Management Accounting Question 2 Essay Example

Management Accounting Question 2 Essay Name: Course: Lecturer: Date: We will write a custom essay sample on Management Accounting Question 2 specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on Management Accounting Question 2 specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on Management Accounting Question 2 specifically for you FOR ONLY $16.38 $13.9/page Hire Writer Management Accounting Question 2 2.1 Fundamental principles of financial statements Prudence On going 2.2 Financial accounting is meant for making reports that are shared to all stakeholders about the position of the company financially while managerial accounting is for internal purposes of making decisions. 2.3 In deciding whether a certain cost is relevant, one has to consider whether it will be affected by a certain operation. Whether they make a difference in making certain decisions is another condition for deciding whether a cost is relevant. In deciding relevance of costs, there must be two alternatives to the case presented. 2.4 OECD methods 482 methods Unspecified methods 2.5 Transaction Speculative Precautionary 2.6.1 Bello Activity% ofAmount of costBello FOH cost Raw material orders25300,00020ordersSet-up of machines15180,00015set-upsProduct inspections20240,00040inspections According to machine set-ups, the overhead recovery rate would be 180,000 ? 15 = R 12, 000 per machine set up. Using inspections, the overhead rate of recovery is 240,000 ? 40 = R 6000 per inspection. 2.6.2 Unit cost in respect of orders Total activity units = 20 Allocated costs = 300,000 Cost of Mello = 720,000 Cost per unit = 300,000 / 20,000 = R15 Unit cost in respect of inspection Total activity units = 40 Allocated costs = 240,000 Cost of Mello = 720,000 Cost per unit = 240,000 / 20,000 = R12 Question 3 3.1 cost of sales raw materials 10,640,000.00 packaging cost 3,808,000.00 variable overheads 3,584,000.00 total variable costs of sales 18,032,000.00 variable cost of sale per unit 85.87 fixes labor for assemblers 80.00 fixed overhead per unit 13.50 total cost of sales per unit 179.37 total cost of sales 37,667,000.00 Variable cost of sales per unit = 18032,000 / 210000 units Fixed overhead cost of sale per unit = budgeted cost / budgeted units = 3,240,000 / 240,000 units 3.2 Absorption costing income statement Sales 61,950,000 Cost of goods sold 37,667,000 Gross margin 24,283,000 Selling and admin expenses Marketing expenses 1,700,000 Administrative depreciation 2,550,000 Selling and administrative labor 5,104,000 Sales expenses 236,000 Bank charges 333,000 Interest 214,000 10,137,000 Net income 14,146,000 3.3 Variable costing income statement has several benefits to the management that might not be presented in the absorption costing. In variable costing income statement, manufacturing overhead costs are addressed on periodic bases instead on a per unit basis. It considers the variable costs that are directly related to the production of each unit are allocated for each of the produce units. Other expenses such as fixed overheads, selling, and administrative as well as other variable costs are allocated on a period basis instead of stock or inventories. This enables the smoothing out if fixed overheads that are related to manufacturing within the period of reporting. With this kind of costing, the management is in a position to determine pricing with ease. Question 4 4.1 Sales budget revenue sales budget quarter 1 8,100 120 R972000 quarter 2 8,400 120 R1,008,000 quarter 3 9,000 120 R1,080,000 quarter 4 7,500 120 R900,000 4.2 Production budget for units required each quarter Quarter 1 = 8,100 ? 10% produced in previous quarter = 810 8,100 – 810 = 7,290 8,400 ? 10% produced for next quarter = 840 7,290 + 840 = 8,130 units Quarter 2 = 8,400 ? 10% produced in quarter 1 = 840 8,400 – 840 = 7,540 9,000 ? 10% produced for next quarter = 900 7,540 + 900 = 8,440 Quarter 3 = 9,000 ? 10% produced in quarter 2 = 900 9,000 – 900 = 8,100 7,500 ? 10% produced next quarter = 750 8,100+ 750 = 8,850 Quarter 4 =7,500 ? 10% produced in quarter 3 = 750 7,500 – 750 = 6,750 8,400 ? 10% produced for next year = 840 6,750 + 840 = 7,590 4.3 Fixed overhead cost cash Quarter 1 Depreciation cost = 500,000 / 20 quarters = 25,000 per quarter Fixed overhead cost of units produced = 13 ? 8,130 = 105,690 Fixed overhead cash = 105,690 + 25,000 = R 130,690 Quarter 4 Fixed overhead cost of units produced = 13 ? 7,590 = 98,670 Fixed overhead cash = 98, 670 + 25,000 = R 123,670 4.4 Considering the information provided in the scenario above, it is likely that Click Ltd might face some cash complications. One of the complications could be their credit offer, where they sell their product with a two-month credit. Considering they are supposed to pay their suppliers 50% of the cost when making an order, the company might find itself in constrains to pay the supplier. Additionally, they are supposed to pay for labor and fixed overheads as they are incurred, meaning that if they do not have immediate cash they might not be in a position to pay for their costs since their customers pay after two months. Question 5 5.1 Contribution per stress-relief ball Revenue = 30,000 ? 160 = R4, 800,000 Variable costs = 30,000 ? 82.60 = 2,478,000 Commission 4% ? 4, 800,000 = 192,000 Total contribution = 4,800,000 – 2,478,000- 192,000 = 2,130,000 Contribution per stress-relief ball = 2,130,000 / 30,000 = R71 5.2 Break-even point Fixed costs = 1,484,000 Contribution per unit = 71 Break-even point = 1,484,000 / 71 = 20,902 units 5.3 Margin of safety for stress-relief ball Sales revenue = (30,000 units @ R160) R 4, 800,000 Break even = (20,902 units @ R 160) –R 3, 344,320 Margin of safety R 1, 455,680 % margin of safety = 1,455,680 / 4,800,000 = 30.32% 5.4 Sales revenue (36,000 units @ R 150) R 5, 400,000 Variable cost (36,000 units @ R 82.60) (R 2, 973,600) Commission @ 4% of 5, 400,000 (R 216,000) Contribution R 2, 210,400 Fixed costs (R 1, 484,000) Profit made R 726,400 From the above calculation, it is obvious that an advertisement and promotion campaign for the product cannot be conducted considering a profit of R 800,000 has to be made. Therefore, at a sales price of R150 the increase in revenue due to change in price from R160 does not reflect a relatively equal contribution. At a sale price of R160, it is possible to conduct the advertisement and promotion since the profit is above target required at R 838, 000. Therefore, the management should not seek to decrease the sales price R150 to increase sales. Instead, it should keep the price unchanged in order to make enough profit for advertisement and promotion.