Cost & Management Accounting (pdf)

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Running head: Cost and Management Accounting
Cost and Management Accounting
Semester 1 2018
Federation University of Australia
Student Name
Date

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Cost and Management Accounting
Part 2
Question 1
Models information
Spotter ($) Snooker ($) Stunner ($)
Sales 300,000 500,000 200,000
Variable expenses 150,000 200,000 145,000
Contribution margin 150,000 300,000 55,000
Fixed expenses 120,000 230,000 95,000
Net income 30,000 70,000 (40,000)
a) Oceania current net income
Spotter $ 30,000
Snooker $ 70,000
Stunner $ (40000)
Total net income $ 60,000
b) Net income if the company discontinuous Stunner product line
Allocation of the common cost
Total $ 300,000
Cost allocated
Spotter 300000
800000∗300000=$ 112500
Snooker ¿ 500000
800000∗300000=$ 187500
Total fixed cost per product line
Spotter ¿ 112500+30000=$ 142500
Snooker ¿ 187500+80,000=$ 267500
Spotter ($) Snooker ($)
Sales 300,000 500,000
Variable expenses 150,000 200,000
Contribution margin 150,000 300,000

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Cost and Management Accounting
Fixed expenses 142,500 267,500
Net income 7,500 32,500
The total oceanic net income
Spotter $ 7,500
Snooker $ 32,500
Total $ 40,000
c) Oceania should not eliminate the stunner product line. The Stunner product is
recording more sales than the other product for this reason it is absorbing most of
the fixed cost. This makes its net income to be negative. In a wide view the
management may be convinced that the product is a loss maker. Analysing the item
revenue deeply shows that with the stunner product being produced the company is
generating $ 60,000 while after the elimination of the Stunner product line the
revenue fell to $ 40,000. This data should be used to prove that the stunner product
line should be retained.
Question 2
Tasman Company produces tennis rackets.
a. Calculate
1. Equivalent units of production for material and conversion costs
Opening work in process 500 units
Added work in process 1000 units
Less closing work in process 600 units
Total completed work 900 units
material
Materials are added at the beginning of the production process
For the month of July, the material added were
Units started into production 1000 units
Conversion costs
Opening units 500 were at 60% complete

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Cost and Management Accounting
Units started 1000 units
Closing units 600
The equivalent units for conversion cost were
500 added 40%
900 added 100%
600 added 40%
2. Unit cost of production
Material
Started during the period 1000 units
500 units the cost was $ 750 hence for one units the cost was
¿ $ 750
500 =$ 1.5 this is the unit materials cost of production
Conversion cost
$ 600 was for 60% completion
¿ 100
60 ∗600=$ 1000 for 100%
The cost per unit is $ 1000
500 =$ 2
3. Assignment of costs to units;
In process
600 units
Material cost ¿ 600∗1,5=$ 900
Conversion cost 600∗0.4∗2=$ 720
Transferred out
Material (1000-600) =400 units
¿ 400∗1.5=$ 600
Conversion cost
500∗0.4∗2=$ 400
400∗0.4∗2=$ 320
Total ¿ 400+ 320=$ 720
b.

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Cost and Management Accounting
Tennis Rackets
Production Report for the month of July
Materials Cost ($)
Total units completed 900 1320
Units in process 600 1620 2940
Direct Materials 2400
Direct labour 1580
Manufacturing overhead 1240
Total cost incurred 8160
Part 3: The significance of accounting information and financial reporting in enhancing
corporate governance in business organisations
Introduction
Corporate governance is composed of a set of rules that organizations apply in
directing their decisions and justify their steps. Governance is a combination of contracts
that assist align the interest of the shareholders to that of the managers. It is the foundation
through which firms evaluate and go after their targets within the legal, market and social
environment. Considering that the primary role of accounting is to keep a track of the firm’s
financial performance, it plays a crucial part in evaluating how the firm fulfils its corporate
mandates. In this report will focus on the role of information asymmetry in agency conflicts
between the shareholders and the managers (Mehran & Mollineaux, 2012). Will critically
examine the role financial reporting plays in solving the information asymmetries plus its
applications in monitoring mechanism with an aim of improving credibility and transparency
of information
The role of Financial Reporting
Corporate governance is a subset of organization’s contracts formally and informally.
It is what assists align the interest of the managers with those of the other stakeholders.
Corporate governance is structured is away that it acts as the pathway through which
shareholders can assist ensure that the managers are taking decisions that benefit the firm.

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Cost and Management Accounting
The definition of corporate governance is wide and covers all type of firm’s contracts that
assist in aligning the shareholders, directors and managers interests (Raheja, 2005). For
instance, allowing creditors the right to view the financial reports of the firm is considered
under the corporate governance (Skeel, 2015).
The focus will be on types of agency problems that generates conflict of interest
between the managers and shareholders. The first type mushrooms when the interest of
the directors and shareholders are assumed to be aligned while the interest of the
management is not in line with those of the board and the shareholders. In this case will
focus on monitoring systems meant to ensure managers act in accordance to the
shareholders interest.
Another type of agency problem arises when the interest of the management and
that of the directors is assumed to be aligned while the same interests are not at par with
those of the shareholders. In this case will evaluate board independence and its role in
ensuring accountability.
How information influences the structure of corporate boards
The board of directors is directly tasked with monitoring the management and
developing mechanisms that align the objectives of the shareholders with those of the
managers. This is done through two broad functions. One is offering advice to senior
management. This requires expertise and knowledge of the firm’s financial information. The
second task involves monitoring the activities of the managers. This need the directors to be
independence from the managers (Ryan, 2012). The structure of the board is designed in
such way that it can possess the inside information of the firm while at the same time
perceived to be independence. This include having a combination of both inside and outside
directors.
Delivery of financial reports in time
The outside directors need the financial reports to be delivered in time for them to
monitor and advice the management. The earnings of the firm in specific should be
communicated in time. The failure of a firm to commit to minimise information asymmetry
between the insiders and outsiders will render the outside directors ineffective. This gives a

