Management Accounting Study Material

Management accounting

Table of Contents
Question 1........................................................................................................................................3
a) Purity Ltd’ Revenues budget for the 31 December 2019 year end.........................................3
b) Production of minimum number of 1-litre bottles by Purity Ltd at the time of 2019.............3
c) Opening inventory amount of 15-litre containers as on 1 January 2019.................................3
Question 2........................................................................................................................................4
Computation of assumed cash obtained from debtors during May 2015....................................4
Question 3........................................................................................................................................4
a) Successful division based on ROI...........................................................................................4
b) Residual income computation in consideration with assumptions..........................................5
c) Overcoming the problem of bad decision caused by ROI.......................................................6
Question 4........................................................................................................................................7
Advice to the company on the arrangement of each product’s production for the maximization
of profitability..............................................................................................................................7
Question 5........................................................................................................................................7
a) Direct materials price and quantity variances..........................................................................7
b) Direct labour rate and efficiency variances.............................................................................8
c) Considering the link in calculated variance in part (a) and (b)...............................................9
References......................................................................................................................................11

QUESTION 1
a) Purity Ltd’ Revenues budget for the 31 December 2019 year end
Statement presenting revenue budget for Purity Ltd. for the year ended on 31st December 2019
Particulars 1 Litre Bottle 15 Litre Bottle
Total Monthly Sales ($) 320000 80000
Total Annual Sales ($) 3840000 960000
Average Selling Price per bottle $ 0.20 $ 1.20
Total Revenue $ 768,000.00 $ 1,152,000.00
Total Revenue $ 1,920,000.00
b) Production of minimum number of 1-litre bottles by Purity Ltd at the time of 2019
Statement presenting the operating budget for Purity Ltd. for the year ended on 31st December
2019
Particulars Volume (1 Litre bottles)
Sales (Qty) 3840000
Opening Stock as on 31.12.2019 720000
Closing Stock as on 31.12.2019 480000
Total Production of bottles 3600000
c) Opening inventory amount of 15-litre containers as on 1 January 2019
Statement presenting calculation of opening inventory of 15-litre containers for Purity Ltd. As
on 1st January 2019
Particulars Volume (15 Litre bottles)
Sales Volume 960000
Total production 1040000
Closing Stock 160000
Opening Stock 80000

QUESTION 2
Computation of assumed cash obtained from debtors during May 2015
Statement presenting estimated cash received from debtors in May 2015
Particulars Amount in $ Particulars Amount ($)
To Balance b/d 0.00 By Closing Balance 36250.00
To Cash Sales 10000.00
To Cash Received From Debtors
April 12000.00
March 12250.00
February 2000.00
36250.00 36250.00
QUESTION 3
a) Successful division based on ROI
It can be stated that the return on investment of shirts is valued at 15% on the other hand trousers
is at 20%. By considering the ROI of trousers, it is evident that it is more beneficial than the
shirts divisions due to the higher rate of ROI. Further, higher ROI reflects the higher
performance of the company, which is applicable for the effective evaluation of different
investment(Tsai and Luan, 2016). However, in the present case scenario, the profitability of shirt
division is higher as compared to the trousers divisions, yet with assessing their capital
investment average amount, it is held that better returns are generated by rousers divisions than
the shirt divisions, thus it can be concluded that trouser division is more successful on the basis
of ROI.
There are various benefits of greater ROI as prescribed as below: