Management Accounting Study Material

Management Accounting

Table of Contents
Question 1........................................................................................................................................4
a) Revenues budget for Purity Ltd for the year ending 31 December 2019................................4
b) Minimum number of 1-litre bottles Purity Ltd must produce during 2019.............................4
c) The amount of beginning inventory of 15-litre containers on 1 January 2019.......................4
Question 2........................................................................................................................................5
Calculation of the estimated cash received from debtors in May 2015.......................................5
Question 3........................................................................................................................................5
a) Which Division is more successful on the basis of ROI.........................................................5
b) Calculation of Residual income under each of assumption....................................................6
c) ROI may lead to bad decision and ways to overcome this problem........................................6
Question 4........................................................................................................................................7
Advise the company how to arrange the production of each product to maximize the
company’s profit..........................................................................................................................7
Question 5........................................................................................................................................8
a)Direct materials price and quantity variances...........................................................................8
b) Direct labor rate and efficiency variances...............................................................................9
c) Linked in the variance computed in part (a) and (b).............................................................10
References......................................................................................................................................11

QUESTION 1
a) Revenues budget for Purity Ltd for the year ending 31 December 2019
Table 1 Revenue Budget of Clear Ltd.
Particulars 1 Liter Bottle 15 Liter Bottle
Monthly Sales Volume 320000 80000
Annual Sales Volume 3840000 960000
Average Selling Price $ 0.20 $ 1.20
Sales Revenue $ 768,000.00 $ 1,152,000.00
Total Sales Revenue $ 1,920,000.00
b) Minimum number of 1-litre bottles Purity Ltd must produce during 2019
Table 2Production Budget of Clear Ltd. of 1 Liter Bottle
Particulars 1-liter Bottle
Sales Volume 3840000
Opening Stock 720000
Closing Stock 480000
Production 3600000
c) The amount of beginning inventory of 15 Liter containers on 1 January 2019
Table 3Beginning Inventory of Clear Ltd. of 15 Liter Bottle
Particulars 15-liter Bottle
Sales Volume 960000
Production 1040000
Closing Stock 160000
Opening Stock 80000

QUESTION 2
Calculation of the estimated cash received from debtors in May 2015
Table 4Cash Budget of Lions Limited for May 2019
Particulars Amount Particulars Amount
To Opening Balance $ - By Closing Balance $36,250.00
To Cash Sales $ 10,000.00
To Cash Received From Debtors
April $ 12,000.00
March $ 12,250.00
February $ 2,000.00
$ 36,250.00 $ 36,250.00
QUESTION 3
a) Which Division is more successful on the basis of ROI
The ROI in case of shirts is 15%, and in the case of Trousers, it is 20%. On the basis of Return
on Investment, Trouser division is more successful as compared with the shirts division because
of its higher ROI. The ROI measures the performance of the company, which is applied for the
evaluation of the efficiency of distinct investment (Cordes, 2017). In the given case, although the
profit in terms of the amount is more than Shirts division as compare with the Trouser division,
by comparing with the average amount of capital invested, it has been identified that Trouser
division generates more return as compare with the Shirt division. Therefore it is more successful
(Marchioni, and Magni, 2018). There are several advantages by applying the Return on
Investment method, which is as follows –