Project Management Accounting Accounting and Profit Planning

Question: Describe about the Project Management Accounting for Accounting and Profit Planning. Answer: Part A Budget Statement First quarter of 2017 Particulars January February March Total (first quarter) 1. Sales Budget Sales Units 40,000 50,000 60,000 150,000 price per unit $ 160 160 160 160 Total sales 6,400,000 8,000,000 9,600,000 24,000,000 2. Production Budget Budgeted sales units 40,000 50,000 60,000 150,000 Add: Budgeted finished goods inventory at the end of the period (80% of the next month's sales) 40,000 48,000 48,000 136,000 Total production required 80,000 98,000 108,000 286,000 Less: Inventory during the beginning of the period 30,000 40,000 48,000 118,000 Units to be produced 50,000 58,000 60,000 168,000 3. Direct materials purchases budget Production budget (units) 50,000 58,000 60,000 168,000 Direct material required per unit: Metal (Kg) 4 4 4 4 Components 5 5 5 5 Direct material required for production 1,000,000 1,160,000 1,200,000 3,360,000 Add: Ending inventory 500,000 600,000 600,000 1,700,000 Less: Opening inventory 400,000 500,000 600,000 1,500,000 Budgeted direct material purchases (units) 1,100,000 1,260,000 1,200,000 3,560,000 Cost of materials ($7+$3) 10 10 10 10 Budgeted direct material purchases ($) 11,000,000 12,600,000 12,000,000 35,600,000 4. Direct labor budget Production budget (units) 1,100,000 1,260,000 1,200,000 3,560,000 Direct labor hours required per unit 3 3 3 3 Total budgeted labor hours 3,300,000 3,780,000 3,600,000 10,680,000 Labor rate per hour $ 20 20 20 20 Cost of budgeted labor hours ($) 66,000,000 75,600,000 72,000,000 213,600,000 5. Overhead Budget Supplies ($0.80* direct labor hours) 2,640,000 3,024,000 2,880,000 8,544,000 power ($0.60* direct labor hours) 1,980,000 2,268,000 2,160,000 6,408,000 Maintenance: Fixed component 28,000 28,000 28,000 84,000 Variable component ($0.40* direct labor hours) 1,320,000 1,512,000 1,440,000 4,272,000 Supervision 18,000 18,000 18,000 54,000 Depreciation 198,000 198,000 198,000 594,000 Taxes 15,000 15,000 15,000 45,000 Other Fixed component 77,000 77,000 77,000 231,000 Variable component ($1.20* direct labor hours) 3,960,000 4,536,000 4,320,000 12,816,000 Total Overhead budget cost 10,236,000 11,676,000 11,136,000 33,048,000 6. Selling and administrative expense budget Supplies 100,000 100,000 100,000 300,000 Commissions ($1.90* number of budgeted units for each month) 76,000 95,000 114,000 285,000 Depreciation 40,000 40,000 40,000 40,000 Shipping ($0.80* number of budgeted units for each month) 32,000 40,000 48,000 120,000 Other: Fixed cost 20,000 20,000 20,000 60,000 Variable cost ($0.50* number of budgeted units for each month) 20,000 25,000 30,000 75,000 Total Selling and administrative expense budget 288,000 320,000 352,000 880,000 7. Ending finished goods inventory budget Cost per unit Direct material cost: Metal ($7*4 Kg) 28 28 28 84 Components ($3*5) 15 15 15 45 Direct labor cost ($20*3 hours) 60 60 60 180 manufacturing overhead cost (Variable components) ($ 0.80+0.60+0.40+1.20) 3 3 3 9 Total cost per unit 106 106 106 318 Ending finished goods inventory budget 40,000 48,000 48,000 136,000 Total ending finished goods inventory ($) 4,240,000 5,088,000 5,088,000 43,248,000 Table 1: Budget statement (Source: Created by author) Part B a. Job order costing is a system that is used to determine the manufacturing cost of the specific product when the organizational products are different. On the contrary, process costing is a system used to identify and accumulate the manufacturing process costs along with the allocation of indirect costs. Despite of the difference in procedures of allocation and determination of manufacturing costs between the two costing systems, there are several similarities exist between them. Job order costing and process costing uses the similar purpose to allocate the cost of materials, labor costs and overhead costs in order to define the product costs. In both the costing systems, accounts of inventory are same with respect to the raw materials, work- in process as well as finished goods. Further, the procedure of allocating the cost manufacturing overhead is similar to that in the system of process costing (Fisher Krumwiede, 2015). Moreover, job order costing system and process costing system are different in number of ways to record the manufacturing costs for the products. One of the primary differences is that job order costing is used to determine the cost of specific contract or for the job that is conducted according to the consumers instruction. However, process costing is used to measure the products cost that uses various manufacturing operations. Job order costing is calculates the cost for each work while process costing determines the cost of process thereafter allocated to each units. For instance, job order costing system is used by the construction companies i.e. ADCO Constructions Company uses the job order costing system to determine the cost of construction for each of the building. On the other hand, process costing is used by the manufacturing companies i.e. Nuplex Industries use process costing to determine the cost of manufacturing process and thereafter assign the costs to each unit of pr oducts (Greenberg Wilner, 2015). b. Costing system in service industries are applied on the basis of specific job performed or for the projects completed as per the instructions of the clients. The service industries use the costing system to manage the costs so that the productivity and profitability can be increased. The most commonly costing system used by the service industry is Activity Based Costing (ABC) which is used to measure the cost for each activity that uses certain resources. ABC method determines the cost in two steps, first step is followed to allocate the resources cost to the activities while second step allocates the cost of activity to the outputs (Strumickas Valanciene, 2015). Another method of costing used by the service industries is job order costing which allocates the service costs to particular job or output. It assists the service organizations to trace the job costs directly from the input used to conduct the service. For instance, hospital service industries use the cost accounting to re cord the costs as per the services provided to patients (Faraji, Maghari Mirsepasi, 2015). Moreover, the manufacturing firms use the cost accounting system to determine the cost of manufacturing products with respect to the materials and labor costs. Most commonly used costing system by manufacturing firms is the process costing which is used to allocate the cost to the process of manufacturing the product then allocate the costs to each product (Fisher Krumwiede, 2015). Manufacturing firms also uses standard costing system that requires projection of standard cost for direct materials, direct labor and overheads, which is compared with the actual cost applied at the end of the period. For instance, manufacturing of cycle parts, manufacturing of food products or cloth manufacturing firms uses theses costing system to allocate the production costs to the outputs (Gopalakrishnan et al., 2015). Reference List and Bibliography Adesina, O. T., IkhuOmoregbe, S. (2015). Accounting information and profit planning the case Nigeria listed manufacturing companies.European Journal of Accounting Auditing and Finance Research,3(4), 86-97. Alyousef, H. S., Mickan, P. (2016). Literacy and numeracy practices in postgraduate management accounting. 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