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Accounting Case study



Accounting Case Study


1.                  MEMO


As per your requirement, I have classified the resources according to the information provided in Exhibit 1 of your well reputed firm, Laila's Teddy Bear Company. I have explained the resources separately that have been consumed, comprising the manufacturing overhead, direct materials, first labor, selling and administration.  I have divided the memo in two sections respectively. The first will give you in depth analysis of classification of the resources mentioned above, while the second section will tell you that how the two types of costs are are divided or differentiated, namely variable cost and fixed cost.


i.                    Classification of Resources

??Manufacturing Over Head

It is very important to understand the difference between the manufacturing over head cost and non manufacturing cost. This can also be known by other names such as factory burden or factory overhead. The manufacturing overhead refers to indirect cost that is incurred while the goods are being produced.  Direct labor, and Direct material may also into this category, including other things like electricity charges, depreciation on the building and equipments used in the manufacturing.  These all heads have a great impact on the product and need to be measure accurately in order to measure the profitably of each product (Warren, 2011).

According to the figures of Manufacturing overhead of Laila's Teddy Bear Company the figures that fall in manufacturing overhead are not clearly specified in one place, due which you may face difficulty in identifying the total amount of Manufacturing overhead cost. It if of great importance that these cost must be mentioned in an organized way so an individual attention can be given to the costs that belong to this head.


??Direct Materials

Materials or supplies are the basic elements that are transformed into finished products through the use of labor and manufacturing overhead costs in the production process (Warren, 2011).

The costs of materials can be direct or indirect, direct materials are those that can be identified with the production of a finished article, which can be easily associated to the product and represent a significant cost of the finished product. E.g. Acrylic pile fabric is used in manufacturing of teddy bears.

Most manufacturers have a purchasing department whose function is to make orders for raw materials and supplies needed for production.. The purchase department manager is responsible for ensuring that the items ordered meet the quality standards set by the company being acquired at the lowest price and released on time


??Direct Labor

In the general business accounting, the term labor cost represents the total amount of workers who work in the enterprise who get salaries and all kinds of taxes that are linked to each worker (Reimers, 2007).

According to the Exhibit 1, again the company has specified the salaries under various headings which are not mentioned in an organized way. While, measuring the direct cost of labor, one may miss out any head, which will result in inaccurate measure.


??Selling and Administration costs

This is considerably known as the non-manufacturing cost that is incurred apart from the ...
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