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BM 6601 - MA - Project - 2
BM 6601 - MA - Project - 2
MANAGERIAL ACCOUNTING
University
Submit to
Submitted by
Section 55
Name ID
Mr. Min Thu 5529001
Mr. Ian Chen 5529002
Ms. Chayanan Trisupatsilp 5529004
Ms. Fan Jing 5529005
Mr. Jakapan Leeathiwat 5529012
Ms. Thanawan Nitiprasongphol 5529014
Submission Date: December 21th, 2012
Table of Contents
Contents Page
University Introduction_______________________________
Part 1 Definition and concept
1.1 Traditional Costing System________________________
Activity Base Costing System______________________
1.2 Activity Base Management________________________
Part 2 Calculations
2.1 Cost Objective_________________________________
2.2 Breakeven in unit and in amount___________________
Margin of Safety in amount and in percentage________
Operating Leverage_____________________________
Sale mix in amount and in percentage_______________
Target profit in amount__________________________
2.3 ABC and TCS_________________________________
University Introduction and Background
Thai International University (TIIU) exists for the main purpose of serving the
nation by offering high-standard international education and providing humanistic
knowledge, particularly in the business education through researches and
interdisciplinary approaches. The university uses English as the official medium of
instruction.
The university offers 2 semesters to Bachelor degree students, each semester consists
of 5 months. Moreover, Master degree have 3 semesters, each semester consists of 4
month.
To meet the growing demands of international education in Thailand and the ASEAN
region, Thai International University will offer more range of course in Bachelor and
Master Degree. The universitys programs are designed to ensure our students learn
and experience what it takes to be successful in the real world.
Part 1: Definitions and Concepts
Concept:
Traditional costing systems try to assign cost directly to products, rather than
to activities cost pool first and then from the activities cost pool to product units. The
traditional costing system gives information on what is spent, but not how it is
spent. In TCS, product costs are accumulated then the total of the accumulated costs
is divided by the number of units produced, which is give an average unit cost for the
period.
Methods
There are several steps in the traditional costing process.
1. Identify all budgeted overhead cost.
2. Estimate indirect cost for the appropriate period (month, quarter, and year)
3. Choose a cost driver with a causal link to the cost (labor hour, machine hour)
4. Estimate an amount for the cost driver for the appropriate period (labor hours per
period)
5. Compute the predetermined overhead rate
(predetermined overhead rate = estimated overhead costs / estimated cost-driver).
6. Apply overhead to products using the predetermined overhead rate.
Pros and cons of Traditional Costing system
Pros
Traditional costing is easy to apply, and trace all direct costs associated with a
product, this includes labor and direct material costs. However, it is difficult
to assign overhead costs to different products.
Traditional costing can apply effectively when company produces only one
product.
In Traditional costing system, non-valued added activity is also included
which causes inaccuracies when assigning costs to products.
Cons
Traditional costing is an outdated costing system in many companies because
those manufacturing companies now use machines and computers for much of
their production. Computers and machines make the system outdated because
it often uses direct labor hours to calculate cost. Cost is not appropriately
assigned because direct labor hours are not the best-cost driver to use.
Traditional costing system can sometimes cause cost distortion (under cost,
over cost). If it is under cost, business might not make enough profit to
compensate with their operation that may lead to bankrupt. On the other hand,
over costing may cause businesses to lose competitive advantages.
Traditional costing system can lead to bad management decisions because it
excludes certain nonmanufacturing costs (e.g. service sector).
Example:
Standard Factory overhead rate per Direct labor hour = Total FOH costs Total DLH
= 33,000 Baht 3,000 DLH
= 11 Baht / DLH
FOH = 11 Baht x 1,000 DLH = 11 Baht x 500 DLH = 11 Baht x 1,500 DLH
cost 4,000 units 2,000 units 4,000 units
per unit
= 2.75 Baht = 2.75 Baht = 4.125 Baht
FOH cost per unit = Standard Factory Overhead rate per DLH x Total DLH consumed
Total number of units produced
Concepts:
In Activity-Base Costing system assigns the cost of each activity to all products and
services according to the actual consumption of the activity resource by assigning
overhead costs to direct costs
In the first Stage of activity based costing system, costs are traced to the various
activities performed by a firm. In the second stage, these costs are assigned to the
firms products. (Managerial Accounting 1993 Third Edition, Calvin Engler)
Cons
Activity Base-Costing data can be easily misinterpreted and must be use
carefully when making decisions. So, manager must identify which costs are
relevant for the decisions.
