MA Ltd provides online educational services to their clients in the higher education sector. The company...

 

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MA Ltd provides online educational services to their clients in the higher education sector. The company offers its products in a package which includes online courses and supporting materials for follow up reading and self-paced practices. In the recent years, the company has experienced rapid growth rate and is operating beyond its initial expansion plans. While the management is excited about the growth, it is also concerned about the rising operating costs, particularly the overhead costs. The company operates a standard costing system and all departments are required to participate in the system. The current company policy is to allocate production overheads using the direct labour hours. As the management accountant in the company, you have gathered the following information about the planned overhead costs and the actual amount incurred, as follows. Planned information for the period under review: To complete 8,500 packages . Standard direct labour hours is 8 hours per package • Variable overhead costs was expected to be £54,400 Fixed overhead costs was expected at £136,000. . Actual information for the same period: Completed 8,700 packages A total of 82,650 direct labour hours were used . Variable overhead costs incurred recorded at £59,508 • Fixed overhead costs incurred amounted to £133,893. . You are getting ready to analyse the information gathered, and have informed the management that you will be presenting the variance analysis in the forthcoming management meeting. However, some members in the management seem sceptical about the value of such analysis. They feel that maintaining a standard costing is in itself problematic and hindering the company from adopting modern management approaches, such as pursuing continuous improvement and being creative with products and processes. In fact, the management is in the midst of considering implementing some quality management initiatives to ensure that, albeit the rapid REQUIRED: c) Following the company's concern about its rising operating costs, determine the following overhead cost variances: =) (1) Variable overhead expenditure variance (11) Variable overhead efficiency variance Fixed overhead expenditure variance (iv) Fixed overhead volume variance (iii) (v) Fixed overhead volume capacity variance (vi) Fixed overhead volume efficiency variance (20 marks) b) Based on the above analysis, discuss whether the company's concern on the rising costs is valid. (10 marks) [3 marks] [3 marks] [3 marks] [3 marks] [4 marks] [4 marks] While the fixed overhead absorption rates are often calculated using a single measure of activity, it is suggested that fixed overhead costs should be attributed to cost objects using multiple measures of activity. Discuss how 'activity-based costing' may provide useful information to managers. (10 marks) Discuss the usefulness of standard costing and variances analysis in businesses. (10 marks) [Total 50 marks] MA Ltd provides online educational services to their clients in the higher education sector. The company offers its products in a package which includes online courses and supporting materials for follow up reading and self-paced practices. In the recent years, the company has experienced rapid growth rate and is operating beyond its initial expansion plans. While the management is excited about the growth, it is also concerned about the rising operating costs, particularly the overhead costs. The company operates a standard costing system and all departments are required to participate in the system. The current company policy is to allocate production overheads using the direct labour hours. As the management accountant in the company, you have gathered the following information about the planned overhead costs and the actual amount incurred, as follows. Planned information for the period under review: To complete 8,500 packages . Standard direct labour hours is 8 hours per package • Variable overhead costs was expected to be £54,400 Fixed overhead costs was expected at £136,000. . Actual information for the same period: Completed 8,700 packages A total of 82,650 direct labour hours were used . Variable overhead costs incurred recorded at £59,508 • Fixed overhead costs incurred amounted to £133,893. . You are getting ready to analyse the information gathered, and have informed the management that you will be presenting the variance analysis in the forthcoming management meeting. However, some members in the management seem sceptical about the value of such analysis. They feel that maintaining a standard costing is in itself problematic and hindering the company from adopting modern management approaches, such as pursuing continuous improvement and being creative with products and processes. In fact, the management is in the midst of considering implementing some quality management initiatives to ensure that, albeit the rapid REQUIRED: c) Following the company's concern about its rising operating costs, determine the following overhead cost variances: =) (1) Variable overhead expenditure variance (11) Variable overhead efficiency variance Fixed overhead expenditure variance (iv) Fixed overhead volume variance (iii) (v) Fixed overhead volume capacity variance (vi) Fixed overhead volume efficiency variance (20 marks) b) Based on the above analysis, discuss whether the company's concern on the rising costs is valid. (10 marks) [3 marks] [3 marks] [3 marks] [3 marks] [4 marks] [4 marks] While the fixed overhead absorption rates are often calculated using a single measure of activity, it is suggested that fixed overhead costs should be attributed to cost objects using multiple measures of activity. Discuss how 'activity-based costing' may provide useful information to managers. (10 marks) Discuss the usefulness of standard costing and variances analysis in businesses. (10 marks) [Total 50 marks]