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ACCT19060 concepts of managerial Accounting

{`Course code ACCT19060
Course name Management Accounting
School School of Commerce
Level Advanced Level
Units of credit Six (6)
Central Queensland University

Assessment item 1—Individual assignment


This assessment item links the course objectives numbers 2 and 3 as stated in Part A.

(This assignment has been adapted from Langfield-Smith, K, Thorne, H & Hilton, R 2003, Management accounting: an Australian perspective,3rd edn, McGraw-Hill, Sydney.)

Part 1 (200-300 words)

Cravings for Cakes Pty Ltd manufactures a wide range of delicious cakes and pastries. At the annual end-of-year party, the company’s owner, I.M. Craving, treated his employees to a nostalgic review of the firm’s history. He told them:

Twenty years ago we had only three product lines – pies, finger buns and lamingtons. We were flat out producing large volumes of each product, using very simple machinery and a lot of hard work.

My how things have changed! We still make and sell a lot of pies and lamingtons, but we also produce a wide range of low-volume products such as danish pastries, donuts and vanilla slices. I hear you sighing, and no wonder; these low-volume products are complex to produce and their short production runs involve a lot of extra machinery setups and material handling. But the accountants tell me that these speciality products have wonderful profit margins, so we must not complain.

Craving then outlined the dramatic changes that occurred within the business over the past 20 years. In the factory he had seen the introduction of computercontrolled mixing machines and ovens that replaced a lot of the direct labour operations, and an increased emphasis on quality and delivery performance. Indeed, right across the business, more and more effort has been placed on making the customer happy.

However, his speech cast a gloomy shadow across the end-of-year festivities when he warned:

Despite all this progress, the company seems to be struggling. Our profits are declining, and if things don’t improve over the next few months, this may be our last end-of-year celebration together. To survive we must all work very hard. We must focus on increasing sales, particularly of our high profit margin speciality products.

The company’s management accountant, U.B. Bright, had become concerned about the conventional product costing system used at Cravings for Cakes. The manufacturing people were also sure that the costing system was distorting product costs.


(a) Describe the changes in cost structure that are likely to have occurred at Cravings for Cakes over the last 20 years, and explain their causes.

Do you think that the existing cost system understates or overstates the cost of:

  • a lamington?
  • a danish pastry? (Explain your answers)

Part 2 (150-250 words)

Following on from Part 1, assume that U.B. Bright decided to implement an activity-based costing system that included all costs except direct materials. She identifies the following costs, by cost category, for the past year and selects the following cost drivers:

Cravings for Cakes – Costs and Cost Drivers
Cost categoryCostCost driver
Wages$300,000Number of employees
Building costs80,000Floor space (m2)
Depreciation100,000Machine hours
Consumables50,000Orders placed by centre
Energy400,000Kilowatt hours used
Other20,000Number of employees

Next, Bright divides the company into the following departments:

Product DevelopmentPacking and Warehousing
Mixing Pastries and BattersAdministration
Filling Pies and DanishesCorporate Management

The cost driver usage by each department, for the various cost categories, is set out below:

Cravings for Cakes
Cost Driver Usage by Departments

Cost categories (cost drivers)
DepartmentsWages (employees)Building (m2)Depreciation (machine hours)Consumables (orders)Energy (kilowatt hours)Other (employee s)
Product Development5200-10-5
Sales and Dispatch10200-15-10
Mixing Pastries and Batters155001000501000015
Filling Pies and Danishes20100030001001000020
Packing and Warehousing2010005001503000020
Corporate Management5300-25-5
Total quantity of cost drivers across all departments100500010000500250000100


  • Calculate the total cost of each department using the cost driver consumption patterns shown above. You should also show each departments’ share of each cost category (Show your calculations)
  • Why did U.B. Bright use cost categories in her analysis?
  • Explain how she would have identified the cost categories and give two examples of the costs likely to be included in each category.
  • U.B. Bright used the number of employees as the cost driver for wages. Can you suggest a more accurate basis for assigning wage costs to activity centres? Explain your answer.

Part 3 (100 -200 words)

Notwithstanding your answers in Parts 1 and 2, assume the following costs and cost drivers for the Mixing Department (Note: some of the cost drivers in this part are different to those used in part 2):

Cravings for Cakes
Mixing Department: Costs and Cost Drivers

Cost categoryCostCost drivers
Wages$450,000Percentage of labour time
Building costs8000Floor space occupied
Depreciation10000Machine hours
Consumables5000Percentage of labour time
Energy16000Kilowatt hours
Other20,000Percentage of labour time

U.B. Bright has identified the following activities that take place in the Mixing Department, and estimates that they use the following percentage of labour time and floor space:

Cravings for Cakes
Mixing Department
Activities and Cost Drivers Used

Activity% of labour time% of floor space
Set up scales205
Weigh ingredients105
Load mixers2510
Operate mixers3050
Clean mixers1020
Move mixture to filling510

The only activity that makes significant use of machinery (and therefore depreciation and energy) is ‘Operate mixers’.

