allow students to demonstrate their ability

Purpose: This assessment is designed to allow students to demonstrate their ability to analyse given financial information relating to a management accounting problem, similar to real world problems, and present their findings and conduct analysis of this information as it applies to accounting concepts.

Topic: Management Accounting Problem (Case Study).

Connectta Ltd manufactures furniture for computer work stations. Connectta uses a job costing system. The work in process inventory on 30 November consisted of the following jobs.

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Job. No.                        Description                                     Units                              Total cost

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CC723                        Computer caddy                         20 000                                900 000

CH291                        Chair                                               15 000                                  431 000

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PS812                         Printer stand                               25 000                             250 000

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T otal                                                                                                                                       $1 581 000

On 30 November, the company’s finished goods inventory consisted of four items.

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item                                             Quantity and unit cost                                                                Total costComputer caddy                  7 500 units @ $64 each                                                          $ 480 000

Chair                                           9 400 units @ $35 each                                                         679 000

printer stand                       21 000 units @ $55 each                                                       1 155 000

Desk                                        11 200 units @ $102 each                                                    1 142 400

T otal                                                                                                                                                     $3 456 400

At the end of November, the balance in Connectta’s materials inventory account, which includes both raw materials and purchased parts, was $668 000. Additions to and requisitions from the materials inventory during December included the following.

Additions and requisitions                   Raw materials                                 Purchased parts

Additions                                                      $242 000                                               $396 000

Requisitions:

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Job CC723                                                   51 000                                                    104 000

Job CH291                                               3 000                                                         10 800

Job PS812                                              124 000                                                      87 000

Job DS444(5000 desks)                65 000                                                            187 000

Connectta applies manufacturing overhead on the basis of machine hours. The company’s manufacturing overhead budget for the year totalled $4 500 000. The company planned to use 900 000 machine hours during this period, which is the firm’s estimated practical capacity. Through the first 11 months of the year, a total of 830 000 machine hours were used, and actual manufacturing overhead amounted to $4 140 000.

During December, machine hours and labour hours consisted of the following:

Account                    Machine hours                Labour hours                                           Labour cost

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CC723            12 000                                                  11 600                                                     $122 400

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CH291              4 400                                                    3 600                                                              43 200

PS812              19 500                                                14 300                                                          200 500

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DS444           14 000                                                  12 500                                                         138 000

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Indirect labour   –                                                        3 000                                                         29 400

Supervision     –                                                                  –                                                               57 600

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T otal             49 900                                                 45 000                                                          $591 100

The jobs completed in December and the unit sales for that month are as follows:

Job No.     Production items   Quantity completed        items            Quantity shipped

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CC723    Computer caddy        20 000                      Computer caddy                   17 500

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CH291          Chair                           15 000                                   Chair                                       21 000

DS444        Desk                                5 000                             Printer stand                             18 000

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                                                                                                                  Desk                                         6 000

Required:

1. Describe when it is appropriate for a company to use a job costing system.
2. Calculate the balance in Connectta’s work in process inventory account as at 31 December.
3. Calculate the cost of the chairs in Connectta’s finished goods inventory as at 31 December.
4. Actual manufacturing overhead incurred in December amounted to $252 000. Calculate Connectta’s overapplied or underapplied overhead for the year.
5. Explain two alternative accounting treatments for overapplied or underpaid overhead balances when using job costing system.
6. Explain how activity-based costing could overcome the deficiencies inherent in the existing costing system.

Task details: Students are to analyse the given information, make calculations where relevant and draw relevant, supported conclusions and make justified recommendations. Responses are to be formatted into a professional report for each part of each question, as would be expected of someone working in a modern accountant’s office. The report should include: title page, executive summary, table of contents, introduction, body, conclusion and reference list.

Research requirements: Students need to support their analyses with references from the text and a minimum of six (6) suitable, reliable and academically acceptable sources. Check with your tutor if you are unsure of the validity of sources. Students seeking Credit or above grades should support their analysis with increased number of reference sources comparable to the grade they are seeking.

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