Accounting for Management Decisions - MAFI1A-8 Assignment

This assignment delves into various aspects of accounting for management decisions, encompassing relevant costing, limiting factor analysis, and budgeting. It begins with an analysis of limiting factors in production, determining optimal output, and calculating contribution per unit. The assignment then explores budgeting processes, examining the pros and cons of departmental manager involvement. Further, it addresses learning curve theory, cost-plus pricing limitations, and product pricing strategies to maximize profit. Key features of the balanced scorecard approach are explained, including customer and innovation perspectives, along with the importance of non-financial performance measures in the service sector. Finally, the assignment concludes with a calculation of Net Present Value (NPV) and Internal Rate of Return (IRR) for a project, demonstrating investment appraisal techniques.

Running head: ACCOUNTING FOR MANAGEMENT DECISIONS
Accounting for Management Decisions
Name of the Student:
Name of the University:
Authors Note:

ACCOUNTING FOR MANAGEMENT DECISIONS
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Table of Contents
Question 1:.................................................................................................................................3
Part 1:.........................................................................................................................................3
1.1 Calculating whether direct labour will be the limiting factor:.............................................3
1.2 Calculating the contribution per unit:..................................................................................3
1.3 Determining the output of each product that will maximise total contribution:..................3
Part 2:.........................................................................................................................................4
1.4 Explaining the arguments for and against the participation of departmental managers in
preparation of their budgets:......................................................................................................4
Question 2:.................................................................................................................................4
2.1.1 Calculating average direct labour cost per batch of the first four batches:.......................4
2.1.2 Calculating the direct labour cost of the 4th batch:............................................................4
2.1.3 Calculating the contribution earned from the product over its lifetime:...........................4
2.2 Calculating the rate of learning achieved from the constant growth rate:...........................5
2.3 Explaining the four limitations of a cost-plus based approach to product pricing:.............5
Question 3:.................................................................................................................................6
3.1 Calculating the selling price of the product that will maximise the company’s profits:......6
3.2.1 Growth stage of the new product life cycle:.....................................................................6
3.2.2 Maturity stage of the new product life cycle:....................................................................6
Question 4:.................................................................................................................................6
4.1 Explaining the key features of a balance-scorecard approach performance measurement:.6
4.2 Two perspective of the Balanced scorecard and for each of the recommended
performance measure:................................................................................................................7
4.3 Explaining why non-financial performance measures are important in the service sector: 7
4.4 Explaining how and why non-controllable cost should be shown on profit reports:...........8

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Question 5:.................................................................................................................................8
5.1 Calculating the Net Present Value of the project:................................................................8
5.2 Calculate the internal rate of return:.....................................................................................8
References and Bibliography:....................................................................................................9

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Question 1:
Part 1:
1.1 Calculating whether direct labour will be the limiting factor:
Particulars Product X Product Y Product Z
Direct labour
(hours/unit) 0.15 0.30 0.40
Sales unit 22,000 8,000 15,000
Direct labour hours 3,300 2,400 6,000
Yes, there is limiting factor in labour, as the total labour hours are 11,100, while the
production requires 11,700 hours.
1.2 Calculating the contribution per unit:
Particulars Product X
Product
Y Product Z
Sales price per unit 10.00 15.00 24.00
Variable cost 5.20 8.25 14.40
Contribution per unit 4.80 6.75 9.60
1.3 Determining the output of each product that will maximise total contribution:
Particulars Product X Product Y Product Z
Sales price per unit 10.00 15.00 24.00
Variable cost 5.20 8.25 14.40
Contribution 4.80 6.75 9.60
Direct labour
(hours/unit) 0.15 0.30 0.40
Contribution 32.00 22.50 24.00
Priority 1 3 2
Production schedule Product X Product Y Product Z
Direct labour hours
Product X 3,300