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correlation between the proportion of the outside directors and delivering financial reports
in time. Lack of transparency expands the scope for agency conflict that arise between
shareholders and management. This necessitates the need to have a greater proportion of
outside directors to monitor the actions of the management in cases where financial reports
are not delivered in a timely manner. The outside directors may work to improve
transparency in their bid to try monitor and advice the management appropriately in cases
where the low transparency occurring in the firm is correctable (Skeel, 2015).
Delivering the financial reports in a constructive manner
The outside directors demand the provision of high quality information to fulfil their
mandate of advising and monitoring the directors. Managers may occasionally have
incentives to distort or hide private information. In this situation the emphasis is put on the
timeline within which bad news is reported. This is an information that is likely to trigger
negative reaction from the shareholders (Wang, 2010). To ensure such news is reported in
time a variety of rules have been put in place to guide the reporting timeline. This forces the
managers to recognise and disclose information that might be difficult to verify regarding
losses faster than those relating to gains. For instance, it is mandatory to recognise a decline
in inventory, long term assets or goodwill while an increase in value is only reported once
the information is verifiable. By committing the managers to report bad news sooner than it
will surface in a normal environment, Conservatism reporting approach aide the external
directors in delivering their monitoring and advisory roles effectively (Zhao & Chen, 2008).
Addition of outside financial experts to the board of directors
The emergence of high profile accounting scandals in the early 2000s lead to reactive
measures which saw stricter disclosure rules being passed the Sarbanes-Oxley Act 2001. This
gave financial experts a timely role in conducting accounting research. The experts are
viewed as possessing superior capability with which they can monitor and advice on
financial reporting and disclosure issues (Mehran & Mollineaux, 2012). Given that definition
of the financial experts is not clear, with respect to corporate governance it can be used to
refer to a director with a strong auditing, accounting or financial operations background.
Prior to the regulatory requirement the organization would only allow a financial expert to
participate on its board activities for the following reasons: when the management need

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corporate finance advice, when the management need to commit to an intense monitoring
of the corporate financial reporting strategy and when the shareholders pressure or
demand that managers add an expert to the board due to concerns over in efficiencies in
monitoring (Linck, Netter, & Yang, 2008).
The financial expert can only be effective to the firms’ decisions when the financial
reports and information is available in a transparent manner. It is therefore justified to exert
a correlation between positive information transparency and the presence of a financial
expert among the directors. In scenarios where the financial expert is invited to the board
due to lack of proper financial reports, it is expected that this situation will improve as the
financial expert is able to take actions that may promote transparency. The presence of a
financial expert in the board of directors can be interpreted as away through which the firm
can improve its transparency. This is helpful in aligning the interests of the directors,
managers as well as the shareholders (Li, Sun, & Ettredge, 2010).
The role of accounting
Planning of projects
Accounting activities are highly influential as tools for defining corporate
governance. Organizations can make intelligent decisions regarding operations, expansions
and investments which the management possess by applying accurate accounting data. For
example, accounting projections can be used to indicate the influence of cutbacks in
employees to the firm’s short-term performance and the eventual outcome in the long run.
Responsibility to the public
Publicly trading organizations are legally responsible to the public when it comes to
disclosure of their business activities to the world. This though is not the case with the
privately trading firms. The public corporation are required to release their financial
statements to the public in a quarterly manner. This includes the statement of financial
position, statement of comprehensive income as well as the statements of shareholders
equity. This information is important to the potential investors in their decision to purchase
shares in the company. This nature of information is also required by government agencies
in their role as overseer of the organizations activities. For the firm to adhere to this

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demands the accounting practices are needed to assist generate this information (Lehn,
Patro, & Zhao, 2009).
Responsibility to the shareholders
To add to the responsibility to the public and government departments corporation s
are also responsible for releasing detailed financial information to the current shareholders.
The decisions of the corporation is necessary in determining the actions of the shareholders
to buy, sell or hold their shares in the organizations stock. The shareholders depend on the
information from the organizations accounting department for them to make informed
choices. In addition, the management of the organization depends on the accounting data
to evaluate their revenue generation, its sources and the timeline of receiving the revenue.
This nature of information is what guide recruitment, financial planning as well as
investment decisions.
Management of income
Almost all the decisions that the managers of a firm take are dependant on quality
and accuracy of accounting data. By using this information firms can manage their assets,
prioritize their investments and make intelligent choices. Its through the accuracy of
accounting data that the management can keep a track of their investments and the
generated outcome (Krishnan, 2005). This way the firm can decide when to purchase a new
asset or terminate a loss-making project.
Conclusion
Company managers are designed to act as agents of the shareholders, in many
occasions the managers do lose their way and end up following their own paths. This
situation leads to agency problems where the alignment of the shareholders, directors as
well as managers interests fail to be at par. The solution of this issue relies on the
accounting and reporting behaviours of the firm. Buy putting in measures meant to increase
the transparency of the firm the information asymmetry between the shareholder, directors
and the managers can be minimised. This improves the accountability of the organization
which at the end helps to align the interest of the parties. Financial reporting and
accounting information is Vitol to the improvement of a firms’ effective performance as well

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as curtailing scandals triggered by manages following their personal paths (Kothari, Shu, &
Wysocki, 2009).