Tutorial 5

Tutorial 5 - THE UNIVERSITY OF NEW SOUTH WALES SCHOOL OF...

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1 THE UNIVERSITY OF NEW SOUTH WALES SCHOOL OF ACCOUNTING ACCT2522 Management Accounting I Session 1, 2009 Tutorial Week 5 - Managing Cost II: Activity Based Costing Overall Theme Activity Based Costing: We aim to explain the cost allocation problem and discuss how this problem is resolved. In doing this, we compare the relative merits of traditional and activity- based costing (ABC) techniques. We will consider how ABC information can be used for cost management and process improvement (activity-based management - ABM). Desired Learning Outcomes and Essential Reading Langfield-Smith Chapter 8 (including Appendix). After completing this topic, you should be able to: 1. Explain problems associated with conventional costing systems, resulting from a failure to adapt to the changing business environment. 2. Recognise the common indicators of an outdated product costing system. 3. Understand the views of the ABC model. 4. Apply and understand issues associated with ABC.
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2 Tutorial Question (must be prepared prior to the tutorial) This question is adapted from CMA as found in Langfield Smith Chapter 8 (4 th edition). Queensland Electronics Company manufactures two large-screen television models, the Novelle which has been produced for 10 years and sells for $910, and the Zodiac, a new model introduced in early 2005, which sells for $1160. Based on the following income statement for 2006, a decision has been made to concentrate Queensland’s marketing resources on the Zodiac model and to begin to phase out the Novelle model. Queensland Electric Company Income Statement for the year ended 31 December 2006 Zodiac Novelle Total Sales $4,640,000 $20,020,000 $24,660,000 Cost of goods sold $3,232,000 $13,024,000 $16,256,000 Gross margin $1,408,000 $6,996,000 $8,404,000 Selling and administrative expenses $980,000 $5,700,000 $6,680,000 Net profit $428,000 $1,296,000 $1,724,000 Units produced and sold 4,000 22,000 Net profit per unit sold
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Tutorial 5 - THE UNIVERSITY OF NEW SOUTH WALES SCHOOL OF...

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