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ACCT19060 Management Accounting

Course code ACCT19060 
Course name Management Accounting
School School of Commerce
Level Advanced Level 
Units of credit Six (6)
Central Queensland University

Assessment item 1—Individual assignment


This assessment item links the course objectives numbers 2 and 3 as stated in Part A.

(This assignment has been adapted from Langfield-Smith, K, Thorne, H & Hilton, R 2003, Management accounting: an Australian perspective,3rd edn, McGraw-Hill, Sydney.)

Part 1 (200-300 words)

Cravings for Cakes Pty Ltd manufactures a wide range of delicious cakes and pastries. At the annual end-of-year party, the company’s owner, I.M. Craving, treated his employees to a nostalgic review of the firm’s history. He told them:

Twenty years ago we had only three product lines – pies, finger buns and lamingtons. We were flat out producing large volumes of each product, using very simple machinery and a lot of hard work.

My how things have changed! We still make and sell a lot of pies and lamingtons, but we also produce a wide range of low-volume products such as danish pastries, donuts and vanilla slices. I hear you sighing, and no wonder; these low-volume products are complex to produce and their short production runs involve a lot of extra machinery setups and material handling. But the accountants tell me that these speciality products have wonderful profit margins, so we must not complain.

Craving then outlined the dramatic changes that occurred within the business over the past 20 years. In the factory he had seen the introduction of computercontrolled mixing machines and ovens that replaced a lot of the direct labour operations, and an increased emphasis on quality and delivery performance. Indeed, right across the business, more and more effort has been placed on making the customer happy.

However, his speech cast a gloomy shadow across the end-of-year festivities when he warned:

Despite all this progress, the company seems to be struggling. Our profits are declining, and if things don’t improve over the next few months, this may be our last end-of-year celebration together. To survive we must all work very hard. We must focus on increasing sales, particularly of our high profit margin speciality products.

The company’s management accountant, U.B. Bright, had become concerned about the conventional product costing system used at Cravings for Cakes. The manufacturing people were also sure that the costing system was distorting product costs.


(a) Describe the changes in cost structure that are likely to have occurred at Cravings for Cakes over the last 20 years, and explain their causes.

Do you think that the existing cost system understates or overstates the cost of:

  1. a lamington?
  2. a danish pastry? (Explain your answers)

Part 2 (150-250 words)

Following on from Part 1, assume that U.B. Bright decided to implement an activity-based costing system that included all costs except direct materials. She identifies the following costs, by cost category, for the past year and selects the following cost drivers:

Cravings for Cakes – Costs and Cost Drivers
Cost category Cost Cost driver
Wages $300,000 Number of employees
Building costs 80,000 Floor space (m2)
Depreciation 100,000 Machine hours
Consumables 50,000 Orders placed by centre
Energy 400,000 Kilowatt hours used
Other 20,000 Number of employees
Total $950,000

Next, Bright divides the company into the following departments:

Product Development Packing and Warehousing
Mixing Pastries and Batters Administration
Filling Pies and Danishes Corporate Management

The cost driver usage by each department, for the various cost categories, is set out below:

Cravings for Cakes
Cost Driver Usage by Departments

Cost categories (cost drivers)
Departments Wages (employees) Building (m2) Depreciation (machine hours) Consumables (orders) Energy (kilowatt hours) Other (employee s)
Product Development 5 200 - 10 - 5
Sales and Dispatch 10 200 - 15 - 10
Mixing Pastries and Batters 15 500 1000 50 10000 15
Filling Pies and Danishes 20 1000 3000 100 10000 20
Baking 15 500 5000 100 200000 15
Packing and Warehousing 20 1000 500 150 30000 20
Administration 10 1000 500 50 - 10
Corporate Management 5 300 - 25 - 5
Total quantity of cost drivers across all departments 100 5000 10000 500 250000 100


  1. Calculate the total cost of each department using the cost driver consumption patterns shown above. You should also show each departments’ share of each cost category (Show your calculations)
  2. Why did U.B. Bright use cost categories in her analysis?
  3. Explain how she would have identified the cost categories and give two examples of the costs likely to be included in each category.
  4. U.B. Bright used the number of employees as the cost driver for wages. Can you suggest a more accurate basis for assigning wage costs to activity centres? Explain your answer.

Part 3 (100 -200 words)

Notwithstanding your answers in Parts 1 and 2, assume the following costs and cost drivers for the Mixing Department (Note: some of the cost drivers in this part are different to those used in part 2):

Cravings for Cakes
Mixing Department: Costs and Cost Drivers

Cost category Cost Cost drivers
Wages $450,000 Percentage of labour time
Building costs 8000 Floor space occupied
Depreciation 10000 Machine hours
Consumables 5000 Percentage of labour time
Energy 16000 Kilowatt hours
Other 20,000 Percentage of labour time
Total $87000

U.B. Bright has identified the following activities that take place in the Mixing Department, and estimates that they use the following percentage of labour time and floor space:

Cravings for Cakes
Mixing Department
Activities and Cost Drivers Used

Activity % of labour time % of floor space
Set up scales 20 5
Weigh ingredients 10 5
Load mixers 25 10
Operate mixers 30 50
Clean mixers 10 20
Move mixture to filling 5 10
Total 100% 100%

The only activity that makes significant use of machinery (and therefore depreciation and energy) is ‘Operate mixers’.

