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Financial Management Accounting for Material Handelling

Question

Discuss about the Financial Management Accounting for Material Handelling.

Answer:

Material Handling Rate as per Eloise Smith’s predecessor is 10%
 
In the question, it is said that the material handling cost does not apportion the purchase order for marketing, finance and administration, Human Resource and maintenance, so we have not included the following cost. The new material handling costs on a per purchase order basis is 1.220339
 
If volume based activity is not used, then the quantity of material consumed by the product will be assigned to it, and it will cost high range of accuracy. It is so because, in activity based costing, many O/H expense is the amount are followed by inclusion of the new product and the diversion and complexity of producing, not only the quantity of the production. But the non-production expenses are required like some the purchase order.
 
Savings from material handling cost is 102973
 
Forecast of the mat. Handling Cost
 

Particulars

Year 1

Year 2

Year 3

Purchases order

254100

266805

280145.3

government purchase orders to total purchase orders

83853

88045.65

92447.93

The direct material in govt. contract

2056150

2107553.75

2160243

Material handling costs

0.117647

0.117647

0.117647

a. Smith has an ethical conflict because the material handling cost should be allocated to the per purchase order, but Jones want to allocate into government contracts because material handling cost can be more adjusted which will help Jones in earning a profit. But the strategy of Smith can decrease Jones per unit earning and cut his bonus for the year. So to gain more profit from the government contract Jones is telling Smith to adjust the price, which an unethical issue.

b. Steps that Smith should take to resolve the ethical conflict are as follows:

First of all, Smith should talk to the next supervisor excluding the case supervisor is to be involved, when there is a problem that should be reported to the higher level manager. If you see that the result is not satisfactory, and action is not taking place, then the issue should be conveyed to the next higher official. If the next immediate manager is CEO or equivalent, then the immediate official should be initially contacted, with an assumption that manager is not involved in the matter.

Then clarification of the ethical issue should be discussed with an objective advisor through a confidential way, to get a better understanding of the relevant course of action. Consultancy should be done with the attorney about a legal matter and rights related to the ethical conflict.

If there is still the existence of the ethical conflict after conveying the issue through all levels of the internal management, there are no other course of action is left to be done. The only thing can be done to resign from the company and to submit the descriptive memorandum to the concerned  people of the organization

2. The details of the calculation are given as below

Statement of Projected Cost & Profit:-

 

 

 

 

 

Period: 1st July to 31st December

 

 

 

 

 

 

Standard

 

Commercial

 

 

 

Unit

100000

Unit

100000

 

Particulars

Total Amount

Cost Per Unit

Total Amount

Cost Per Unit

 

 

 

 

 

 

 

Total Sales

2000000

20

3000000

30

 

 

 

 

 

 

 

Direct Material

700000

7

800000

8

 

Direct Labor

400000

4

400000

4

 

Manufacturing Overhead:

 

 

 

 

 

Variable

100000

1

200000

2

 

Fixed

400000

4

500000

5

 

Selling & Administrative Expenses:

 

 

 

 

 

Variable

400000

4

700000

7

 

Fixed

240000

2.4

360000

3.6

 

 

 

 

 

 

 

Total Cost

2240000

22.4

2960000

29.6

 

 

 

 

 

 

 

Net Profit

-240000

-2.4

40000

0.4

 

a. The answers to this question are given in the below-mentioned calculation

Break Even Analysis of Standard Product:-

 

 

 

 

 

Particulars

Option 1

Option 2

Option 3

Option 4

Option 5

Selling Unit

120000

100000

90000

80000

50000

 

 

 

 

 

 

Selling Price p.u.

18

20

21

22

23

Variable Costs p.u.:

 

 

 

 

 

Direct Material

7

7

7

7

7

Direct Labor

4

4

4

4

4

Var. Manuf. O/H

1

1

1

1

1

Var. Selling & Administrative Cost

4

4

4

4

4

Contribution Per Unit

2

4

5

6

7

Fixed Costs:

 

 

 

 

 

Manufacturing Overhead

400000

400000

400000

400000

400000

Selling & Administration Expenses

240000

240000

240000

240000

240000

Total Fixed Costs

640000

640000

640000

640000

640000

Break Even Point in Unit

320000

160000

128000

106666.7

91428.57

Break Point in Dollars

5760000

3200000

2688000

2346667

2102857

 

Particulars

Option 1

Option 2

Option 3

Option 4

Option 5

Selling Unit

175000

140000

100000

55000

35000

Selling Price p.u.

25

27

30

32

35

Variable Costs p.u.:

 

 

 

 

 

Direct Material

8

8

8

8

8

Direct Labor

4

4

4

4

4

Variable Manufacturing O/H

2

2

2

2

2

Variable Selling & Administrative Expenses

7

7

7

7

7

Contribution P. U.

4

6

9

11

14

Fixed Costs:

 

 

 

 

 

Manufacturing Overhead

500000

500000

500000

500000

500000

Selling & Administration Expenses

360000

360000

360000

360000

360000

Total Fixed Costs

860000

860000

860000

860000

860000

Break Even Point in Unit

215000

143333

95556

78182

61429

Break Point in Dollars

5375000

3870000

2866667

2501818

2150000

The factors, which could lead to closure of business of Clean and Bright Compounds Fremantle plant, are as follows

Low profits: Clean and Bright Compounds Fremantle incapability to yield a high amount of profit is one of the common reasons, which leads to the closure of business. It is evident from the case study that the owners of business spend a huge amount of money on inventory, productions, and general administration expenses at the time of operating the company activities. 

High competitions: The organization may face tough competitions from a different number of companies in the economic markets. A business like Fremantle may face competitions while attempting to preserve the adequate amount of market share. However, the owners of the company may close the business if the competitors produce goods constantly by lowering some products.

Hawthorn Leisure Works will earn its revenue from annual membership fees and hourly court fees. Earning from hourly court fee is not fixed by varies. Under new cash receipt plan, membership fees will be collected before, and there is no separate cost for hourly court fee. HLW should utilize the new cash receipt which will increase the cash planning.

Total yearly revenue is from the planned changed in fee structure is 38188. No assumptions have been made, as stated in the question difference in the number of projected member, and a current member is 600 which will be filled up in October.

key factors are as follows:

The annual membership fee will be charged, ignoring membership fees plus hourly court fees.

There are two categories of membership.

The annual fee will be collected during the application of the membership

HLW should follow horizontal and vertical analysis method in evaluating his financial statement.

During the peak season, total hourly court fees was which are referred as prime time and non-prime time is calculated as 147696 whereas after the peak time it is 52992 so the difference arise which is increased. So cash receipts get fully affected as the results shows.

Bibliography:

Activity-based costing 2016, , 6th edn, Oxford University Press.

Browning, M., and Heinen, E., 2012. Effect of job loss due to plant closure on mortality and hospitalization. Journal of health economics, 31(4), pp.599-616.

Costing, Capital Investments, and the Integration of Sustainability Risks 2014.

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

Gómez Valdés, J., 2015. Costes basados en el tiempo invertido por actividad (TDABC): una aplicación práctica= Time-driven activity-based costing (TDABC): a practical application.

Hope, J. and Fraser, R., 2013. Beyond budgeting: how managers can break free from the annual performance trap. Harvard Business Press.

Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.

Kelly, J.M., 2015. Performance budgeting for state and local government. shape.

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