Unit Learning Outcomes covered in this assessment
The purpose of this assignment is to assess the following Learning Outcomes:
a. Demonstrate advanced understanding of management accounting in the contemporary business environment.
b. Analyse business problems, apply management accounting techniques and critically evaluate appropriate approaches to the generation of financial information for decision making.
c. Apply management accounting practices and theories to research, analyse and solve business and management problems.
d. Research, evaluate and prepare business reports which communicate and present financial solutions on management issues in writing.
e. Adapt knowledge to new situations to develop flexible approaches to problem solving.
f. Assist management decisions by appraising, integrating and prioritising appropriate financial management information to aid decision making.
Assignment Description
Australian owned and operated family safe manufacturing company CMI Safe Co., manufactures and sells fireproof safes and document containers of various shapes and sizes for home use, including safes made to Australian/New Zealand Industry standard AS/NZS 3809. The division now makes 50 different products but these fit into the two main product groups of 35 metal safes and 15 more recently developed plastic safes. Table 1 shows last quarter's income statement by product group.
Table 1-CMI quarter 1 income statement by product group
|
|
Metal safes
|
Plastic safes
|
Total
|
|
|
$
|
$
|
$
|
$
|
$
|
$
|
|
Sales revenues
|
|
296900
|
|
246800
|
|
543700
|
|
Direct materials
|
21500
|
|
20680
|
|
42180
|
|
|
Process and support costs
|
231770
|
|
170280
|
|
402050
|
|
|
Total costs
|
|
253270
|
|
190960
|
|
444230
|
|
Net income
|
|
43630
|
|
55840
|
|
99470
|
|
Profit margin
|
|
14.70%
|
|
22.60%
|
|
18.30%
|
Table 2-CMI data on key activities
|
Activity
|
Cost driver
|
Estimated costs ($)
|
|
Insulation process
|
Insulation process hours
|
180700
|
|
Assembly process
|
Assembly process hours
|
69600
|
|
Quality control
|
Number of inspections
|
80080
|
|
Materials management
|
Number of requisitions
|
47800
|
|
Selling and administration
|
Number of sales orders
|
23870
|
|
Total process and support costs
|
|
402050
|
The assembly process for plastic safes is quite complex and there has recently been a high level of rejects. This has resulted in the need for increased quality control activities. Plastic safes generally comprise more components than metal safes, causing more material movements. The plastic safe product group is still new and CMI's customer base is characterised by a large number of customers each ordering small volumes.
Required
Read the above scenario and write a report to the managing director discussing key reasons as to which costing system produces the most useful information for management. Also state your recommendations in respect of product strategy (product mix) as a result of the information produced.
In your report:
1. Explain the general problems associated with CMI's traditional costing system and highlight any indicators that the current costing system is outdated and flawed.
2. Calculate the rate per activity driver to be used in the desired activity-based costing system and produce a revised income statement by product group tracing process and support costs to product groups using activity-based costing methodology.
3. Analyse and explain the differences in product costs and net profit margins between the two alternative costing systems.
Report should incorporate the following sections:
1. Cover page
2. Executive summary
3. Table of contents
4. Introduction
5. Body: this section should include topics such as
- Traditional volume-based costing systems
- Activity-Based Costing System
- Factors affecting the selection of an appropriate product costing system
- Limitations of adopting Activity-Based Costing System
7. Conclusion
8. Reference list (8-10 references must be cited)
To achieve this task, you are required to:
- review journal articles to discuss traditional product costing systems and articles to discuss the appropriateness of the contemporary approaches to cost allocations (e.g. ABC approach) to resolve the issues of costing.