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Management Accounting East coast marine

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East coast marine (ECM) is a company that makes small marine craft. The management of ECM has met its goal of reducing reliance that people previously had toward the government. In this decade, people equally relies of ECM as they do for the government.. Recently, the government rejected the way the company handle cost allocation claiming that it was inadequate when majority of companies are homogenous and government related. A recently hired staff called Eloise smith, was asked by the manager of the company to find other acceptable method of handling the cost of the department. The review she did, revealed the information below as discussed.


The first thing she revealed was that majorly of the material purchase for government is in most of the case low-volume purchase tied in high dollar price. Thus material purchased always represented low-dollar knighted in high- volume purchase. Eloise also revealed that administrative department such as human resource limitedly uses material handling department. She said that these department were never charged a cost of handling material in the past She also realize that only one exclusively assigned purchasing manager was contacted at a salary of $ 36000 per year. Based on lay downed agreement, annual salary of employee is supposed to be 20 percent of the money earned per year.

Q1. Material handling that could have been used by Eloise smith predecessor.

Material handling cost= total of material handled by department budget/ total of budget of direct material= 288000/ 288000

= $0.1000

Q2.revise material handling= total value pf payroll, depreciation, material and supply, employee on costs which is $144000

Budget for material handling for the department will thus be

  1. Employee on cash = $ 28,800
  2. Payroll= $ 14400
  • Depreciation= $ 6000
  1. Material and supply =$ 6000
  2. Utilities = $ 22000

Total of the five above would be 24200.

Q3 purchase order is more reliable because:

This method of allocation is not affected by change in new method of allocating finance hence it more reliable as compared to less dollar amount

Q4. Difference due to change of allocation

Over the three year, order increased by 5%

Government contact 80000, 84000, 88200 for year one two and three respectively

Commercial product 15600, 163800, 171990 for year one two and three

Marketing 1800, 1890, 1985

Finance and administration 2700, 2835, 2977 for year one two and three.

Human resource 500,525, 551

Maintenance 1000, 1050, 1103 for year one two and three respectively

Total 242000,254100, 266805 and thus the direct material increase (for the total) is 2.5 percent

Q5. Forecast for cumulative dollar


Year one

Year two

Year three





Employee cost








Other utility




Material and supply












Q6 Eloise smith had ethical conflict because using the purchase order allocation technique, the percentage allocation of direct material remained at 10 percent.

In my opinion, smith could have could have consulted higher authority for the same.

Discuss why purchase orders might be a more reliable cost driver than the dollar amount of direct material.

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