I’m obviously a student. I’m not sure this is really the right forum for me to try to be a part of because this is only my second accounting course at a community college no less.

Please call me Squiggs.

I didn’t realize that Managerial was all about estimations, my most difficult tasks in Financial were trying to do the estimations such as depreciation.  We are almost half way through the semester but haven’t taken our first exam yet and I’m just not sure if I should stick it out and potentially fail or if I should take the bad grade by dropping it. I’m really upset about it.

Can anyone help me find some forum threads here on the topic of Managerial Accounting? I could really use some help with it.

On the other hand I’m passing my Computer Accounting course with all A’s thus far (Peachtree 2008). 

But I really need some help.

Thanks much.

Nearly all of us have done some kind of management accounting in our qualifications.

Have you got any specific areas that you are having problems with?

Keep at it, all accountancy courses afaik have some management accounting. At least it will make it easier when you go looking for a job, as you can try to avoid all the management ones!

It sounds like you are very early in your course and haven’t covered things like budgeting, variances, costing which have less estimation in them.

Oh thank God, so it will get a little easier then? I’m so glad to hear that, you have no idea.

Yes, I’m very early in my studies only the first 4 chapters, I’ve read some of the chapters as many as four times already and I’m still lost. I’ve never felt so incompetent.

Ok, I guess I’ll just hang in there then. I was really starting to worry and consider dropping the course because I feel like a blank page when it comes to doing the problems.

I really appreciate the help.

To answer the question above, we’ve been practicing Job-Order Costing, Process Costing, Activity Based Costing and such things like that. But to be more specific I just get really lost trying to factor or figure Overhead costs and cost per equivalent unit, etc. I hate to admit that it’s really terrifying me.

I don’t know if I’m just letting fear get in the way but I wanted to go into accounting because I knew it would make me think and I want to do something that will have me use my brain.

If anyone can offer any tips on how to breeze through Costing a little easier I’d appreciate it.

Unfortunately, I’ve always struggled a bit with costing, but I did find that once I’d done more practical examples it made it a bit easier to understand, the theory on its own can be a bit confusing.

Have you spoken to your tutor &/or lecturer about how you’re feeling? You need to get this sorted asap so it doesn’t affect your studies - I’m sure they will be very understanding, and will have come across this many times before.

Sqiggs
Take each area you are finding difficult as jigsaw piece of its own.
Master these small areas and then put them back together to solve the whole picture.

Overheads
I guess you have studied the traditional approach to overhead apportionment, and how this can give you an overhead absorption rate per labour hour or per machine hour worked.
There are other treatments, ABC takes a charge out rate for each activity required to make a product/provide a service.
Marginal costing treats fixed overheads as time based and not part of the cost of a product. So no attempt is made to charge fixed overhead to products, instead the contribution earned from production needs to be sufficient to cover these fixed costs.

I appreciate that if a topic worries you it is difficult to break it into the jigsaw pieces. If you can try to break it down it makes it easier for anyone trying to help.

Here is a fairly typical overhead allocation and apportionment question.

Just go through the table line by line
Depreciation of aircraft: £36,400 in total but no detail on how much is attributable to each department.
So based on the detail we have been give: (Net book value of aircraft (£000), Planned number of miles flown, Floor space (square metres), and Number of employees) the one most likely to help in an apportionment basis is Net book value of aircraft (£000).

Total overhead cost =............ £36,400 = just over £0.02 per £1,000 of NBV
Total value of basis: (NBV).....£1,800,000

If you leave this value in your calculator then the full value can be used in the subsequent calculations.

As £1,080,000 of the NBV is for the scheduled services cost centre, then multiply the £0.02… by 1080000 to apportion the cost = £21,840

As £720,000 of the NBV is for the charter flights then multiply the £0.02.. by 720,000 = £14,560
 
This now gives you the apportionment for depreciation.

Aviation fuel and other variable costs     £42,200
Select a basis for apportionment
Carry out the analysis in the same way as for depreciation.

Pilots and aircrew salaries:
We have the details for these so no calculations are needed. These are allocated to the respective cost centres.

Rent and rates and other premises costs
Select a basis for apportionment
Carry out the analysis in the same way as for depreciation.

Indirect labour costs
We have the details for these so no calculations are needed. These are allocated to the respective cost centres.

The next step is to total each column to find the “Totals”

Once you’ve done this
Reapportion Aircraft maintenance and repairs
Exactly the same approach as before, this time using the total you calculated
You are told to apportion on the basis of time spent in each cost centre
Carry out the analysis in the same way as for depreciation.

Reapportion Fuel and parts store
Exactly the same approach as before, this time using the total you calculated
You are told to apportion on the basis of % of issues for each cost centre
Carry out the analysis in the same way as for depreciation.

Reapportion General admin.
Exactly the same approach as before, this time using the total you calculated
You are told to apportion half to Scheduled services and half to Charter flights
Carry out the analysis in the same way as for depreciation.

