Management Accounting

This article covers topics like fixed cost, sales budget, raw materials purchase budget, economic order quantity, job costing, variable costing and more related to Management Accounting.

Management Accounting

Table of Contents
Question 1..............................................................................................................................3
Question 2..............................................................................................................................3
Question 3..............................................................................................................................4
Question 4..............................................................................................................................4
Question 5..............................................................................................................................4
Question 6..............................................................................................................................4

Question 1
Fixed cost = $10200
Sales price = $120
Variable cost = $90 per unit
Contribution margin per unit = 120 – 90 = 30
Break even point in units = Fixed cost / Contribution per unit = 10200 / 30 = 340 unit
Question 2
1.
Sales budget
Forecasted sales units 80000
Sales price per unit 32
Sales for the second quarter of 2021 2560000
2.
Production budget
Sales units 80000
Add: Closing inventory 15000
Less: Opening inventory (5000)
Production units 90000
3.
Raw materials purchase budget
Production 90000
Direct material per unit 4 kg
Direct material needs 360000 kg
Add: Closing inventory 5400
Total needs 365400 kg
Less: Opening inventory (3200) kg
Purchase 362200 kg
Price per kg of metal $4
Direct material purchase budget $1448800
4.
Direct labour budget
Production 90000
Direct labour hour per unit 1.5
Direct labour hour needs 135000
Hourly rate $20
Direct labour budget $2700000

5.
Standard costing is essential in regard to assigning the cost of direct labour, material
and the overhead cost. This involves finished goods and cost of goods sold contains the
standard rates instead of actual and then a comparison is drawn between actinal and the
standard rates and the difference is shown as variance.
Question 3
Based upon the given case, cost of making product-A in-house is $240 while outsourcing it
from the supplier will cost $180 which will help in saving $60 which is beneficial and cost
saving for Albert. Thus, this offer is attractive and the decision of albert is good in taking it
from suppliers.
Question 4
C
Question 5
C
Question 6
D
Question 7
D
Question 8
For example, a consulting company provides 100 hours of consulting service which is
provided in the report, if the report is printed, then the direct cost of delivering that consulting
is the cost of paper and binding. On part of indirect costs, it will include rent, utilities, legal
fees etc. which consulting firm will incur.
Question 9
1.
Economic Order Quantity (EOQ) = (2 × D × S / H) ^ 1/2
= (2 × 11,250.00 × 100.00 / 1.00) ^ 1/2
= (2,250,000.00) ^ 1/2
= 1,500.00
(i)
Number of orders = Total demand (units) / Inventory order size (quantity)
= 11250 / 1500 = 7.5 or 8 orders approximately

(ii)
Total ordering costs = Number of orders * Fixed cost per order
= 7.5 * 100 = $750
(iii)
Total carrying costs = (Q * H) / 2 = (1500 * 1) / 2 = $750
(iv)
The traditional allocation assigns the overhead cost on an individual overhead rate in contrast
to the ABC costing which is based upon the several cost pools and drivers which drives costs.
The ABC costing system is considered optimal specially when the manufacturing process is
mainly technology driven and also the overhead cost rises dependent on the various activities
which differs for each and every product.
Question 10
1.
(i)
Direct material price
variance
= actual quantity purchased
x (standard price - actual
price)
= (5 – 6) * 45000 = 45000 Unfavourable
(ii)
Direct material quantity
variance
= standard price x (standard
quantity - actual quantity
used)
= 5 * (40000 - 38000) =
10000
Favourable
(iii)
Direct material price variance is unfavourable due to the reason that price paid per unit of
material is higher than that of the standard price which should have been lower for favourable
outcome. The Direct material quantity variance is also favourable as the actual quantity used
is lower than that of the standard quantity.
2.
(i)

Direct labour rate variance = (standard direct labor rate
- actual direct labor rate) *
actual direct labor hours
= (20 – 22) * 15000 = 30000 Unfavourable
(ii)
Direct labour efficiency
variance
= (standard direct labor
hours allowed - actual direct
labor hours used) * standard
direct labor rate per hour
= (2 – 0.5) * 20 = 30 Favourable
(iii)
Direct labour rate variance is unfavourable due to the reason that actual labour rate is higher
than the standard labour rate which resulted into incurring higher labour cost. The direct
labour efficiency variance is favourable as the actual direct labour hour used is lower than the
standard hours allowed.
Question 11
The standard labour cost per unit of the product is $56. If the labour cost per hour in
department first is $18 and the product requires 2 hours then it will be amounted to $36 and
in second department t will cost $20 per hour and product requires 1 hours. Therefore, total
standard cost per unit = 36 + 20 = $56.
Question 12
2. Equivalent units
1. Physical
unit analysis:
Units % of
completion
Direct
materials
Conversion
WIP opening
balance
4000
Units Started 24000
Total Units
to be account
for
28000
Units
completed &
transferred
out
22000
WIP closing
balance
6000
Total Units
accounted
for
28000

Total
Equivalent
Units
3. Unit cost
calculation:
DM Conversion Total
WIP opening
balance
Current costs
Total Costs
to account
for
Cost per
Equivalent
Unit
4. Cost
allocation:
Units
completed &
transferred
out
WIP closing
balance
Total costs
accounted
for
Question 13
D
Question 14
A job costing and variable costing method of accounting is approximate for MHE due to the
reason that each course is independent of one another and has a separate identity from other
course.
Question 15
1.
Physical unit
method
Total units Total joint cost
allocated
Alpha Beta
2000 + 3000 =
5000
340000 340000 *
2000/5000 =

2.
Sales value method
3.
Special offer decision