It consumes a lot of time or resources to collect data.
Most of mangers do not like to use Activity Base Costing system because
other firms can discover easily some mistakes in production process and the
weakness of management in their company.
Example:
FOH items FOH costs Selected cost driver
IDM 1,000 Baht Units (group 1)
IDL 2,000 Baht DLH (group 3)
Depreciation 3,000 Baht MH (group 2)
Insurance 4,000 Baht Units (group 1)
Maintenance 6,000 Baht MH (group 2)
Purchase Order 7,000 Baht Units (group 1)
Utilities 10,000 Baht DLH (group 3)
1. Pool Rate
Pool 1 rate = IDM 1,000 Baht + Insurance 4,000 Baht + Purchase order 7,000 Baht
Total Units 10,000 units
= 1.2 Baht / unit
Definition:
Activity Based Management is an approach in management that aims to
maximize the value adding activities while minimizing or eliminating non-value
adding activities. The overall objective of ABM is to improve efficiencies and
effectiveness of an organization in securing its markets. It draws on activity based-
costing as its major source of information and focuses on reducing costs, creating
performance measures, improving cash flow and quality and producing enhanced
value products.
Objective:
Cons
The value and benefit of ABM is difficult to quantify and time consuming
If no one uses the information provided, ABM system will be worthless.
Part 2
One graduate lecturer teaches 4 sections standard to meet their normal salary
80,000 Baht per month. Duration for one section is 45 hours long and divided into 15
classes and duration for each class is 3 hours long and every class is taught every
week. Graduate students have a trimester system of 3 semesters annually and each
semester is 4 months long. They can take a semester break if they really need to.
However, our calculations for both undergraduate and graduate students are based on
our assumption that students study in all semesters. Table 2 illustrates all details
regarding normal salaries for lecturers.
= 88,560,000 Baht
We use average paid rates for extra teaching hours for calculating costs. At
maximum capacity, all lecturers have to work extra hours that is equal to 25% of their
normal workload. That means normal teaching hours is 240 hours for 4 sections and
60 hours extra for additional section for one Undergraduate lecturer. Altogether one
lecturer has 5 sections or 300 working hours for one semester at maximum capacity.
For the graduate lecturers, their 25% extra working hours are assigned for
diploma courses designed to offer in weekends and we have only 2 times (i.e. 2
semesters) for them and we calculated the costs for extra working hours for 2
semesters in table 4. We use a block-teaching method for diploma courses and every
subject is taught in every month. Diploma students need to study 6 subjects in 6
months in order to get their certificates.
Group B (5 subjects per student): BBA 1,800 students (36 classes x 50 students)
Group C (4 subjects per student): MBA Day 600 students (24 classes x 25 students)
Group D (4 subjects per student): MBA Evening 300 students (12 classes x 25
students)
Total Fixed Costs = Total Direct Fixed Costs + Total Indirect Fixed Costs
= 107,800,000 Baht
Revenues
Table 6: Tuition Fees
Total Hours per Fees per University fee
Required course course per semester
Courses
Campus Network 1,000 Baht per semester 1,000 Baht per semester
X = 107,800,000 124,387.16
= 866.65 867 students
MS (in Thai Baht) = Revenues (in max capacity) BEP (in Thai Baht)
= 836,349,980.60 124,269,997.10
= 712,079,983.50 Baht
Target Profit
Target Profit = Profit Before Tax = 400,000,000 Baht
Total Revenue
= (Total Fixed Cost + Profit Before Tax) Contribution Margin in
Percentage
= (107,800,000 + 400,000,000) 84.89%
= 598,185,887.62 Baht