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Product Z 6,000
Product Y 1,800
Production output
required 22,000 15,000 4,500
Part 2:
1.4 Explaining the arguments for and against the participation of departmental
managers in preparation of their budgets:
There are both advantages and disadvantages of using the departmental managers for
preparing budgeting, which are depicted as follows.
 The major advantage if using the departmental managers is that top level management
could get a proper insight on the actual options and budge needed for the department.
 However, the major limitation is the unrealistic gaols, which can be set by the
departmental managers, due the lack of adequate experience in managing organisational
budget (Schneider 2015).
Question 2:
2.1.1 Calculating average direct labour cost per batch of the first four batches:
No of batch 1 2 3 4
Number of units 1,000 1,000 1,000 1,000
Labour cost batch 40,000 36,000 32,400 29,160
average direct labour cost 34,390
2.1.2 Calculating the direct labour cost of the 4th batch:
No of batch 4
Number of units 1,000
Labour cost batch 29,160
average direct labour cost

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2.1.3 Calculating the contribution earned from the product over its lifetime:
No of
batch 1 2 3 4 5 6 7 8
Revenue 90,000 90,000 90,000 90,000 90,000 90,000 90,000 90,000
variable
cost 85,000 81,000 77,400 74,160 74,160 74,160 74,160 74,160
Contributio
n 5,000 9,000 12,600 15,840 15,840 15,840 15,840 15,840
Contributio
n total 1,05,800
2.2 Calculating the rate of learning achieved from the constant growth rate:
Particulars Value
Average contribution 1,05,800
Required 1,50,000
Cost reduction 44,200
Per back cost reduction in labour 5,525
No of
batch 1 2 3 4 5 6 7 8
Revenue 90,000 90,000 90,000 90,000 90,000 90,000 90,000 90,000
variable
cost 79,475 75,475 71,875 68,635 68,635 68,635 68,635 68,635
Contributio
n 10,525 14,525 18,125 21,365 21,365 21,365 21,365 21,365
Contributio
n total 1,50,000
2.3 Explaining the four limitations of a cost-plus based approach to product pricing:
There is certain limitation of cost-plus based approach, which is depicted as follows.
 The method mainly focuses on cost and ignores the demand for the product
 The actual cost incurred in all cases is not possible to ascertain
 The pricing system is naïve, as it does not take into account the elasticity of demand

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 Lastly, cost-plus based approach is based on accounting data and does not evaluate the
opportunity cost (Maas, Schaltegger and Crutzen 2016).
Question 3:
3.1 Calculating the selling price of the product that will maximise the company’s
profits:
Particulars Value Value Value
Selling price 27.00
24.6
0 23.00
Annual production 1,00,000 1,60,000 2,00,000
Sales 27,00,000 39,36,000 46,00,000
Direct material 2,00,000 3,20,000 4,00,000
Direct labour 6,00,000 9,60,000 12,00,000
Overhead 8,80,000 12,28,000 14,60,000
Profit 10,20,000 14,28,000 15,40,000
3.2.1 Growth stage of the new product life cycle:
During the growth stage, the overall selling price would be lower in comparison to the
unit production cost, as the main aim of the organisation is to attract more customers by
reducing the profit level.
3.2.2 Maturity stage of the new product life cycle:
However, in maturity stage the overall selling price per unit would be higher than the
variable cost, as the demand for the product would be higher and low cost would be incurred
to continue the production process (Quattrone 2016).

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Question 4:
4.1 Explaining the key features of a balance-scorecard approach performance
measurement:
The key feather of a balance score card approach is depicted as follows.
 Customer perspective aims in deriving and evaluating the performance of the organisation
in terms of customer. This indicates that high level of increment in customer that has been
achieved over the period of time
 Internal perspective evaluates the performance of company internal control, which helps
in maximising the production level
 Innovation and learning perspective evaluates the performance of the company to
improve their current products and innovate new ways to maximise revenue and minimise
cost.
 Financial perspective aims in evaluating the historical performance of the company and
detect the company capability to support financial targets (Christ and Burritt 2017).
4.2 Two perspective of the Balanced scorecard and for each of the recommended
performance measure:
The two perspective of balanced scorecard that can be used are Innovation and
learning perspective and Customer perspective. The relevant performance measures that can
be used is detection of number of customers after the implement of Customer perspective. On
the other hand, the performance measure that can be used for Innovation and learning
perspective is the repetition on the number of books that is been demanded (Castilla 2015).

