Accounting Assignment

Profit Maximization

It is the objective of the concept of profit maximization for a company to realize its profits in a legal and ethical manner. However, managers may tend to manipulate the reported profits to indicate an increase in profits to allocate themselves greater bonuses since their performance evaluation and rewards are directly linked to profits. Therefore, the process of evaluating and rewarding of managers should be designed in a way that prohibits unethical behavior. Further, optimal profits achievable by ethical standards, are lower in the short term in comparison to when the managers have not acted ethically but would increase in the long term.

For a company to ensure that its employees act in an ethical manner, it should establish an atmosphere and a culture of ethical business practices through rewards to employees who act with integrity, fairness, and honesty. Further, the company can establish its own professional conduct and that should be communicated to employees to affirm its visibility for enforcement. Moreover, certified accounting professionals should be hired while at the same time applying ethical values when selecting employees to other departments.

Question 2

Costs Classification 

Direct Materials

Steel

Direct Labor

Wages paid to production workers.

Factory Overheads 

Depreciation on machinery in plant.

Rent on factory building.

Maintenance workers’ wages.

Utilities in the plant.

Period Costs

Utilities in the office.

Accountant’s salary.

Rent on office equipment.

Maintenance on office equipment.

Question 3

Actual Costing v. Normal Costing

Actual costing systems do not provide accurate and timely unit cost information, therefore, they are rarely used in practice. Further, the actual overhead costs per unit may vary significantly from one period to the next due to; variation in the number of units produced as well as costs in the periods. Therefore, using actual costing may lead to units produced during low-volume periods being assigned higher costs than those produced during high-volume periods. Accounts can thus wait until the end of the accounting period to use the total actual overhead costs for the period to ascertain the cost per unit to avoid per-unit cost fluctuations (Kinney and Raiborn 2012, p. 63). However, it would be too late to provide decision-making, control, and planning. Therefore, it is appropriate to use normal costing system as well as the predetermined overhead rate to mitigate the problems accruing from using actual costing system. 

Normal costing solves the problem by using a predetermined annual overhead rate to assign products a manufacturing overhead thus it is based on the expected overhead costs for the whole accounting period as well as the expected production volume for the year. Normal costing, therefore, results in overhead rates that are more realistic and uniform for all the manufactured units during the accounting period.

Question 4

Statement of Cost of Goods Manufactured for the Month of May:

Maloney Company

Statement of Cost of Goods Manufactured

For the Month of May 2016

Direct materials:

Beginning inventory                                                                        $ 24,000

Add Purchases                                                                                     54,000

Materials available                                                                          $ 78,000

Less Ending inventory                                                                        26,000

Direct materials used in production                                                                                     $ 51,900

Direct labor                                                                                                                                   31,200

Manufacturing overhead:

Indirect labor                                                                       $ 15,000

Depreciation on machinery                                                                   9,000

Rent on factory                                                                                       21,000                         45,000

Total manufacturing costs added                                                                                        $ 128,100

Add beginning work-in-process inventory                                                                                 6,300

Total costs in progress                                                                                                           $ 134,400

Less ending work-in-process inventory                                                                                      9,600

Cost of goods manufactured                                                                                                $ 124,800

 

  1. Income Statement

Maloney Company

Income Statement

For the Month of May 2016

Sales                                                                                                                                        $ 165,900

Less: Cos of goods sold:

Add Cost of goods manufactured                                               $ 124,800

Beginning inventory finished goods                                                 15,000

Cost of goods available for sale                                         $ 139,800

Less: ending inventory finished goods                                             17,100                            122,700

Gross margin                                                                                                                            $ 43,200

Les selling and administrative expenses                                                                                     18,900

Operating income                                                                                                                     $ 24,300

  1. Prime and Conversion costs

Prime costs = $51,900 + $31,200 = $83,100

Conversion costs = $31,200 + $45,000 = $76,200

Question 5

Sales = $600/ unit; Purchase = $250/unit; Variable cost = $50/unit; Fixed costs = $2,000

Monthly break-even point in sales dollars 

= Fixed expenses/contribution margin ratio

Contribution margin = sales – variable cost = $600 – $50 = $550

Contribution margin ratio = 550/600 = 91.67%

2,000/91.67% = $2,181

Monthly break-even point in units

Contribution margin of each unit = $600 – $50 = $550

Fixed cost/ contribution margin = $2,000/$550 = 4 units.

Monthly income for April

15(600-250-50) – $2000 = $2,500

Monthly income for May

20(600-250-50) – $2000 = $4,000

Margin of safety for April

(Actual Sales- Break-even sales)/ Actual sales

($9,000-$2,181)/$9,000 = 75.77%

Question 6

Predetermined overhead rate = total estimated manufacturing overhead cost/estimated number of machine hours

$96,000/4,000 = $24 per direct labor hour.

Materials, direct labor and factory overhead. 

Costs assigned to Job XX: materials $10,600; 

Direct labor 100 * $30 = 3,000 

Factory overhead applied 100 * $24 = 2,400 

The work in process, April 30, 2016 = $16,000 *$120,000/4000 = $30 per hour

Amount of materials placed into production during April 2016.

$X + $120,000 +$96,000 + $20,000 – $16,000 = $400,000

X = $180,000

Leave a Reply