Finance Paper: Questions on Management Accounting (Essay Sample)

Name
Course instructor
Subject
Date
Management Accounting
Q1
Let the cost incurred in registry dept be = r
Let the cost incurred in the personnel dept be = p
Let the cost incurred in the central admin be = c
R =0.05p+100,000………………………. (1)
P =0.05c + 60,000…………………………. (2)
C =0.2p + 190,000…………………………. (3)
From eon (3)
0.02p = c- 190,000
P = 5c -950,000………..4
Equating eon 4 and 2 we have
5c – 950,000 = 0.05c + 60,000
C = 204,040.04
Substituting in eon 2
P = (0.05x204040.04) + 60,000
P= 70202.02
Substituting in eon 1
R = 0.05x70202 + 100,000 = 103510.10
To the undergraduate department
= 0.7r + 0.5p +0.6c
= (0.7 x103510) + (0.5x 70202.02) + (0.6 x 204040.04)
=229,982/=
To the post graduate department
= (0.3r + 0.25p + 0.35c)
= (0.3x103510) + (0.25x70202.02) + (0.35x204040.04)
= 120,017.5/=
Instead of using reciprocal allocation of costs, end user departments should be able to bargain over the level and price of provision of services from service departments. This statement is true because the apportionment of costs to the various department are mere estimations of which some departments use services than others hence the apportionment in terms of percentage may not bring the true service cost that should be apportioned to the department. Again, it is the departmental managers who will surely know the costs they incur in each department.
Q2
* The overhead rate = the estimated overhead cost /estimated direct labour hours
= 490,000/5000 = 98/ per direct labour hour
* SL 205
Overhead cost = overhead rate x direct labour hours
= 98 x 350
= 3430/=
SL 229
= 98 x40
= 3920/=
* The material purchase rate
= (180,000/3000, 000) = 0.06/= per material cost
Product design rate
= (60,000/2000) = 30/= per hour
Production run rate
= (140,000/800) = 175/= per production run
Depreciation rate
(110,000/22000) = 5/= per machine hour
SL 205
Raw material overhead cost = 28,000 x 0.06 =1680/=
Design overhead costs = 10 x 30 =300
Production run costs = 175 x -2 = 350
Depreciation costs = 5 x 20 = 100
Total= 2430
SL 229
Raw material overhead cost = 0.06 x 36,000= 2160
Production design costs= 30 x25= 750
Design production run overhead = 175 x 8 = 1400
Depreciation overhead= 20 x5= 100
The production overhead costs in the answer b and c are different because we have used different absorption rates in the two instances and this simply imply that the different departments do not incur the same costs allocated to them in terms of direct labour hours hence direct labour hour rate might not give the accurate results to the apportioning. The management should therefore consult with the various department heads in order to discern the correct amount of cost to be [incurred in each department.
Q3 (I)
* The highest ‘price
Current selling price for the seller (B) = 75/=
Costs
Variable costs=45/=
Variable selling cost= 2/=
Unit fixed cost (300,000/20,000) = 15/=
Total costs62/=
Profit margin (13/75) =17.333%
After reduction of the selling cost
The cost will be (45+ 1 + 15) = 61 which = (100 – 17.333) %
Therefore the highest selling price would be (61/0.82666)= 73, 79/=
This is the highest price because it is the price the division A will be willing to sell to division B in order to maintain the same profit margin and after reducing the selling variable costs accordingly.
b) The lowest price
Total purchase cost for division B = 20,000 x 72= 1,440,000
The total number of units acquired = 20,000 + 2,000= 22000
The price = (1,440,000/ 22000)= 65.45/=
This price the division B is willing to pay currently with inclusion of the quantity discount offered by the outside company.
