ACC202 Management Accounting Group Assignment - Cost Analysis

This document presents a comprehensive solution to a management accounting assignment (ACC202) covering two scenarios. Scenario 1 focuses on customer profitability analysis for an interior design business, exploring cost allocation, profit calculations, and recommendations for improvement. It utilizes Activity-Based Costing (ABC) to analyze costs and revenue across different customer segments, identifying loss-making areas and suggesting strategies to enhance profitability, such as increasing charges and reducing discounts. Scenario 2 delves into a semiconductor division, addressing production decisions based on contribution per hour, transfer pricing, and goal congruence. The analysis includes calculating contribution per hour, determining optimal production quantities for different chip types, and evaluating the impact of internal transfers on overall profitability. It emphasizes the importance of aligning decisions with the overall goals of the company, recommending transfer pricing strategies to maximize combined contributions and achieve goal congruence between divisions.

MANAGEMENT ACCOUNTING 1
MANAGEMENT ACCOUNTING

MANAGEMENT ACCOUNTING 2
Contents
Scenario 1:..................................................................................................................................3
Part 1:......................................................................................................................................3
Part 2:......................................................................................................................................4
Introduction:........................................................................................................................4
Analysis:.............................................................................................................................4
Conclusion and recommendation:......................................................................................6
Scenario 2:..................................................................................................................................7
Part 1:......................................................................................................................................7
Part 2:......................................................................................................................................9
Part 3:....................................................................................................................................11
Part 4:....................................................................................................................................12
References................................................................................................................................13

MANAGEMENT ACCOUNTING 3
Scenario 1:
Part 1:
The following table shows in the various cost reports:
Particula
rs
Adams Betz Chath
am
Dedham Elm Gener
al
Total
Fixed
costs
allocated
42
,550.00
42,5
50.00
45,3
86.67
45,
386.67
45,3
86.67
1,19,1
40.00
3,40,4
00.00
Costs 42
,550.00
42,5
50.00
45,3
86.67
45,
386.67
45,3
86.67
1,19,1
40.00
3,40,4
00.00
Particulars Adams Betz Chatha
m
Dedha
m
Elm Gener
al
Total
Direct 1,47 1,17, 2,18 1,15 57, 6,55

MANAGEMENT ACCOUNTING 4
costs ,000.00 200.00 ,400.00 ,720.00 040.00 ,360.00
Discounts 23
,400.00
3,
660.00
27
,060.00
Fixed costs 42
,550.00
42,
550.00
45
,386.67
45
,386.67
45,
386.67
1,19,
140.00
3,40
,400.00
Total costs 2,12
,950.00
1,59,
750.00
2,63
,786.67
1,61
,106.67
1,06,
086.67
1,19,
140.00
10,22
,820.00
The following is the profitability analysis:
Particulars Adams Betz Chatha
m
Dedha
m
Elm Gener
al
Total
Gross
revenue
2,34
,000.00
1,88,
800.00
3,57
,380.00
1,47
,840.00
73,
200.00
10,01
,220.00
Less: direct
costs
1,47
,000.00
1,17,
200.00
2,18
,400.00
1,15
,720.00
57,
040.00
6,55
,360.00
Less:
discount
23
,400.00
3,
660.00
27
,060.00
Less: fixed
costs
42
,550.00
42,
550.00
45
,386.67
45
,386.67
45,
386.67
1,19,
140.00
3,40
,400.00
Profit
earned
21
,050.00
29,
050.00
93
,593.33
-
13,266.6
-
32,886.
-
1,19,14
-
21,600.

MANAGEMENT ACCOUNTING 5
7 67 0.00 00
Part 2:
Introduction:
The report talks about the concept of ABC costing which means the allocation of the costs on
the basis of some drivers that drives those costs. This report further throws light on the
profitability analysis of these departments.
Analysis:
The total fixed costs of the company comes to be $340400 which is divided on the basis of
costing drivers. These are allocated on the basis of the judgment of the management or the
past experience or on the basis of some estimate.
The allocated costs comes to be the following:
Particula
rs
Adams Betz Chath
am
Dedham Elm Gener
al
Total
Fixed
costs
allocated
42
,550.00
42,5
50.00
45,3
86.67
45,
386.67
45,3
86.67
1,19,1
40.00
3,40,4
00.00
Costs 42 42,5 45,3 45, 45,3 1,19,1 3,40,4

