Analysis of Management Accounting- Doc

Running head: MANAGEMENT ACCOUNTING
Management accounting
University Name
Student Name
Authors’ Note

2MANAGEMENT ACCOUNTING
Table of Contents
Answer to Part A:.......................................................................................................................3
Answer to Part B:.......................................................................................................................5
Introduction:...............................................................................................................................5
Discussion:.................................................................................................................................6
Conclusion:................................................................................................................................7
Answer to Part C:.......................................................................................................................8
References list:.........................................................................................................................10

3MANAGEMENT ACCOUNTING
Answer to Part A:
Preparation of basic master budget:
Manufacturing Overhead Budget:
Particulars April May June
Direct Labour Hour 71680 113160 132480
Indirect Labour Cost per DLH $28.98 $28.98 $28.98
Total Indirect Labour Cost $20,77,286 $32,79,377 $38,39,270
Power Cost per DLH $2.76 $2.76 $2.76
Total Power Cost $1,97,837 $3,12,322 $3,65,645
Variable Maintenance Cost per unit $37.78 $37.78 $37.78
Variable Maintenance Cost $27,07,911 $42,74,933 $50,04,800
Fixed Maintenance
$1,56,93,66
7
$1,56,93,66
7
$1,56,93,66
7
Total Maintenance Costs
$1,84,01,57
8
$1,99,68,60
0
$2,06,98,46
7
Other Variable Cost per unit $20.70 $20.70 $20.70
Other Variable Cost $14,83,776 $23,42,412 $27,42,336
Other Fixed Cost $69,00,000 $69,00,000 $69,00,000
Other Manufacturing Costs $83,83,776 $92,42,412 $96,42,336
Supervision
$1,93,20,00
0
$1,93,20,00
0
$1,93,20,00
0
Depreciation $17,25,000 $17,25,000 $17,25,000
Rates & Utilities $14,25,500 $14,25,500 $14,25,500
Budgeted Manufacturing Overhead
$5,15,30,97
7
$5,52,73,21
0
$5,70,16,21
8
Purchase Budget:
Particulars April May June
Budgeted Sales Volume 34500 27600 31050
Budgeted Production Volume 17920 28290 33120

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Fuse required per unit 2 2 2
Total Fuse Required 35840 56580 66240
Add: Closing Inventory of Fuse 33120 37260 49680
68960 93840 115920
Less: Opening Inventory of Fuse 41400 33120 37260
Budgeted Purchase Volume (in units) 27560 60720 78660
Fuse Cost per unit $41.00 $41.00 $41.00
Total Cost of Fuse
$11,29,96
0
$24,89,52
0 $32,25,060
Isolator required per unit 3 3 3
Total Isolator Required 53760 84870 99360
Add: Closing Inventory of Isolator 49680 55890 74520
103440 140760 173880
Less: Opening Inventory of Isolator 62100 49680 55890
Budgeted Purchase Volume (in units) 41340 91080 117990
Isolator Cost per unit $55.00 $55.00 $55.00
Total Cost of Isolator
$29,56,80
0
$46,67,85
0 $54,64,800
Budgeted Direct Material Purchase
$40,86,76
0
$71,57,37
0 $86,89,860
Direct Material Budget:
Particulars April May June
Total Fuse required for Production 35840 56580 66240
Fuse Cost per unit $41.00 $41.00 $41.00
Total Fuse Cost
$14,69,44
0
$23,19,78
0 $27,15,840
Total Isolator required for Production 53760 84870 99360
Isolator Cost per unit $55.00 $55.00 $55.00
Total Isolator Cost
$29,56,80
0
$46,67,85
0 $54,64,800
Budgeted Direct Material Cost
$44,26,24
0
$69,87,63
0 $81,80,640
Particulars April May June July
Sales Volume in units 34500 27600 31050 41400

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Add: Closing Inventory of
Finished Goods 5520 6210 8280
40020 33810 39330
Less: Opening Inventory of
Finished Goods 22100 5520 6210
Budgeted Production Volume 17920 28290 33120
Direct Labour Budget:
Quarters
Particulars April May June
Budgeted Production Volume 17920 28290 33120
Labor Hours required per unit 4 4 4
Total Direct Labor Hour
Required 71680 113160 132480
Direct Labor Cost per Hour $20.00 $20.00 $20.00
Budgeted Direct Labor Cost
$14,33,60
0
$22,63,20
0
$26,49,60
0
Answer to Part B:
Introduction:
The report is prepared for analyzing and evaluating the new project of manufacturing
facility undertaken by Schopenhauer Pty Ltd. Growing uncertainty and volatility in the
current market for alternative generation is the primary concern of manager of company for
which it is seeking to undertake such an investment in new manufacturing facility.
Organization will be enabling to manufacture the product in house for which they are
required to assemble it from outside (Alsharari et al. 2015). Moreover, the process of
assembling is labour intensive that will be somewhat automated under the intended
manufacturing facility. Undertaking new project will have considerable impact on budgeted
value of sales, revenue and costs.

