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MANAGEMENT ACCOUNTING 1A
Administr Transp
A B C ation ort
Materials 60 50 100 30 10
Foreman's wages 28 20 25 32 45
Insurance 7 8 5 2 5
Water & electricity 0 10 15 5 7
Service overheads - - - 20 10
Rent 50 40 37 10 20
Total 145 128 182 99 97
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Allocation of admin dept.
overheads 29.70 24.75 24.75 -99.00 19.80
174.70 152.75 206.75 0.00 116.80
-
Allocation of transport dept. 116.80
overheads 27.482 48.094 41.224 0.000 0
QUESTION 2 (continues)
Overhead
Allocation
Product X - 300
units
300 x 2 (machine hours) x 3,
Department A N$5.055 033.00
300 x 1 (labour hours) x 2,
Department B N$6.695 008.50
300 x 3 (machine hours) x 4,
Department C N$4.959 463.10
9,504.60
Product Y- 500
units
500 x 2 (machine hours) x 5,
Department A N$5.055 055.00
500 x 3 (labour hours) x 10,
Department B N$6.695 042.50
500 x 5 (machine hours) x 12,
Department C N$4.959 397.50
2
7,495.00
EOQ =
Where: Where:
A = Demand for the year S = Annual sales in units
Cp = Cost to place a single order OR F = Fixed costs of placing and receiving an order
Ch = Cost to hold one unit inventory for a year C = Carrying cost of one unit of inventory
for one year
* = ×
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EOQ = Square root of 2*100,000*150
5
EOQ = Square root of N$6,000,000
Just in time is a ‘pull’ system of production, so actual orders provide a signal for when a product
should be manufactured. Demand-pull enables a firm to produce only what is required, in the correct
quantity and at the correct time.
This means that stock levels of raw materials, components, work in progress and finished goods can
be kept to a minimum. Supplies are delivered right to the production line only when they are needed
Advantages of JIT
- Lower stock holding means a reduction in storage space which saves rent and insurance costs
- As stock is only obtained when it is needed, less working capital is tied up in stock
- There is less likelihood of stock perishing, becoming obsolete or out of date
- Avoids the build-up of unsold finished product that can occur with sudden changes in demand
– Less time is spent on checking and re-working the product of others as the emphasis is on getting
the work right first time
Disadvantages of JIT
- There is little room for mistakes as minimal stock is kept for re-working faulty product
- Production is very reliant on suppliers and if stock is not delivered on time, the whole production
schedule can be delayed
- There is no spare finished product available to meet unexpected orders, because all products are
made to meet actual orders – however, JIT is a very responsive method of production.
Cost analysis
Cumulati Learni
Batches ve ng
Batches Effect
1 1 100%
1 2 80%
2 4 64%
QUESTION 5 (continues)
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