Assignment Task

1. Previously, Big Gear Manufacturing used a single factory-wide overhead application rate. Hamish Gear, the owner, approached you to discuss more accurate methods of charging overheads to products. As the Cost Accountant, you agreed to establish overhead application rates by department.

   Required:

   • Obtain relevant statistics and operating data for allocating factory-wide overheads.
   • Prepare departmental overhead budgets using the approved organizational template.
   • Allocate service department costs to production departments.
   • Calculate factory overhead application rates based on discussions with department managers.
   • Confirm to Hamish with a brief report outlining the process and resources used, and explain why this new system should be adopted.

2. Inspired Ltd manufactures spurs using predetermined factory overhead rates based on budgeted direct labor hours. You are required to prepare factory overhead performance reports and variance analyses.

   Required:

   • Calculate the factory overhead application rate.
   • Determine total applied factory overhead.
   • Prepare a factory overhead variance report with Spending and Capacity Variances.
   • Present findings to business unit managers and evaluate cost assignment effectiveness.
   • Identify who should receive the performance report based on Inspired Ltd`s organizational structure.

3. Mrs. Mac is considering opening a new burger outlet based on profitability predictions.

   Required:

   • Calculate the annual breakeven point in unit sales.
   • Determine the profit or loss based on predicted sales.
   • Advise on opening the new outlet based on profitability.
   • Calculate unit sales for a target profit.
   • Calculate unit sales for a target after-tax profit.
   • Determine the Margin of Safety if the business invests in reducing selling costs.
   • Advise Mrs. Mac on whether to invest capital based on the new breakeven point.

4. List and explain five key principles and practices for preparing budgets.

5. Explain the relationship between variance analysis and costing system integrity.

6. Complete Part 2 of the Job Costing scenario by preparing journal entries, ledger accounts, monthly job card summaries, and a Trading Statement.

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