Unit 5 Management Accounting Assignment Help - Level 4 BTEC HND in Business

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University of Sunderland

Programme: BTEC Higher National Diploma in Business

Unit Number and Name: Unit 5 Management Accounting

Level: Level 4

Assignment Title - Management Accounting

LEARNING OUTCOMES

On successful completion of this module, students will have demonstrated:

• Demonstrate an understanding of management accounting systems.
• Apply a range of management accounting techniques.
• Explain the use of planning tools used in management accounting.
• Compare ways in which organizations could use management accounting to respond to financial problems.

Unit Learning Outcomes:

LO1 Demonstrating and understanding of management accounting system.
LO2 Appling a range of management accounting techniques.

Assignment Brief Number 1

Scenario

ABC Co. Ltd. specialises in manufacturing electronic products. The range comprises of 2 products, Personal Computers (‘PC') and Video Players (‘VP'). The company's products have the data shown below.

                    Products                              PC VP

Maximum  monthly demand         Unit 10,000         20,000

    Direct labour hours per unit      hr 2             4

    Selling Price                      $1,200        1,600                   

    Unit variable costs

Direct Material                 $600          800

      Direct Labour                   $200          400

      Other variable O/H          $200          200

The company has adopted the OAR in term of direct labour hour. The total estimated fixed cost and direct hours during the year is $2.4m and 30,000 hours respectively.

The company is planned to manufacture a new product, I-Phone (‘IP') with estimated contribution of $600 per unit.

The manager wants to prepare the budgets for the coming January to March, assuming that the company will manufacture only IP to fulfill a confirmed special order for 3,000, 3,000 and 4,000 units for Jan, Feb and March respectively. The only variable cost is direct raw material. To produce one unit of IP, the standard usage of raw material is 2 units at standard price of $70 per unit of IP.

Noted: The Production Department is responsible for the planning, organising and control of the manufacturing process while the Procurement Department is responsible for the purchase of all raw materials.

You need to advise the manager the following issues:
• Explain the meaning of management accounting, the different types of management accounting and role of management accountants (1.1, 1.2)
• Explain the classification of costs that would help the managementdecision-making (2.1)
• Calculate the unit costs of PC and VP based on absorption costing and marginal costing methods (2.2)
• There is a special order for 10,000 units of PC at $1050 per unit:
- which costing method should be used for the accept or reject decision (2.2);
- calculate the costs using the costing method recommended above (2.2);
• given that direct labour available is limited to 60,000 hours per month, advise the optimum production mix of PC and VP to maximise profit (2.3)
• calculate the break-even units of IP and if the manager is confident that a target profit of $1,200,000 is achievable, what would be the corresponding target units sold (2.1, 2.3)
• evaluate the proposal to spend an additional $600,000 to promote the IP so that selling price can be increased by $60 per unit to sell 6,300 units per month and discuss the corresponding pricing decisions (2.3)

Prepare a proposal to advise the manager who has no management accountingknowledge and background.

To achieve M1, you have to discuss other non-financial factors that may need to be taken into consideration when making the decisions in 2.2 and 2.3.

To achieve D1, you have to discuss other pricing strategies that may need to be taken into consideration when making the decisions in 2.2 and 2.3.

To achieve D2, you have to produce a clear, concise and structured proposal with technical language being accurately used for the manager.

Grading Criteria

Learning Outcome

Pass

Merit

Distinction

LO1 Demonstrating and understanding of management accounting system

P1 Explain management accounting and give the essential requirements of different types of management accounting systems.

 

P2 Explain different methods used for management accounting reporting.

M1: Evaluate the benefits of management accounting systems and their applications  within an organisational context.

 

D1: Critically evaluate how management accounting

systems and accounting

reporting is integrated within

organisation process.

 

LO2 Appling a range of management accounting techniques

P3 Calculate costs using appropriate techniques of cost analysis to prepare an income statement using marginal and absorption costs

M2: Accurately apply a range of management accounting techniques and produce appropriate financial reporting documents.

 

D2: Produce financial reports that accurately apply and

interpret data for a range of business activities.

 

 

 

Assignment Brief Number 2

Unit Learning Outcomes:

LO3 Explaining the use of planning tools used in management accounting.
LO4 Comparing ways in which organisations could use management accounting to respond to financial problems.

Assignment Brief:

Scenario

ABC Co. Ltd. specialises in manufacturing electronic products. The range comprises of 2 products, Personal Computers (‘PC') and Video Players (‘VP'). The company's products have the data shown below.

                    Products                              PC VP

Maximum  monthly demand         unit 10,000         20,000

    Direct labour hours per unit      hr 2             4

    Selling Price                      $ 1,200        1,600                   

    Unit variable costs

Direct Material                 $ 600          800

      Direct Labour                   $ 200          400

      Other variable O/H             $ 200          200


The company has adopted the OAR in term of direct labour hour. The total estimated fixed cost and direct hours during the year is $2.4m and 30,000 hours respectively.