MANAGEMENT ACCOUNTING 6
,550.00 50.00 86.67 386.67 86.67 40.00 00.00
Secondly, talking about the total costs that have been allocated to each and every department.
The following are the desired costs:
Particulars Adams Betz Chatha
m
Dedha
m
Elm Gener
al
Total
Direct
costs
1,47
,000.00
1,17,
200.00
2,18
,400.00
1,15
,720.00
57,
040.00
6,55
,360.00
Discounts 23
,400.00
3,
660.00
27
,060.00
Fixed costs 42
,550.00
42,
550.00
45
,386.67
45
,386.67
45,
386.67
1,19,
140.00
3,40
,400.00
Total costs 2,12
,950.00
1,59,
750.00
2,63
,786.67
1,61
,106.67
1,06,
086.67
1,19,
140.00
10,22
,820.00
The total amounts of the costs that are being incurred have now reached $10,22,820.
Now, if we analyse the profits that the company has earned from each of the customer and
also as the whole, then we get losses which could be seen form the below table:
Particulars Adams Betz Chatha
m
Dedha
m
Elm Gener
al
Total

MANAGEMENT ACCOUNTING 7
Gross
revenue
2,34
,000.00
1,88,
800.00
3,57
,380.00
1,47
,840.00
73,
200.00
10,01
,220.00
Less: direct
costs
1,47
,000.00
1,17,
200.00
2,18
,400.00
1,15
,720.00
57,
040.00
6,55
,360.00
Less:
discount
23
,400.00
3,
660.00
27
,060.00
Less: fixed
costs
42
,550.00
42,
550.00
45
,386.67
45
,386.67
45,
386.67
1,19,
140.00
3,40
,400.00
Profit
earned
21
,050.00
29,
050.00
93
,593.33
-
13,266.6
7
-
32,886.
67
-
1,19,14
0.00
-
21,600.
00
From the above table, it could be seen that the company earns a loss of $21,600 in total. If we
break this down, then we realise that Dedham and Elm is giving us losses. Though Chatham
is able to earn profit for the company but these losses along with the general losses are so
much that the total amount is going into losses. Hence, the company is not bale to earn profit
even when it is working so hard to do so.
On top of that the company is giving cash discounts to its customers.
Conclusion and recommendation:
The company is working very hard to generate in profits. Hence, though the technique of the
company of allocating these fixed costs is in line with the profit objective but its rules and
policies may not be so strong that the company generates in profits.

MANAGEMENT ACCOUNTING 8
ABC costing technique is the method through which the costs are identified these are then
loaded into the secondary pools, primary cost pools are loaded, the various drivers of the
activities are measured, the secondary costs are allocated into the primary pools and the costs
are charged on the basis of these cost objects (Accounting tools, 2018).
In order to generate in profits, the company could do the following:
 Increase the amounts that it charges from its customers
 Stop giving cash discounts to them
 Think of more activities that could be introduced so as to maximise its revenue
 Think of ways of reducing its expenses which would help in reduction of the costs.

MANAGEMENT ACCOUNTING 9
Scenario 2:
Part 1:
The following table shows the calculation of contribution per hour:
Semiconductor Division
Particulars Super-chip Okay-chip
Direct materials
5.0
0
2.0
0
Direct
manufacturing
labour
60.0
0
20.0
0
Annual F overhead
40,000.0
0
Capacity
45000
hours
Particulars Super-chip Okay-chip
Selling price
80.0
0
26.0
0
Less: variable cost:
Direct material 5.0 2.0

MANAGEMENT ACCOUNTING 10
0 0
Direct
manufacturing
labour
60.0
0
20.0
0
Contribution
15.0
0
4.0
0
Divided by the
number of hours
3.0
0
1.0
0
Contribution per
hour
5.0
0
4.0
0
Keeping in mind the total number of direct labour hours, the following number of units
should be produced:
Particulars
Numbe
r of
hours
per unit
Number
of units
to be
produce
d
Total
hours
Super-chip 3.0 15,000.0 45,000.0

MANAGEMENT ACCOUNTING 11
0 0 0
Okay chip -
15,000.0
0 -
Total
45,000.0
0
The company should manufacture 15,000 units of Super Chips and 15,000 units of Okay
chips.
Part 2:
The following are the relevant calculations:
Particulars Costs in $
Selling price of process
control unit
132.0
0
Less: variable costs:
Direct labour
70.0
0
Direct manufacturing 45.0

MANAGEMENT ACCOUNTING 12
labour 0
Contribution per unit
17.0
0
Number of direct
labour hours
3.0
0
Contribution per
hour 5.666666667
Particulars Costs in $
Selling price of
process control unit
145.0
0
Less: variable costs:
Direct labour
65.0
0
Direct manufacturing
labour
45.0
0
Contribution per unit
35.0
0
Number of direct
labour hours
3.0
0