Advanced Management Accounting Samples for Students-Myassingment

Questions: 1.What is Costing Problem associated with MMR? 2.Suggest Costing System using Conventional Costing? Answers: 1.Costing problem associated with MMR Macs Moulding and Repairs Ltd running its SME business successfully. The company has recorded 15% year on year growth. It has three business lines which are moulding, custom plastic products and repairs. Moulding business of MMR is the most profitable business which growing significantly. It includes moulding of plastic and other material into products. Although the sales of the MMR have been increased significantly but their profit margin is not up to the mark. The staff of MMR are highly skilled and efficient enough to deliver the work on time. Moulding business of MMR has increased by 15% in each last three year. Some specific machines and equipment are used in moulding. The cost involved in the moulding process is majorly variable which increase with the increase of production. The process is fully automated which means a single person can operate 30 machines at a time. Customers are given 60 days credit without any extra charges. Even the transportation cost has been paid by the MMR itself. The reason behind this is to compete in the market. On the other hand, custom work division of MMR produces the products on the provided designs of the customers. They do not provide any designing services to its customers. The custom work is more labour intensive as every order is different with the last one. However, deposits are taken in advance and full payment is recovered within the 7 days of the sales. Customs product line includes the manufacturing of customised products using fibreglass, Plastic, carbon fibre and other Morden materials. Labours enjoys their work and are highly skilled. The repair business of MMR provides a wide range of repair services to the customers. It includes repairing of Canoes, boats, industrial equipment and custom cars. Repair workshop business of MMR is also profitable which includes selling of repair stocks as well. MMR sells the repair tool both online and offline. Repairs work is carried out in a separate building by the labours. This business is also a labour intensive. Speedy delivery and quick services are the core strength for MMR. Job costing method is being used by MMR for cost accounting. Moulding considers each production as a new job. Direct labour and material cost are tracked by the job sheets. However, following costing issues have been observed which resulted in a low profit margin of MMR: In moulding, whenever MMR gets a new and urgent order it stops the current order and goes with the new production. The material and sources used for the previous production need to be dumbed which increases the material cost. 60 days credit allowed by MMR is also increasing its operating cost as money is on credit without any interest. MMR is losing opportunity cost on its credited amount. Free transportation is also increasing the cost for MMR. In the customs division, the process is more labour intensive and thus, the cost of production is higher in this division. At a time 5 units are produced which is very low. Fixed cost is very high in custom work which is why the profits are comparably low. Repair works is also a labour intensive division but the company is selling repair material too and using the space at repair workshop. Costing approach of MMR is also responsible for low-profit margins. All the cost are merged together and distributed equally among all the division which i s not a favourable practice. Pricing is done by following cost plus approach. Moulding 20%, custom 30% and repairs 25%. The margin for custom and repair works is not adequate as both the process are labour intensive and cost of production is generally much higher than moulding (Drury, 2008). 2.Significance of costing Cost accounting is a technique and a tool to determine the cost of the project. Minimum the cost maximum the profit. Thus, while taking decisions managers consider cost at priority and take feasible and profitable decisions where cost is minimum (Eldenburg et. al., 2017). Conventional costing is convenient and easy to examine. In conventional costing, volume cost driver is used which distorts the cost of product. Excess or any undesired cost is billed to the customer with the help of job costing (Kinney Raiborn, 2008). However, conventional costing method is not appropriate for the diversified product line as a single method of costing is used. Nature of product and its process is ignored which does not give the right information about the actual cost associated with the product or service. Presently, MMR uses job costing method as the management find this method more convenient and easy to absorb its cost irrespective of the nature and complexity of its product lines. MMR can incre ase its profits by using different methods of costing for its each business line. Hybrid costing system is a morden approach which has been widely used by the companies for costing. It favours the combination of two or than two costing method depending on the nature of the manufacturing process and material. For moulding division, it can use batch costing as design and nature of the product is similar. It helps to treat each batch of production as a separate job. Contract costing is also good for its custom works as every order is separate from another (Hansen, Mowen Guan, 2015). Cost involved in custom work is usually higher than other two division. The cost of each produced unit differs due to different need and requirement of the customers. For its repair works, it can continue with the job costing as the repairs works run in a separate rented building where the fixed cost including rent and labour is very high. Job costing will help to write off the fixed cost with the each job (Eldenburg et. al., 2017). MMR need to revise its pricing as the custom and repairs division are more labour intensive whereas the moulding division comprises variable costing. It needs to increase the production of custom work and repairs so that fixed cost can write off. Higher production level reduces the fixed cost and helps to minimise the cost of production (Eldenburg et. al., 2017). References Drury, C. (2008). Management and Cost Accounting. London: Cengage Learning EMEA. Eldenburg, L. G., Brooks, A., Oliver, A., Vesty, G., Dormer, R., Murthy, V. (2017). Management Accounting. Milton: John Wiley Sons Australia. Hansen, D., Mowen, M., Guan, L. (2015). Cost Management: Accounting and Control. Mason: Cengage Learning. Cengage Learning. Kinney, M., Raiborn, C. (2008). Cost Accounting: Foundations and Evolutions. Mason: Cengage Learning.