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Discussion:
With the implementation of new manufacturing facility by Schopenhauer Pty Ltd,
there will be change in direct and material cost. The various budgets is prepared by
employment of flexible budgeting system and some of the budgets that have been prepared
by organization incorporates direct labour budget, cost of goods manufactured statement,
production budget, direct material budget, cash collection from debtors account, budgetary
income statement and purchase budget. There is a likelihood that direct labour and material
cost would reduce by 25% and increase in fixed manufacturing overhead by 50% resulting
from increase in production capacity. In event of any cash shortage, company will be relying
on external borrowing for which they are entitled to pay borrowed cost along with interest
amount.
When looking at the sales budget, it can be seen that the budgeted sales revenue has
decreased initially from $ 12523500 in the month of April to $ 112711500 in month of June
and thereafter it increased to $ 15028200 in month of July. It is depicted from the production
budget that the budgeted production volume has increased considerably from 17920 in month
of April to 33120 in month of July. The budgeted direct labour cost has witnessed a
considerable increase from $ 1433600 in month of April to $ 2263200 in month of May and
further to $ 2469600 in month of June as indicated by direct labour budget.
The purchase budget depicts the figures of budgeted production volume, budgeted
sales volume and budgeted direct material purchase. There is increase in budgeted sales
volume 34500 in the month of April to 41400 in the month of July. However, the budgeted
sales volume declined in the initial months of operation. In addition to this, the volume of
budgeted production has increased from 17920 in the month of April to 28290 in the month

7MANAGEMENT ACCOUNTING
of May and further to 33120 in the June month. Furthermore, the budgeted direct material
purchase has increased significantly from $ 4086760 to $ 8689870.
Now, looking at the direct material budget, the cost of direct material budget has
increased from $ 4426240 in April month to $ 6987630 in the month of May and further to $
8180640 in the month of June.
Organization has also prepared manufacturing budget overhead that reveals there is
consistent increase in total number of labour hours worked. It is depicted from the figures that
the total direct labour cost has also increased significantly to $ 20698467. Other
manufacturing cost has increased by fewer amount $ 9242412 in month of May to $ 9642336.
The total budgeted manufacturing overhead has increased from $ 51530977 in month of April
to $ 57016218 in the month of June.
Total amount of cash that has been collected from debtors has initially increased from
$ 96436000 to $ 112711500 and thereafter it has reduced to $ 103193640. In addition to this,
the cash payment for selling and administration expenses has initially reduced to $ 22459500
and thereafter it has increased to $ 26080965 respectively. Looking at the cash budget, it can
be seen that cash flow from operating activities has increased initially to $ 23137820 and has
reduced drastically to $ 5818422. The amount of closing cash balance has increased to $
35754583 as against $ 23633005 in month of June.
Furthermore, the decision of making investment in the project is analyzed by looking
at the figure of net operating income that is deduced from computation of income statement
(Schaltegger and Zvezdov 2015). The total amount of net operating income stood at - $
3089351. Since the operating income is negative, it is not viable to make investment in new
manufacturing facility.

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Conclusion:
From the above analysis of the new manufacturing facility that seeks to be undertaken
by Schopenhauer Pty Ltd, it can be seen the net operating income generated by the project is
negative. Therefore, it can be inferred that it is not worthy to undertake investment in new
manufacturing facility.
Answer to Part C:
The overall performance of organization and behaviour of employees is
significantly affected by preparation of budget. Any organization generally relies on suing
two types of approach for preparation of budget that involves participatory budget and
imposed budget. Under imposed budget, the preparation of budget is the responsibility of
senior management who are entitled to set the parameters for decision making (Smith and
Driscoll 2017). There is little involvement of middle or lower level managers in the decision
making of budget. However, there is no effective utilization of human resources despite the
fact that they form an important source of input in budgetary preparation. One of the
disadvantages of imposed budget is that they lead to much budgetary slack and results in
occurrence of waste and efficiency if there is no proper scrutinization of the budgets
(Lindholm et al. 2014). There should be carefully reviewing of the budgets before the
outcomes are accepted.
Under participatory budget, there is active involvement of employees from different
department with the intention of providing advantage in terms of performance and benefits of
employees. The participatory budget has the implications on employees in terms of
communication between employees, achievement of gaols and motivation. Since employees
at all levels participate in the budget preparation, flow of communication and involvement is
enhanced. An organization is able to design budget by determining and setting realistic
targets when there is increased employees participation. Any undesirable behaviour on part of

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employees can be well addressed if the organization adopts the approach of participatory
approach (Cinquini and Tenucci 2016). Employees at individual level are able to set their
budgetary goals as they are motivated from such participation.
It can be well inferred from the analysis of the two types of budget that the
participatory budget helps in addressing the behavioural concerns of employees. This is so
because implementation of this particular approach helps in facilitating the communication
flow between employees at different levels. A budget is capable of producing favourable
outcome when preparation of budget incorporates input from all employees, staff and upper
and lower level management. Employees experiencing any issues relating to the behaviour
within the organization can seek for the employment of participatory budget that would lead
to better decision making (Nørreklit 2014). When the budgets are prepared by seeking the
information from subordinates, there will be facilitation of framing realistic objectives that
will be achieved accurately. This is so because if the information are sourced from
subordinates, they are able to provide with the facts and figures about day to day operations
of business. Therefore, it is desirable on part of organization to employ participatory budget
in the preparation of budget as it would involve wide range of employees from all the
departments and helps in setting realistic budgetary goals.

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paradigm of service (pp. 49-71). CRC Press.
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Framework, review and potentials. Journal of Cleaner Production, 108, pp.1333-1341.

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Smith, D. and Driscoll, T., 2017. Key skill sets for management accounting. Strategic
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