You should then total the columns. Only Scheduled services and Charter flights should have values, the other cost centres should be nil.

Thank you for this. I think I do have the “jigsaw” thing down but it’s trying to put the pieces together that get me weary. I can do the small stuff ya know?   but when I get longer problems I go into a daze.   I will print out this aircraft study and look it over. Thank you.

Job-Order Costing, Process Costing, Activity Based Costing and such things like that. But to be more specific I just get really lost trying to factor or figure Overhead costs and cost per equivalent unit, etc. I hate to admit that it’s really terrifying me.

but it’s trying to put the pieces together that get me weary. I can do the small stuff ya know?  but when I get longer problems I go into a daze

Well these are generally quite discrete topics so stop trying to put them together, that can wait.
Job-order costing is quite different from process costing and the two do not operate together.
Similarly ABC is sometimes compared to traditional overhead absorption, but they do not run at the same time.

What do you mean by

I can do the small stuff ya know

?

If you can be more detailed and specific about how you would like help, then it is much easier to try and find ways of helping.

I have moved this post to the AAT Technician Stage Forum and have made this a “sticky” because Sandy’s help on here, and the OP’s original question will bound to be of assistance to other students who are struggling with this subject.

Regards
Steve

Steve

These are unit 6 topics on AAT (ECR on the Intermediate)

Sandy

Hi Squiggs

Its years since I studied but I still remember being bamboozled by cost accounting. Have you asked your tutors for a bit of help? Another text book might give a different explanation which makes more sense to you.

Lets start with the basics. Every job, product or service needs to be costed. Some costs are easy to attach to the product, job or service. For example direct materials costs and direct labour costs. These are easy because they can easily be traced to the product. Say you are making a widget. Each widget requires 2 kilos of material whch cost $2 per kilo. The direct material cost for one widget is $4. Say one widget requires 3 direct labour hours to make and direct labour is paid at $4 per hour. The direct labour cost per widget is $12. The total of direct material and direct labour cost per widget is $16. This should be straight forward. However we require to include some production overhead cost in the cost of one widget. These can not be traced to one widget hence we have a problem. The solution is to spread these production overheads to all units produced. Assume that total production overheads were $40,000 and 10,000 widgets are produced. The production overhead cost per widget is $40,000 divided by 10,000 widgets which is $4. The total production cost per widget is direct materials $4 plus direct labour $12 plus production overhead $4 =$20. Spreading production overheads over units produced is only possible if only one product is being made. If more than one type of products are made then we must find another way of estimating total output hence the use of direct labour hours or machine hours. More about this next time. Robert.

Now lets talk about using machine hours or labour hours to estimate total output to enable production overheads to be charged to products. If we know that one widget requires 3 direct labour hours to be made and that one gidget requires 4 direct labour hours to be made. We also know that we have planned to produce 1000 widgets and 2000 gidgets in the next year. Then our total output can be expressed in direct labour hours. 1000 widgets are equivalent to 3000 labour hours while 2000 gidgets are equivalent to 8000 labour hours. Total output is therefore 11000 labour hours. If estimated production overheads for the coming year are $44,000, we can calculate the rate at which production overheads should be charged to one direct labour hour (Recovery rate) by dividing $44000 by 11000 labour hours. Each labour hour will be charged $4. Since one widget requires 3 direct labour hours to be made the charge for production overhead to one widget is 3 labour hours x $4 =$12. Similarly because one gidget requires 4 direct labour hours to be made the charge for production overhead to one gidget is 4 labour hours x $4 = $16. In this way production overheads can be charged to products basing on the direct labour hours the products consume. In the same way we can use machine hours. I hope this is clear. Robert.

What about this? A company makes widgets and gidgets. It is planned to make 1000 widgets and 2000 gidgets in the next year. Production overheads in the next year are estimated to be $52000.

One widget requires 2 Kilos of material and 3 direct labour hours to be made.
One gidget requires 3 Kilos of material and 5 direct labour hours to be made.
Materials cost $3 per kilo while direct labour is paid at $4 per hour.

Let’s calculate the production overhead recovery rate. To do this we shall convert total output into direct labour hours as follows:

1000 widgets x 3 labour hours = 3000 direct labour hours
2000 gidgets x 5 labour hours = 10000 direct labour hours
Total output in direct labour hours is 3000 + 10000 = 13000
Since production overheads are $52000 the recovery rate is $52,000/13000 = $4 per direct labour hour.

The production cost of one widget is as follows:
Direct material (2 Kilo x $3)+ Direct labour (3 Hours x $4)+ production overhead (3 Hours x $4) =$30

The production cost of one gidget is as follows:
Direct material (3 Kilos x $3)+ Direct labour (5 Hours x $4)+ Production overhead (5 Hours x $4)=$49