABC techniques. Activity Based costing centers on costs connected with events, however it assesses whether those undertakingsenhance value, consequently providing a basis of understanding how costs are most efficiently reduced. On the other hand, applying ABC technique offersexecutives better means of managingcontinuing performance. The main objective of ABC techniques is improved product cost estimation, management of expenditures, optimum decision making and competitive advantage. On the other hand, several uncertainties have been conveyedconcerning the efficiency of ABC. A number of entities havenot managed to accomplish their Activity Based Costingplans and in some they have not achieve expected benefits in their ABC systems in p lace. The study by (Odendaal, M.M., Vermaak, F.N. and Du Toit, E., 2015) showed that Activity Based Costing is seen as an enabler to enhance the expansion of cost-effective designs of products and productionmethods. For instance accountants giving significant inputs into the design of the product and development resolutions, Activity Based Costing try to reflect the production process, inthat production worker and assembly managers certainly can evaluate design variations may change costs. Moreover, by spreading the idea of ABC through the assessment chain, accountants might give data regarding the relative expenditure of continued manufacturing problems and production design variations such that production managers can weighoptionswhile poor quality design arises, as per the study conducted by (Kaplan and Norton, 2001). Manufacturing and Associated Industries and Occupations Award 2010 This Modern award comprisesof intermediate provisions that phase in every excess or decline in wage connected matters comprisingof lowest wages, fines, loadings and variousgrantsstarting with conditions relating to thepertinent pre-contemporary award, the below Wage Condition Guides should be read in relation with the this award. The wage and condition guidecomprisedataas regards the Contemporary Award including: individuals that the award covers;pay rates, comprising rates for casual workers, junior staffs, trainees andinterns. It also covers penalty tariffs for working at specific times or in relation to specific schedules; allowances; and, additional circumstances of service. expected sales units price total casual table 50,000 $600 $30,000,000 Deluxe Table 10,000 $800 $8,000,000 Production budget (in units) For the year ending 30 June 2017 Casual Deluxe Budgeted unit sales 50,000 10,000 Target ending finished goods inventory 11,000 500 Total required units 61,000 11,500 Deduct: beginning finished goods inventory 1,000 500 Units of finished goods to be produced 60,000 11,000 Direct materials usage budget (in units) For the year ending 30 June 2017 Direct materials usage budget (in units) For the year ending 30 June 2017 XX YY Direct materials required for Casual tables 600,000 300,000 Direct materials required for Deluxe tables 120,000 80,000 Total quantity of direct materials to be used 720,000 380,000 Direct materials usage budget (in dollars) For the year ending 30 June 2017 XX YY Beginning direct materials inventory XX 490,000 600,000 Purchased direct materials during the period 4,550,000 3,200,000 Direct materials to be used 5,040,000 3,800,000 Direct material purchases budget For the year ending 30 June 2017 Physical Units Budget XX YY To be used in production 720,000 380,000 Add: Target ending inventory 80,000 20,000 Total Requirements 800,000 400,000 Less: Beginning inventory -70,000 -60,000 Purchases to be made (in quantity) 730,000 340,000 Purchases in dollars 5,110,000 3,400,000 Direct labour cost budget For the year ending 30 June 2017 Output units produced Direct labour hours per unit Total hours Hourly wage rate Total Casual 60,000 4 240,000 20 4,800,000 Deluxe 11,000 6 66,000 20 1,320,000 total 71,000 10 306,000 40 6,120,000 activity-based budgeting Casual tables Deluxe tables Quantity of tables to be produced 60,000 11,000 Number of tables to be produced per batch 50 40 Number of batches 1,200 275 Setup time per batch 10 12 Total setup hours 12,000 3,300 Setup-hours per table 5 3.3 Unit Costs of Ending Finished Goods Inventory Cost per unit Casual input Total Deluxe input Total XX $7 11,000 $77,000 $5,110,000 $5,187,000 YY $10 11,000 $110,000 $5,110,000 $5,220,000 Direct labour $20 440,000 $3,740,000 $4,400,000 $8,140,000 Manufacturing overhead 14,620,000 18,547,000 Machine setup overhead $9,000,000 Total $46,094,000 Ending Finished Goods Inventories budget Quantity Cost per unit TOTAL Casual 11,000 600 6,600,000 Deluxe 500 800 400,000 Total 11,500 1400 7,000,000 Sensitivity analysis The change in the cost of raw materials indicates a loss in the operating income with a big margin. To solve this, management should increase the selling prices for both Casual and Deluxe type by 140% in order to break even? To get slight profit above breakeven point, the marginal costs should be decreased by 20% because profits are highly sensitive to changes in expenditure and changes in prices. At the same time the sales volume can be increased in order to increase the profit margin. Therefore, changes in either the increase in sales volume or prices will significantly change the profits. sales $431,200,000 variable cost $421,668,916 contribution margin 9511084 less fixed cost -2550000 operating profit 7,261,084 In this case, operating profit will increase from -386238916 to 7,261,084. Therefore, an increase in price will be appropriate for the company. References Kaplan, R. S. and D. P. Norton. 2001. "Transforming the Balanced Scorecard from Performance Measurement to Strategic Management: Part II." Accounting Horizons 15 (2): 147-160 Odendaal, M.M., Vermaak, F.N. and Du Toit, E., 2015. Cost estimation and management over the life cycle of metallurgical research projects.Southern African Business Review,19(Special Edition 2), pp.137-156 AlMaryani, M.A.H. and Sadik, H.H., 2012. Strategic management accounting techniques in Romanian Companies: some survey evidence.Procedia Economics and Finance,3, pp.387-396 Onat, O.K., Anitsal, I. and Anitsal, M.M., 2014. Activity based costing in services industry: A conceptual framework for entrepreneurs.The Entrepreneurial Executive,19, p.149. James, P.C., 2013. An analysis of the factors influencing the adoption of activity based costing (ABC) in the financial sector in Jamaica.International Journal of Business and Social Research,3(7), pp.8-18 Al-Saidi, S.H. and Gowda, H.N., 2015. Impact of Characteristics and Environment of the Company on the Adoption of ABC System in the Large Manufacturing Companies in Karnataka Ray, S., 2012. Relevance and Applicability of Activity Based Costing: An Appraisal.Journal of Expert Systems,1(3), pp.71-78