The company is planned to manufacture a new product, I-Phone (‘IP') with estimated contribution of $600 per unit.

The manager wants to prepare the budgets for the coming January to March, assuming that the company will manufacture only IP to fulfill a confirmed special order for 3,000, 3,000 and 4,000 units for Jan, Feb and March respectively at $200 each. The only variable cost is direct raw material. To produce one unit of IP, the standard usage of raw material is 2 units at standard price of $70 per unit of IP. The actual sale and material purchase for last December is 2,500 units and 50,000 units respectively.

Noted: The Production Department is responsible for the planning, organising and control of the manufacturing process while the Procurement Department is responsible for the purchase of all raw materials.

Give your advice on the following issues:

Part A:
Analyse and evaluating ABC's financial performances by using the various management accounting technique, and make the possible recommendations in dealing with the financial problems and the price strategies in revising its price (3.2, 4.1, 4.2)

Part B: Budgeting Process:
• the major functions of budgeting process (3.1)
• the advantages and disadvantages in operating a budgetary control system (3.1);

Part C: Budgetary Planning:
• whether fixed or flexible budgets should be prepared for the coming January to March (3.1)
• based on information provided in question, prepare the monthly budgets as follows: (3.1, M3)
- sales budget
- cash collection budget from sales (assuming 40% of current month sales being paid within the same month with the remaining 60% payable in the following month)
- production budget (assuming monthly production units equals to monthly sales units)
- raw material purchase budget (assuming the company purchases the exact quantity of raw material in each month to meet the monthly production requirement)
- cash payment budget for raw material purchases (assuming payment being made in the month following the month of purchase)
• prepare the monthly cash budget (assuming that the only other item is cash payment of $300,000 in January for the purchase of production equipment and that the projected cash andbank balance as at 1 January is $20,000) (3.1, M3)

Part D: Budgetary Control:

• if the actual purchase and usage of raw material amounted to $435,600 in January, calculate the raw material variance (4.1)
• it is found that the actual purchase price of raw material is $66 per unit and the actual purchase and usage quantity is 6,600 units to produce 3,000 units of IP in January. Compute the raw material price and usage variances to analyse the raw material variance in question (4.1)
• prepare a cost reconciliation statement reconciling budgeted and actual raw material costs for the month of January (4.1)
• it is discovered that raw material was purchased in January from a new supplier not on the company's approved vendor list. Report your findings to the manager in accordance with the responsibilities of the relevant departments and recommend possible corrective actions for theidentified variances (4.1, 4.2, M3 and M4).

Prepare a proposal to advise the manager.
To achieve D3, you have to evaluate how the planning tools respond appropriately to solving the financial problems to lead the organization to sustainable success.

Grading Criteria

Learning Outcome

Pass

Merit

Distinction

LO3 Explaining the use of planning tools used in management accounting.

P4 Explain the advantages and disadvantages of different types of planning tools used for budgetary control.

M3: Analyse the use of different planning tolls and their application for preparing and forecasting budgets.

 

 

D3: Evaluate how planning

tools for accounting

respond appropriately to

solving financial problems

to lead organisations to sustainable success.

 

 

 

 

LO4 Comparing ways in which organisations could use management accounting to respond to financial problems.

P5 Compare how organisations are adapting management accounting systems to respond to financial problems

M4 : Analyse how, in responding to financial problems, management accounting can lead organisations to sustainable success,

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Management accounting report

ASSIGNMENT BRIEF NUMBER 1

Executive summary

The management accounting is an important tool for assessing the financial position of the business. The management accounting takes into account the qualitative aspect of the business though undertaking correct pricing and other decisions. The unit cost of the product can be calculated differently using different products. The budgets are very important for the business as they help in controlling and evaluating the performance of the company.

Understanding of management accounting systems

Introduction to management accounting

Management accounting is the process that is related with identification, analysis, recording, and the presentation of the information in regard to financial aspects that will be used by the management of the company internally for the purpose of planning, making decisions and controlling the financial aspects.

It is important to integrate management accounting within an organization due to the following reasons:
• It helps in formulation of overall strategies.
• It helps in taking decisions in regard to resource allocation.
• It helps in planning of costing and the control of the different operations and activities.
• It helps in evaluation of the performance.
• It helps in meeting different external reporting and legal requirements.

Difference between management and financial accounting

Management accounting

Financial accounting

It provides specific reports

It provides general reports

It provides details at a considerable level.

It provides overview of the financial position of the company.

The intervals of reporting are flexible as per our requirement.

The interval of reporting is annual.

