Task 1. A manufacturing company is thinking of changing its method of computing product costs for the purposes of making decisions. Under the company’s conventional direct labour-based costing system, manufacturing overhead costs are applied to products

BA7003 Management Accounting

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You are required to prepare answers to the essay questions set out in tasks 1 to 3 in the table below. You must use appropriate academic peer reviewed literature to support your arguments and you must also, where appropriate, use self-generated financial data to help explain your ideas.

 

Task 1. A manufacturing company is thinking of changing its method of computing product costs for the purposes of making decisions. Under the company’s conventional direct labour-based costing system, manufacturing overhead costs are applied to products on the basis of direct labour-hours. Under the proposed activity-based costing (ABC) system, both manufacturing and non-manufacturing overhead costs are applied to products using a variety of allocation bases at the unit, batch, and product levels.

Required                   

For each of the following products, indicate the impact on the product’s apparent cost from switching from a conventional direct labour-based costing system to an activity-based costing system.

1. A low-volume product that is produced in small batches.

2. A high-volume product that is produced in large batches with automated equipment and that requires very few direct labour hours per unit.

3. A high-volume product that requires little machine work but a lot of direct labour.

Task 2. Compare and contrast Balanced Scorecard with financial ratio analysis and explain why Balanced Scorecard is more appropriate for analysing entity’s performance than financial ratio analysis?

Task 3 Describe disadvantages associated with budgeting in management performance evaluation. Explain remedies for improving the use of budgeting in evaluating management performance.

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