Management Accounting: Calculation of Costs and Expenses with Various Methods

The report explains the importance of Management accounting in a firm, business, company etc. It includes calculation of costs and expenses incurred with the help of various methods. It explains it as a process which states preparation of reports and statements which would be related to business activities and operations. It further is useful in achieving objectives that is laid by a specific firm and interpret the results that would be served by related company over a period of time. Main goal of every business is increase profit, revenue and minimize risk as well as loss too.

Management
Accounting

Contents
INTRODUCTION...........................................................................................................................4
QUESTION 1..................................................................................................................................4
a) Direct Method..........................................................................................................................4
b) Step Down Method:.................................................................................................................5
QUESTION 2..................................................................................................................................7
a) Determine the cost for Job MT27 by using reciprocal method...............................................7
b) Which allocation method will be preferred to allocate support department’s costs to
manufacturing departments?........................................................................................................8
QUESTION 3..................................................................................................................................8
a) Calculate the cost per unit for the assembly department........................................................8
QUESTION 4................................................................................................................................10
a) Compute the Break-even point and also calculate operating profit.......................................10
(b) Assuming sales to 17500 units.............................................................................................11
(c) What would be new Break Even Pointy and operating income...........................................11
(d) Explain the comment...........................................................................................................11
QUESTION 5................................................................................................................................12
a) Explain the ethical behaviour and how its impact on the customers and the company.........12
b) If John behaves unethically, how would his behaviour impact the company and its
customers?.................................................................................................................................12
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
The report prepared below explains the importance of Management accounting in a firm,
business, company etc. It includes calculation of costs and expenses incurred with the help of
various methods. It explains it as a process which states preparation of reports and statements
which would be related to business activities and operations (Hoozée, S., & Mitchell, F. (2018)).
It further is useful in achieving objectives that is laid by a specific firm and interpret the results
that would be served by related company over a period of time. Main goal of every business is
increase profit, revenue and minimize risk as well as loss too. It also facilitates important and
necessary decision making as well. The report further provides an idea related to various
functions being performed by the organisation. Accounting is useful in undertaking various
activities such as planning, organising, directing and controlling which is being followed by the
company. It also gives an idea about various budgets that would be required for better results and
planning unusual strategies that would help to perform actions that would be helpful for better
outcomes. The user can assess which area is producing and involving more costs compared to
other areas.
QUESTION 1
a) Direct Method
Particular
Support Department
Manufacturing
Department
Legal
Personn
el Laptop
Workstatio
n
Overhead cost before any
allocation between the
departments $9,055 $4,000
$240,00
0 $200,000
Legal Hours 2 3 37 40
Personnel Hours 40 30 200 160
Allocation of Support department cost by calculating the cost drivers:
Legal Department cost 9055
Total legal House in Manufacturing department 77
Cost per legal Hours 117.60

Personnel Department Cost 4000
Total personnel hours in manufacturing department 360
Cost per personnel hours 11.11
Allocation of Support
department cost to
manufacturing department
Particular Laptop Department Workstation Department
Legal Department 4351.10 4703.90
Personnel Department 2222.22 1777.78
Cost allocation of Manufacturing Department
Particular
Lega
l Personal Laptop
Workstatio
n
Total cost incurred 9055 4000 240000 200000
Allocation of legal -9055 4351.1 4703.9
Allocation of Personnel -4000 2222.22 1777.78
Total Cost of Manufacturing
Department Nil Nil
246573.3
2 206481.68
b) Step Down Method:
Allocation of legal department cost by calculating the cost drivers:
Legal Department cost 9055
Total legal Hours Except Legal 80
Cost per legal Hours 113.19
Allocation of Legal Department cost to other department by calculating
cost drivers

Particular Personnel Laptop
Workstatio
n
Legal Department 339.56 4187.94 4527.50
Allocation of Personnel Department Cost
Original personnel department cost 4000
Allocated by legal department above 339.56
Total personnel department cost 4339.56
Total personnel hours 360
Cost per personnel hours 12.05

Allocation of personnel department cost to
manufacturing department
Particular Laptop Workstation
Personnel Department 2410.87 1928.69
Final Allocation of the Cost
Particular Legal
Personne
l Laptop
Workstatio
n
Cost Incurred 9055 4000 240000 200000
Legal Cost Allocated -9055 339.56
4187.9
4 4527.50
Personnel Cost Allocated -4339.56
2410.8
7 1928.69
QUESTION 2
a) Determine the cost for Job MT27 by using reciprocal method.
Calculation of Total Cost of Job MT27
Particulars Amount
Direct Material
Machining 16000.00
Assembly 6710.00
Direct labour
Machining 1550.00
Assembly 1650.00
Manufacturing Overheads
Machine Department Machine Hour
Machine (210 hr @ 32.14) 6750.00
Assembly (20 hr @32.14) 642.86
Assembly department labour hour
Machining ( 45 hr @ 140) 6300.00
Assembly (70 hr @ 140) 9800.00
Total Cost 69402.86

b) Which allocation method will be preferred to allocate support department’s costs to
manufacturing departments?
Particulars Direct Method Step down method Reciprocal method
Overhead (A) 8650000 6500000 9000000
Basis of rate machine
hour
Machine hour Machine hour Machine hour
Machine Hours (B) 280000 280000 280000
(200000 + 90000)
Per Hour rate 30.89 23.21 32.12
QUESTION 3
a) Calculate the cost per unit for the assembly department.
Percent complete
Units Material Conversion
Work in progress at
the beginning
70000 70% 40%
Work in progress at
the end
80000 75% 25%
(i) Calculation of Cost per unit using Weighted Average Method:
Particulars Units
Beginning work in
progress
70000
Units produced 450000
Total Units 520000
Work in progress
completion
100%