The time horizon used in reporting is both forward and backward.

The backward time horizon is only used in reporting.

It considers both financial and qualitative information hence also the non financial information.

It considers only the financial information that is the quantifiable information.

Different types of management accounting systems

Job costing system: This system helps in assigning cost of manufacturing to each and every product in the business and thus helps in recording track of the ordering expenses.

Price optimizing system: This system helps in the controlling the price of the resources related to the company. This system helps in making decisions in regard to prices of different products at the same time. It will also help in determining the levels of demand of products at changing levels of prices. Hence this helps in determining the structures of pricing in order to undertake promotion pricing, and discounted pricing.

Cost accounting system: This system helps in estimating the cost of the product and also takes into consideration the profitability of the organization, inventory and the process of controlling cost.

Inventory management system: This system helps in supervising the inventory and also the management of the stock. Thus it also helps in the efficient and effective flow of the inventory within an organization. Thus it helps in cost reduction in the business. (Mariam Nawaz, 2013)

Presenting financial information
The management accounting information should provide accurate and true information to the managers of the business as the managers undertake critical business decisions with the management accounting reports.

Different management accounting reports
• Budgeting reports: It helps in making plans for the company in order to analyze the performance of the company and also helps in evaluating the performance of the departments and cost controlling.
• Accounts receivable aging report: This report helps in better management of the accounts receivables. Thus it helps in reduction of the level of the bad debts and thus maintaining efficient level of liquidity in the business.
• Job cost reports: This report helps in proper identification of the cost, profits and the expenses in relation to specific job. Thus it provides indication of the aspect of the earning that is related with one particular job or product.
• Performance report: This report helps in comparison of the actual performance with the budgeted performance.
• Order information report: This provides information in regard to the operations of the company thus helps in managing the operations of the company in order to reduce the ordering cost of the products.

Apply range of management accounting techniques
Cost
The cost is the expenditure in monetary terms that is to be incurred in order to purchase different factors of production.
Classification of cost
• On the basis of nature:
1. Fixed cost: This is the cost that does not change with the level of production.
2. Variable cost: This is the cost that changes with every level of production.
3. Semi variable cost: This is the cost which is partly variable cost and partly fixed cost. This is the cost that does not change with the level of production but changes with the change in the facilities of production.
4. Marginal cost: This is the cost that is incurred by increasing one unit of production.
• On the basis of expense:
1. Material cost: It is the cost that is incurred for purchase of raw material.
2. Labor cost: it is the amount paid to workers.
3. Overhead cost: It is the cost incurred for other expense of production.
• On the basis of control:
1. Controllable cost
2. Uncontrollable cost
• On the basis of relevance to decision making
1. Opportunity cost: It is the cost that is incurred for sacrificing the other best alternative course of action.
2. Sunk cost: It is the cost that is already incurred and is not affected by the new business activity.
3. Replacement cost: It is cost incurred for replacement of plant and machinery.
4. Real cost: It is the cost of the factors of production.
5. Conversion cost: it is the cost that is incurred for the conversion of the raw materials into the finished products.
6. Imputed cost: This is the imaginary cost that is being considered in order to make decision and does not involve outflow of cash. (Hasan, Md, 2015)

Calculation of unit cost based on marginal and absorption costing
Marginal costing

Particulars

PC

VP

Direct material

600

800

Direct labor

200

400

Other variable overhead

200

200

Unit cost

1000

1400

Absorption costing

Particulars

PC

VP

Direct material

600

800

Direct labor

200

400

Other variable overhead

200

200

Absorbed factory overhead

= 2400000/30000*2

= 160

320

Unit cost

1160

1720

Special order for 10000 units of PC

The marginal costing method should be used for accepting decision as unit cost is $1000 and absorption costing method is used for rejecting decision as unit cost is $1160.

Cost of special order

Particulars

Amount

Unit cost

1000

Number of units

10000

Total costs

$10000000

Optimum product mix

Particulars

PC

VP

Sale value

1200

1600

Less: unit cost

1000

1400

Contribution margin per unit

200

200

Labor hours per unit

2

4

Contribution per direct labor

100

50

Rank

1

2

Monthly demand

10000

20000

Number of labor hours used for PC production

20000

 

Number of labor hours left

= 60000-20000

= 40000

 

No of VP units production

 

= 40000/2

= 20000

The optimum product mix involves 20000 units of both PC and VP.

