MAD Seminar 1: Managerial

Accounting for Decision-making

Full Costing 1 – Elliot Guner

1.1 This session is being recorded
Recordings will be made available at the discretion of the Module
Leader.
What will be captured:
• Everything that is being shown on the main screen including
whoever is talking.
• All audio and video.

What is not captured:

• Breakout rooms.
• Anything the session leader chooses not to record.

I will put up 1 of the seminars each week, and archive other copies.
1.2 MAD Module Textbook
Management Accounting -
Core Essentials.
Edited by Lynsie Chew, Elliot
Guner & Alan Parkinson.
Published by Pearson, Harlow
978-1-78764-607-0.
▪ Online copies available.
▪ Physical copies only
available at Waterstones
Gower St.
1.3 Seminar 1 Agenda
1. Looking at your answer(s) to the Chargeit Corporation
question released immediately after Lecture 2.
(Remember, this work does not count as part of your
formal assessment – it is formative.)
2. A reminder about Issues in Full Costing.
3. Looking at answer to Athena Limited (Exercise 2.7 on
page 50 in book): full costing with more than one cost
centre. (Remember, this work does not count as part of
your formal assessment – it is formative.)
4. Review: What Have We Learnt About Full Costing?
1.4 ChargeIt Corporation
▪ This company manufactures two types of products. Each
unit of each type receives an overhead charge. Currently,
the company charges overheads using total forecast annual
direct manufacturing labour hours using the total forecast
manufacturing overheads for the year.
▪ The management accountant has recently suggested
dividing the total overheads into two categories: machining
overheads and general overheads. If overheads were to be
charged using the proposed two categories, machining
overheads would be charged in using machine hours per
unit, and general overheads would be charged using direct
manufacturing labour hours per unit.
1.5 ChargeIt Corporation
▪ Required: Using the data on the following slide:

I. Calculate the overhead charge per unit to each type of

product using the TOTAL forecast overheads for the
year.

II. Calculate the overhead charge per unit using each of the
machining overheads and general overheads.
 1.6 ChargeIt Corporation
Type A Type B
Annual forecast production - Units 10,000 20,000
Direct manufacturing labour hours per unit 2 4
Machine hours per unit 8 8

Total Year
Forecast total manufacturing overheads next year $6.40 million
Comprising:
Total machining cost overheads $3.60 million
General manufacturing overheads $2.80 million
1.14 Your presentation
▪ From next seminar, 2 of you will present the exercise to
prepare in advance of the seminar.
▪ You will prepare a presentation – it can be in any form that
you wish on Zoom (ppt, excel, handwritten notes…).
▪ Treat this presentation as if this was in a business context.
▪ The audience (us) will rate your presentation on both:
— Numbers
— Presentation style
▪ Not graded towards your final grade.
▪ Constructive feedback + learn from each other.
1.15 Teams of 2 to present

▪ Randomise!

▪ Work together on the preparation of the exercise.

▪ Decide on how to deliver the presentation.
1.15 Selecting an ‘Appropriate’
method of charging overheads
• No set rule - a matter of judgement.
• Judgement based upon circumstances/context.
• Nature of operations/activities may be such that one area
uses one overhead absorption/recovery rate and another
area uses a different one.
• An overhead accounting policy should be adhered to each
year on a consistent basis.
• It is only changed if the circumstances and contexts
change.
 1.17 More than 1 cost centre…
1. If an organisation has more than one cost centre (as Athena
Limited which has 2 – many organisations have very many
more), there may be some overheads which relate specifically
to a cost centre and will be allocated, and some ‘general’
overheads relating to the organisation as a whole, requiring
apportionment.
2. It may be that the nature of operations and activities may be
such that one area uses one particular overhead
absorption/recovery rate and another area uses a different
one.
3. A major issue is: how might general overheads relating to the
business as a whole be apportioned across the cost centres?
1.18 Determining the Overheads
Total (£) Machining (£) Fitting (£)
Heating and lighting 25,000
Machine power 10,000
Indirect Labour * 50,000
Depreciation 30,000
Total Overheads 115,000

*Note that direct labour and direct materials are not included
in this schedule because they are not indirect costs.
1.19 Determining the Overheads
Machining Department
Machining overheads/Number of Machine Hours
The machine hour rate = £ / =£ per hour

Fitting Department
Fitting overheads/Number of Direct Labour Hours
The direct-labour hour rate = £ / =£ per hour
1.20 Determining the Overheads
Calculations £ Notes
Direct materials
Direct labour
- Machining
- Fitting
Overheads to the nearest £

to the nearest £

Reported full cost

Profit loading 20%
Thus the price will be Allow for rounding
1.25 Review: What have we
learnt about Full Costing?
▪ Offer your thoughts!!!