Material Units Conversion units Total
Units complete and
transferred
450000 450000 450000
Ending work in
progress
60000 16000 76000
Total Units account 530000 466000 530000
Material ($) Conversion ($) Total ($)
Cost Beginning work
in progress
36550 13500 50050
Cost incurred during
the period
391850 287300 679150
Total cost incurred 428400 300800 729200
Equivalent Units 530000 466000 530000
Cost Equivalent per
unit
0.808 0.65 1.37
Materials Conversion Total
Value of ending work
in progress
48480 13000 109600
Completed and
Transferred
363600 10400 104120
Total Cost 412080 23400 213720
(ii) By using FIFO method:
Production Department
Equivalent Units
Physical Direct Conversion
Flow of production Units Material Costs

Work in progress
(given)
70000
Started during the
year
460000
530000
Completed and
transferred during the
year
450000 450000 450000
Work in progress at
the end
80000 48480 13000
530000
Equivalent Units of
work done to date
498480 463000
QUESTION 4
a) Compute the Break-even point and also calculate operating profit.
Particulars PC case S case TPU case
Units 2500 10000 5000
Sales 125000 650000 450000
Less: Variable Cost 112500 610000 435000
Contribution 12500 40000 15000
Less: Fixed Cost 35100 35100 35100
Earnings before Interest and Tax -22600 4900 -20100
Breakeven point = Fixed Cost / contribution margin
PC case = 35100 / 5
= 7020 Units
S case = 35100 / 4
= 8775 Units
TPU case = 35100 / 3
= 11700 Units

(b) Assuming sales to 17500 units.
Particulars PC case S case TPU case
Units 17500 17500 17500
Sales 875000 1137500 1575000
Less: Variable Cost 787500 1067500 1522500
Contribution 87500 70000 52500
Less: Fixed Cost 35100 35100 35100
Earnings before Interest and Tax 52400 34900 17400
(c) What would be new Break Even Pointy and operating income.
Particulars PC case S case TPU case
Units 2500 7500 7500
Sales 125000 487500 675000
Less: Variable Cost 112500 457500 652500
Contribution 12500 30000 22500
Less: Fixed Cost 35100 35100 35100
Earnings before Interest and Tax -22600 -5100 -12600
Break-even Point = Fixed Cost of contribution margin
PC case = 35100 / 5
= 7020 Units
S case = 35100 / 4
= 8775 Units
TPU case = 35100 / 3
= 11700 Units
Break-Even point of the products does not change the fixed cost and contribution margin
does not change.
(d) Explain the comment.
The lower Break- Even point suggests that company will be able to achieve its sales target by
selling lesser units of the product. Lower breakeven point means that the company will be able to
recover the cost associated with the production of the product. The criteria selected by CEO is
fair enough to describe a product which recovers its initial cost by paying an amount equivalent
by selling a fixed number of units.

QUESTION 5
a) Explain the ethical behaviour and how its impact on the customers and the company.
Company’s policies states that the manager is liable for a commission of 5% on the budget
sales of the company which means that the company has to pay an equivalent to 5% of the total
sales of the company. The manager can predict more sales which may not be actually at that
point of time. There may be chances that the Covid may hit the market again and the actual sales
may decrease.
b) If John behaves unethically, how would his behaviour impact the company and its customers?
As per the previous accounting years the sales cannot be predicted as they are already facing
shortage and thus the amount needs to be predicted which may be demanded by its customers in
the market in future. The manager may in order to earn more commission may put a value which
us more than the actual in order to earn more commission. This action will automatically
increase the prices of the product as well as the inventory of the organisation.
CONCLUSION
The report involves the explanation of management accounting which takes in account the
various functioning of companies in related environment. It also reflects ethical behaviour
possessed by consumers and how it would influence the outcome of users linked with the
working of business. It also helps to have an idea about breakeven point calculated by the
company. It further helps the managers to have an idea and take efficient as well as effective
decision for further development and expansion of the business. It also helps to manage the funds
collected and earned by related business over a period of time. The report also helps to have an
idea about calculation and computation of profit and unwanted costs and find reasons behind
them.

REFERENCES
Books and Journals
Atrill, P., & Lindley, L. (Eds.). (2019). Issues in Accounting and Finance. Routledge.
Birnberg, J. G., & Shields, M. D. (2020). Journal of Management Accounting Research at 30
years: reflections on its context, creation, challenges, and contributions. Journal of
Management Accounting Research, 32(1), 1-10.
Holopainen, R. M., Niskanen, M., & Rissanen, S. (2019). Management accounting and
profitability in private healthcare SMEs. International Journal of Public and Private
Perspectives on Healthcare, Culture, and the Environment (IJPPPHCE), 3(1), 28-44.
Hoozée, S., & Mitchell, F. (2018). Who influences the design of management accounting
systems? An exploratory study. Australian Accounting Review, 28(3), 374-390.
Islam, M. A. (2018). Environmental accounting. In Encyclopedia of Business and Professional
Ethics. Springer International Publishing AG.
Nobakh, Y. (2018). Scientometrics of Behavioral Accounting Research in Iran. Journal of
Management Accounting and Auditing Knowledge, 7(27), 125-136.
Pelz, M. (2019). Can management accounting be helpful for young and small companies?
Systematic review of a paradox. International Journal of Management Reviews, 21(2),
256-274.