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4.3 Explaining why non-financial performance measures are important in the service
sector:
The non-financial performance measure in the service sector is essential, as customer
as it helps in attracting more customers and detects the feather that is required for improving
the overall sales.
4.4 Explaining how and why non-controllable cost should be shown on profit reports:
The o controllable cost should be presented in the expense department of the profit
and loss statement, as it helps in determining the accurate level of expenses, which is being
conducted by the company to achieve the required level of sales.
Question 5:
5.1 Calculating the Net Present Value of the project:
Particulars 0 1 2 3 4 5
Initial cost -3200
Revenue 6900 7935 9125.25 10494.04 12068.14
Running cost 480 595.2 766.6176 1031.561 1459.369
Scrap value 450
Sale of asset 275
Net income -2925 6420 7339.8 8358.632 9462.477 11058.77
NPV 28,587
The analysis of the investment appraisal technique has directly indicated that FXQ
Co. should purchase the new machine, as NPV is positive.
5.2 Calculate the internal rate of return:
Particulars 0 1 2 3 4 5
Net income
-
2925 6420 7339.8 8358.632 9462.477 11058.77
IRR
233
%

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References and Bibliography:
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Bobryshev, A.N., Yakovenko, V.S., Tunin, S.A., Germanova, V.S. and Glushko, A.Y., 2015.
The Concept of Management Accounting in Crisis Conditions. Journal of Advanced
Research in Law and Economics, 6(3 (13)), p.520.
Castilla, E.J., 2015. Accounting for the gap: A firm study manipulating organizational
accountability and transparency in pay decisions. Organization Science, 26(2), pp.311-333.
Christ, K.L. and Burritt, R.L., 2017. Water management accounting: A framework for
corporate practice. Journal of cleaner production, 152, pp.379-386.
Dicks, L.V., Walsh, J.C. and Sutherland, W.J., 2014. Organising evidence for environmental
management decisions: a ‘4S’hierarchy. Trends in ecology & evolution, 29(11), pp.607-613.
Klychova, G.S., Zakirova, A.R., Mukhamedzyanov, K.Z. and Faskhutdinova, М.S., 2014.
Management reporting and its use for information ensuring of agriculture organization
management. Mediterranean Journal of Social Sciences, 5(24), p.104.
Klychova, G.S., Zakirova, A.R., Zakirov, Z.R. and Valieva, G.R., 2015. Management aspects
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Laugen, A.T., Engelhard, G.H., Whitlock, R., Arlinghaus, R., Dankel, D.J., Dunlop, E.S.,
Eikeset, A.M., Enberg, K., Jørgensen, C., Matsumura, S. and Nusslé, S., 2014. Evolutionary
impact assessment: accounting for evolutionary consequences of fishing in an ecosystem
approach to fisheries management. Fish and Fisheries, 15(1), pp.65-96.

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Maas, K., Schaltegger, S. and Crutzen, N., 2016. Integrating corporate sustainability
assessment, management accounting, control, and reporting. Journal of Cleaner
Production, 136, pp.237-248.
Maskell, B.H., Baggaley, B. and Grasso, L., 2016. Practical lean accounting: a proven
system for measuring and managing the lean enterprise. Productivity Press.
Quattrone, P., 2016. Management accounting goes digital: Will the move make it
wiser?. Management Accounting Research, 31, pp.118-122.
Schneider, A., 2015. Reflexivity in sustainability accounting and management: Transcending
the economic focus of corporate sustainability. Journal of Business Ethics, 127(3), pp.525-
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