Computation of break-even point of IP and target units

Particulars

Amount

Fixed cost

$2400000

Contribution per unit

$600

Break-even point

= 4000 units

 

 

Target profit

$1200000

Desired contribution

= 1200000+2400000

= 3600000

Desired number of units

= 3600000/600

= 6000

Evaluation of proposal

Particulars

Amount

Number of units per month

6300

Total number of units

18900

Revised contribution

= (600+60)*18900

Total contribution

= 12474000

Less:

 

Fixed cost for 3 months

= 2400000/12*3

= 600000

Additional fixed cost

600000

Net profit

$11274000

The proposal should be accepted but due consideration should be given to the following factors:
1. The acceptance of proposal does not affect the production capacity of the company.
2. It does not affect the market demand of existing products.
3. It does not affect the working conditions in an adverse manner.

ASSIGNMENT BRIEF NUMBER 2

Part A

Analysis of financial performance

Marginal costing

Particulars

PC

VP

Direct material

600

800

Direct labor

200

400

Other variable overhead

200

200

Unit cost

1000

1400

Sale value

1200

1600

Contribution

200

200

Total contribution

2000000

4000000

Total contribution of both products

6000000

 

Less: Fixed cost

200000

 

Net profit

5800000

 

Absorption costing

Particulars

PC

VP

Direct material

600

800

Direct labor

200

400

Other variable overhead

200

200

Absorbed factory overhead

= 2400000/30000*2

= 160

320

Unit cost

1160

1720

 

 

 

Computation of profit

Particulars

Amount

Amount

Sales value

1200

1600

Less: unit cost

1160

1720

 

40

(120)

Total value

400000

(2400000)

Total value

(2000000)

 

Add: excess overhead

78000000

 

Net profit

5800000

 

Part B
The major functions of budgeting are:
• It helps in undertaking proper planning in the business.
• It helps in improving the level of coordination in the business.
• It helps in improving communication in regard to aims and objectives of company.
• It helps in keeping control over the activities of the business.
• It helps in evaluating performance of business.
The advantages and disadvantages of operating in a budgetary control system
Advantages
• It defines aims and objectives of the company.
• It helps in controlling the activities.
• It helps in maintaining proper coordination
• It helps in reducing cost by eliminating wasteful costs.
• It helps in maintaining centralized control
Disadvantages
• It is very difficult under conditions with inflation
• Involves high cost
• The period for which it is period is not certain
• Lack of support from top management may lead to failure. (Godin A.M., 2001)

Part C
• Flexible budgets should be prepared for coming Jan to March as the flexible budgets can be changed in accordance with the level of sales and production.
• Monthly budgets

Sales budgets

Particulars

Jan

Feb

Mar

Number of units

3000

3000

4000

Selling price

$800

$800

800

Total sale value

$2400000

$2400000

$3200000

Cash collection budget

Particulars

Jan

Feb

Mar

Total sale value

$2400000

$2400000

$3200000

Cash collected during the month

$960000

$960000

$1280000

Cash collected in following month

(2500*800*60%)

= 1200000

$1440000

$1440000

Total cash collected

$2160000

$2400000

$2720000

Production budget

Particulars

Jan

Feb

Mar

Estimated production in units

3000

3000

4000

Raw material purchase budget

Particulars

Jan

Feb

Mar

Estimated production in units

3000

3000

4000

Raw material required per unit

2

2

2

Total raw material required

6000

6000

8000

Total cost of purchasing raw

material

$420000

$420000

$560000

Cash payment budget

Particulars

Jan

Feb

Mar

Payment made for purchase

= 50000*70

= 3500000

420000

420000

Cash budget

Particulars

Jan

Feb

Mar

Opening cash balance

20000

(1620000)

360000

Total cash collected

$2160000

$2400000

$2720000

Less:

 

 

 

Payment made for purchase

= 50000*70

= 3500000

420000

420000

Equipment purchase

300000

 

 

Closing balance

(1620000)

360000

2660000

Part D
• Raw material variance= $435600-420000= $15600A
• Computation of variance

Particulars

Amount

Actual price

66

Standard price

70

Raw material price variance

= (70-66)*6600

= 26400F

 

Raw material usage variance

= (6000-6600)*70

= 42000A

• Reconciliation of actual and budgeted cost

Particulars

Amount

Budgeted cost

420000

Add:

 

Raw material price variance

26400

Less: Raw material usage variance

(42000)

Actual cost

$435600

• Recommendations for corrective actions and responsibilities of manager
1. The manager should purchase the material from authorized supplier after obtaining proper permission
2. The excess use of raw material should be checked by undertaking the regular check in operations.
3. Wastage should be avoided
4. Operations should be carried efficiently
5. Comparison of actual and expected performance should be done regularly in order to avoid financial loss to business. (Zalevsky V.A., 2009)

Conclusions
The management accounting is an important tool in the performance of the business. It had been used effectively in order to improve the financial position of the business. The proposal to spent additional amount of fixed cost in order to sale higher units should be accepted. The budgets should be used as the base for the improvement of the financial position. The variances are calculated for the purpose of evaluation and accordingly corrective actions are taken.