  1. Calculate the total cost of each activity performed in the mixing department. You should also show each activity’s share of each cost category (Show your calculations)
  2. Explain how U.B. Bright would have collected the information necessary to identify the activities and their cost driver consumption.
  3. What steps can U.B. Bright take to ensure that this information is reliable?

Part 4 (150-250 words)

After much hard work, U.B. Bright produces a full list of all activities performed at Cravings for Cakes and their annual costs. In addition, Bright identifies an activity driver for each activity and the annual quantity of each driver. A partial list of activity costs and annual quantities of activity drivers is shown below:

Cravings for Cakes
List of Activities

Activity Activity cost ($) Activity driver (# = number) Annual quantity of activity driver
Process receivables 15 000 # of invoices 5000 invoices
Process payables 25 000 # of purchase orders 2 500 purchase orders
Process sales orders 40 000 # of sales orders 4000 sales orders
Dispatch sales orders 30 000 # of Dispatch orders 2500 dispatches
Load mixers 14 050 # of batches 1 000 batches
Operate mixers 45 900 # of kilograms 200 000 kilograms
Clean mixers 6 900 # of batches 1 000 batches
Move mixture to filling 3450 # of kilograms 200000 kilograms
Clean trays 20 000 # of trays 16 000 trays
Fill trays 16 000 # of cakes/pastries 800 000 cakes/pastries
Move to baking 8 000 # of trays 16 000 trays
Set up ovens 50 000 # of batches 1 000 batches
Bake cakes/pastries 130 000 # of batches 1 000 batches
Move to packing 40 000 # of trays 16 000 trays
Pack cakes/pastries 80 000 # of cakes/pastries 800000 cakes/pastries
Inspect pastries 2 500 # of pastries 50 000 pastries


  1. Calculate the cost per unit of the activity driver for the activities listed above. (Show your calculations)
  2. Use the following information to calculate the cost per activity and the cost per unit (based on annual volume) for:
    1. the lamington
    2. the danish pastry (Show your calculations)

Lamington (Batch size 1000; Annual volume 100 000)

Activities consumed Annual quantity of activity driver
Process receivables 500 invoices
Process payables 200 purchase orders
Process sales orders 400 sales orders
Load mixers 100 batches
Operate mixers 30 000 kg
Clean mixers 100 batches
Move mixture to filling 30 000 kg
Clean trays 2 000 trays
Fill trays 100 000 cakes
Move to baking 2 000 trays
Set up ovens 100 batches
Bake cakes/pastries 100 batches
Move to packing 2 000 trays
Pack cakes/pastries 100 000 cakes
Dispatch sales order 500 sales orders

Danish Pastry (Batch size 200; Annual volume 10 000)

Activities consumed Annual quantity of activity driver
Process receivables 150 invoices
Process payables 100 purchase orders
Process sales orders 100 sales orders
Load mixers 50 batches
Operate mixers 4 000 kg
Clean mixers 50 batches
Move mixture to filling 4 000 kg
Clean trays 400 trays
Fill trays 10 000 pastries
Move to baking 400 trays
Set up ovens 50 batches
Bake cakes/pastries 50 batches
Inspect pastries 10 000 pastries
Move to packing 400 trays
Pack cakes/pastries 10 000 pastries
Dispatch sales order 150 sales orders

c. What other costs must be added to calculate the product cost for lamingtons and Danish pastries? Explain your answer.

d. Why is the cost per danish pastry much higher than the cost per lamington? Would this difference be reflected in the conventional costing system? Explain your answers.

Part 5 (1200-1500 words)

U.B. Bright, as management accountant for Cravings for Cakes Pty Ltd, has recommended the introduction of an activity-based costing system to improve the accuracy pf the company’s product costs. Bright is filled with enthusiasm, but the company’s owner, I.M. Craving, is more cautious:

All these new-fangled systems with their fancy names. Five years ago it was JIT, or was it MRP? Two years ago, TQM, and now it’s ABC or is it ABM? I’m not keen, ABC sounds complex and expensive. Your report outlines the benefits of ABC but it can’t be all positive. I know every cloud has a silver lining, but I also know every silver lining has a cloud. Rewrite your report but this time I want you to describe the costs of ABC and its limitations, as well as the benefits.


Do the job that has been asked of Bright, i.e. prepare a report that outlines the benefits, costs and limitations of activity-based costing. (To set your report in the appropriate business context, you should refer to the information given in Part 1). Your report should contain a brief executive summary (1/2 to 1 page), a table of contents, an introduction, a body and a conclusion. The body of your report should also contain sub-headings for the main sections of your report. Refer to Chapter 5 of the Faculty of Business and Law’s Guide for Students for further guidance on Executive (business) report writing.