(ii)
The current profit margin = 17.33%
Calculation of profit after price increase
Profit = (80-1-45-15) = 19/=
Profit margin 19/80= 23.75%
Less cost implication margin on Division B (80-65.45)/80= 18.19%
The overall resultant profit margin= (23.75- 18.19)5.56%
Hence the overall corporate profits will reduce by (17.33-5.56) =11.77%
Division B will be forced to buy from A when the price at which B sells the product reduces to 65.45/= at this point, it will be producing at the price with which the outside company will be selling. This means that the managerial practice would be quite efficient such they shall have implemented policies that would ensure a substantial reduction in production costs, like reducing the idle hours, employing qualified personnel, and doing the proper planning on the production of the products. These instances try to improve the efficiency and effectiveness of the company production sector.
Q4
Variable costing
Direct material80/= per unit
Direct labour15/= per unit
Variable selling cost5/= per unit
Variable overhead 8/= per unit
Total 108/= per unit
Absorption costing
Direct material 80/= per unit
Direct labour 15/= per unit
Variable production overhead8/= per unit
Fixed production overhead20/= per unit
Total 123/= per unit
Total cost
5000 (123 + 5) + 25,000
=665,000/=
b) Mark up = [profit / cost of goods sold] = 66500/655000= 10%
c) Let the direct labour hours per unit be = x
Mark up required should be 0.5 *10%=5%
Costs
Direct material =400,000
Direct labour = 75,000
V. selling costs= 25,000
Fixed selling costs= 25,000
Variable overhead costs=8* 5000x
Fixed overhead cost= 20 * 5000x
Total 525000+ 140,000x
Therefore 0.05 = 27,875/ (525,000 + 140,000x)
27875 = 0.05 (525,000 + 140,000x)
7,000x = 1625
X = 0.2322hrs
Assumption
The direct labour hour cost per unit remains the same
* The use of full cost allocation methods makes controlling overhead costs more difficult because it hides the reason for incurring overheads.
The since the absorption costing does not include some other variable costs such as selling variable cost in the calculation of the unit cost it allows for the transfer of the costs to the next period bay having a larger closing stock.
Question 5
a. Discuss, with appropriate examples, how the performance of managers can be assessed using non-financial measures of performance. In what circumstances is the use of non-financial measures likely to encourage better performance by managers than using financial measures?
Coordination,
Here the performance of the managers will be evaluated on the basis with he outlines the different activities that are being carried out in the company. We would ask ourselves such questions as, is the flow of activities in order for example from manufacturing, to packaging to storage to selling and distribution. Is there any time lag between such activities? Are the employees placed accordingly in terms of work design and stipulation on time commensurate to the activities?
Communication
A manager is gauged in this virtue by looking at the official reports issued by the management, the response given to such reports and the effectiveness of such reports is also determined. Additionally a closer look at the timeliness of such communicative devices should be check. The evaluator should ask questions like, how many channels the employees get the information about the company, how do they take the information of the company.
Reputation
In this stance, we look at how people view the company, the relationship the company has with the outsiders and other ambience that comes in the picture of any person at the mention of the company. This in itself tells us how the company is ranked according to the people’s perception and [beliefs about the company. The moment the company is having a good reputation; it means the manager’s performance is up to date.
Clarification of responsibilities and authority
The manager has the diction of proper organizational skills and knowledge that helps him organize the various activities giving them a clear outline of the job description. A good manager should be at a position to give clear and appropriate instructions to the various activities that are in the firm.
Motivation
A good manager should be at position to have a profoundly well motivated workforce with a view to efficiently accomplishing the objectives of the firm. The manager will be judge by how the various employees in various departments perceive the job and how interested they are with the job. Here a good manager will ensure a healthy working condition of the employees to the extent that they feel part and parcel of the firm.
* Discuss the caveats of a decision-making approach to the study of management accounting.
In the study, one should be aware of both the financial and the non financial factors that one should look into while making and informed decision. The non financial factors include;
The reputation of the firm which basically entail how the company is perceived by the outsiders, this in effect calls for the company to check how socially responsible it is to the community around which must be include in decision making.
The legal environment, during the decision making, the company should also clearly examine various impacts that the legal environment tries to bring on board for example what impact the tax imposition bring to the company profitability
The proper classification of costs, here, the company should be aware of the relevant and the irrelevant costs tha...