Management accounting - Assignment PDF

MANAGEMENT
ACCOUNTING
STUDENT ID:
[Pick the date]

PART A
1) Management accounting refers to the providing of various information with regards to
various aspects about the organization to internal stakeholders particularly management so as
to enable them to indulge in prudent decision making. It is imperative to note that
management accounting is different from financial accounting as the former is focused
towards the internal users while the latter is focused on the external uses. Owing to the
difference in the user base, the underlying flexibility that is available also tends to be
significantly different. For instance, in management reporting, there is high flexibility with
regards to presentation and format which is driven by the demands of the management. This
is not the case with financial accounting where the formats are rigid and minimal flexibility is
available. Also, while the focus of financial account is to present a glimpse of the past
performance, management accounting is quite often focused on present and future rather than
past analysis (Bhimani et. al., 2017).
Management accounting would play a crucial role for an organisation like Royal Garden
Enterprises. Based on the company background, it is apparent that one of the core
competencies is cost leadership. In order to maintain the same, it is imperative that the
product costing should be done accurately so that the product pricing could be competitive. In
this regards, the choice of the proper costing method is of high relevance. Also, considering
the fact that the company has multiple products, hence a challenge that would face the
company is to allocate the overhead costs correctly between the various products. In this
regards, activity based costing would prove to be immensely useful. This would highlight the
precise cost of the various products and thereby allow the company to make decision in
regards to pursuing the most profitable products (Drury, 2016).
Additionally, the estimation of cost correctly would allow the company to take decisions with
regards to special orders which may come from time to time and competitive quotes would be
required for the same. Also, correct estimation of cost would enable the management to take
prudent decision with regards to make or buy and allow the company to keep the cost low.
Further management accounting may also enable the company by measuring the performance
through the use of variance analysis which can highlight the key weaknesses and strengths of
the internal working of the organisation. This would allow the organisation to continuously
improve the operational performance (Brealey, Myers and Allen, 2014).

2) The objective is to highlight the income statement for merchandising and manufacturing
divisions separately.
Explanation
Cost of goods sold = Opening inventory (2018) + Purchase of Merchandising Inventory
(2018) – Ending Inventory (2018) = 400,000 + 800,000 -260,000 = $940,000
Gross Profit = Sales – Cost of goods sold
Operating Profit = Gross Profit – Administrative Expenses – Selling Expenses
Explanation
Cost of materials used = Opening inventory of materials + Purchase of materials – Ending
inventory of materials = 140,000 + 800,000 – 130,000 = $ 810,000
Gross Profit = Sales – Cost of materials used – Direct Labour – Manufacturing Overheads
Operating Profit = Gross Profit – Administrative Expenses – Selling Expenses
3) The unit contribution margin is the difference of unit sale price and unit variable cost.
Unit contribution margin (Product X) = $3,600 - $ 2,400 = $ 1,200