[wpecpp name=”Management accounting” price=”40″ align=”center”]

  1. Prepare and present budgeted profit statements using:

Conventional absorption costing

TACYZTABWXYI
Revenue3,800,0002,190,0002,250,000
Variable costs3,360,0001,950,0001,600,000
Gross profit440,000240,000650,000
Assembly overhead98,94349,472288,585
Machine overhead240,000144,000120,000
Total overhead338,943193,472408,585
Operating profit101,05746,528241,415

 

Activity based costing (ABC)

ABCYZTABWXYI
Revenue3,800,0002,190,0002,250,000
Variable costs3,360,0001,950,0001,600,000
Gross profit440,000240,000650,000
Assembly overhead72,00036,000210,000
Machine overhead170,000102,00085,000
Order processing overhead39,00078,00039,000
Purchasing overhead30,00031,50022,500
Set up cost overhead10,00010,0006,000
Total overhead321,000257,500362,500
Operating profit119,000-17,500287,500

 

 

Comment on these results

Most importantly, one of the main significant that is evident from the results is the fact that the addition of the activity-based costing data is manifested differently in the three products’ operating profits. For example, ABW results shows that it incurred a set back since its operating profits goes from £46,528 to -£17,500; this may be due to some factors such as customer orders, supplier orders, and set ups. While relating the ABW results to the other figures, they show that when the ABW had the lowest production volumes, it required the joint highest number of supplier and customer orders and set ups. Consequently, even though ABW required a lower number of production hours, its higher order volumes, and set an up means that, under the activity-based costing, it reports a negative operating profit. Primarily, the ABW’s supplier and customer processing costs are double that of the other two products, meaning that it accounts for more than half the difference between the activity-based and traditional absorption costing figure (BRADTKE 2007, p. 6-8).

After full analysis on the ABW

[wpecpp name=”Management accounting” price=”40″ align=”center”]

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