  • Calculate the total cost of each activity performed in the mixing department. You should also show each activity’s share of each cost category (Show your calculations)
  • Explain how U.B. Bright would have collected the information necessary to identify the activities and their cost driver consumption.
  • What steps can U.B. Bright take to ensure that this information is reliable?

Part 4 (150-250 words)

After much hard work, U.B. Bright produces a full list of all activities performed at Cravings for Cakes and their annual costs. In addition, Bright identifies an activity driver for each activity and the annual quantity of each driver. A partial list of activity costs and annual quantities of activity drivers is shown below:

Cravings for Cakes
List of Activities

ActivityActivity cost ($)Activity driver (# = number)Annual quantity of activity driver
Process receivables15 000# of invoices5000 invoices
Process payables25 000# of purchase orders2 500 purchase orders
Process sales orders40 000# of sales orders4000 sales orders
Dispatch sales orders30 000# of Dispatch orders2500 dispatches
Load mixers14 050# of batches1 000 batches
Operate mixers45 900# of kilograms200 000 kilograms
Clean mixers6 900# of batches1 000 batches
Move mixture to filling3450# of kilograms200000 kilograms
Clean trays20 000# of trays16 000 trays
Fill trays16 000# of cakes/pastries800 000 cakes/pastries
Move to baking8 000# of trays16 000 trays
Set up ovens50 000# of batches1 000 batches
Bake cakes/pastries130 000# of batches1 000 batches
Move to packing40 000# of trays16 000 trays
Pack cakes/pastries80 000# of cakes/pastries800000 cakes/pastries
Inspect pastries2 500# of pastries50 000 pastries


  • Calculate the cost per unit of the activity driver for the activities listed above. (Show your calculations)
  • Use the following information to calculate the cost per activity and the cost per unit (based on annual volume) for:
    • the lamington
    • the danish pastry (Show your calculations)

Lamington (Batch size 1000; Annual volume 100 000)

Activities consumedAnnual quantity of activity driver
Process receivables500 invoices
Process payables200 purchase orders
Process sales orders400 sales orders
Load mixers100 batches
Operate mixers30 000 kg
Clean mixers100 batches
Move mixture to filling30 000 kg
Clean trays2 000 trays
Fill trays100 000 cakes
Move to baking2 000 trays
Set up ovens100 batches
Bake cakes/pastries100 batches
Move to packing2 000 trays
Pack cakes/pastries100 000 cakes
Dispatch sales order500 sales orders

Danish Pastry (Batch size 200; Annual volume 10 000)

Activities consumedAnnual quantity of activity driver
Process receivables150 invoices
Process payables100 purchase orders
Process sales orders100 sales orders
Load mixers50 batches
Operate mixers4 000 kg
Clean mixers50 batches
Move mixture to filling4 000 kg
Clean trays400 trays
Fill trays10 000 pastries
Move to baking400 trays
Set up ovens50 batches
Bake cakes/pastries50 batches
Inspect pastries10 000 pastries
Move to packing400 trays
Pack cakes/pastries10 000 pastries
Dispatch sales order150 sales orders

c. What other costs must be added to calculate the product cost for lamingtons and Danish pastries? Explain your answer.

d. Why is the cost per danish pastry much higher than the cost per lamington? Would this difference be reflected in the conventional costing system? Explain your answers.

Part 5 (1200-1500 words)

U.B. Bright, as management accountant for Cravings for Cakes Pty Ltd, has recommended the introduction of an activity-based costing system to improve the accuracy pf the company’s product costs. Bright is filled with enthusiasm, but the company’s owner, I.M. Craving, is more cautious:

All these new-fangled systems with their fancy names. Five years ago it was JIT, or was it MRP? Two years ago, TQM, and now it’s ABC or is it ABM? I’m not keen, ABC sounds complex and expensive. Your report outlines the benefits of ABC but it can’t be all positive. I know every cloud has a silver lining, but I also know every silver lining has a cloud. Rewrite your report but this time I want you to describe the costs of ABC and its limitations, as well as the benefits.


Do the job that has been asked of Bright, i.e. prepare a report that outlines the benefits, costs and limitations of activity-based costing. (To set your report in the appropriate business context, you should refer to the information given in Part 1). Your report should contain a brief executive summary (1/2 to 1 page), a table of contents, an introduction, a body and a conclusion. The body of your report should also contain sub-headings for the main sections of your report. Refer to Chapter 5 of the Faculty of Business and Law’s Guide for Students for further guidance on Executive (business) report writing.

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