Cost Accounting Final submission

ACC 207 Final Project Guidelines and Rubric

Overview

The final project for this course is the creation of a quantitative analysis with a memo to management.

Classifying a company’s costs allows for an in-depth analysis of the impact that changes in output have on revenues, costs, and net income or net loss. A cost- volume-profit (CVP) analysis will be completed in order to determine the breakeven point. Relevant costs will be used to prepare a flexible budget. Additionally, an appropriate costing system should be selected and the choice should be substantiated with reasonable rationale. Finally, a memo should be prepared for management that summarizes the results of the quantitative analysis and makes recommendations for an optimal costing system to be ethically used by key decision makers.

The project is divided into three milestones, which will be submitted at various points throughout the course to scaffold learning and ensure quality final submissions. These milestones will be submitted in Modules Two, Four, and Five. The quantitative analysis with a memo to management will be submitted in Module Seven.

In this assignment, you will demonstrate your mastery of the following course outcomes:

·       Utilizecostbehaviorandcost analysistoassistdecisionmakers inplanningandaddingvalue tothebusiness

·       Prepareaflexiblebudgetforsupportinginformedmanagerialdecisionmaking

·       Interpret variances for determining the optimal costing system to fit an organization’s internal accountingneeds

·       Interprettheroleofethicsincostaccountingfordeterminingitsimpactondecisionmaking

Prompt

In this assignment, multiple analyses will be conducted in order to obtain a company’s financial information specific to company costs.

MDE manufactures outdoor garden items such as lawn ornaments and bird feeders. MDE uses a standard costing system to set standards for direct materials, labor, and overhead costs. MDE reviews and revises standards as necessary. Recently, budget variances for bird feeders have caused some concern. You, the company’s cost accountant, have been asked to examine the numbers for the product, explain the variances, and suggest ways to improve performance.

Specifically, the following critical elements must be addressed:

You will begin by using the MDE Manufacturing Budget (Table I) to analyze costs, contribution margin, and breakeven point for the bird feeder division. You will then analyze the actual costs and complete a cost-volume-profit (CVP) analysis to determine how many bird feeders must be sold at the current cost and sales price level to earn a $10,000 profit and how much the sales price would have to increase to earn a $10,000 profit at the same cost and sales volume level. Use Tabs 1 and 2 of the Student Workbook.

I.        Costs

a)   Classify all product and period costsappropriately.

b)   Compute a cost-volume-profit analysis. What are the implications of thisanalysis?

c)   Compute contribution margin per unit and contribution marginratio.

d)   Determine the breakeven quantity and the breakeven revenueaccurately.

e)   Determineifthecompanyisbreakingeven.Whatarecost-volume-profitanalysisimplicationsonshort-termplanning?

Your next step is to use the MDE Manufacturing Budget (Tables I, II, III, IV) to compare the budget and actual costs. Determine where variances occurred and explain why. Use Tabs 3 and 4 of the Student Workbook to present your budgets/variances and Tabs 5 and 6 for all budget/variance calculations.

II.      Prepare andPerform

a)   What are your fixed costs? Segregate them in the budgetmodel.

b)   Determine how variable costs change as activity measures change. How can this information beapplied?

c)   Create the budget model, ensuring fixed costs are hard coded into the model (variable costs are stated as a percentage of the relevant activity measures or as a cost per unit of activitymeasure).

d)   Add actual activity measures to the model. Make sure all information is addedaccurately.

e)   Add the flexible budget calculations to the budget model. Make sure all information isaccurate.

f)    Comparetheflexiblebudgettotheactualexpenses.Whatdoesthisinform?Besuretodiscussthefollowingvariances:

i.           Static budget variance, including sales volume and flexible budgetvariances

ii.           Price and efficiency variances for direct materials and directlabor

iii.           Spending and efficiency variances for variable manufacturingoverhead

g)   Determine the aspects of the budgeting process that are in need of improvement. Justify yourresponse.

h)   Interpret what budget variances represent. Should all variances beinvestigated?

You have also been asked to give management a recommendation on whether the company should switch from process costing to activity-based costing (ABC). This is an exploratory discussion, but management would like to know more about the difference between the two costing systems and if a different costing system might work better for the company.

III.    Main Costing Systems – Activity-Based Costing vs. ProcessCosting

a)   Identify the cost allocation system that would benefit this company most. Justify yourresponse.

b)   Does this cost allocation system meet management planning and control goals?Explain.

c)   What are the ethical implications that should be considered with this cost allocationsystem?

d)   Describetheethicalimplicationsofdirectcostsversusindirectcosts.Whatconsiderationsshouldbemadewhenselectingoneofthesetwo?

After all of your calculations and research, you are now ready to prepare your report.

IV.    Prepare a Memo toManagement

a)   Summarizeyourquantitativeanalysisbasedonyourfindings(includeanswerstoallquestionsinSectionsI,II,andIII).

b)   Reportthepartsofthebudgetingprocessthatarein needofimprovement.Providesuggestionstoimprovethoseparts.

c)   Reportoverallimprovementrecommendations tomanagement.Considertheethicalimplicationswhencommunicatingsensitiveinformation.

Milestone One: Draft of Costs (Section I)

Milestones