Management Accounting for Cost Estimation, Process Costing, and Budgeted Income Statement

This article covers topics such as cost estimation, process costing, and budgeted income statement in management accounting. It includes solved assignments, essays, and dissertations on these topics. The article also provides examples and formulas to help readers understand the concepts better.

Running head: MANAGEMENT ACCOUNTING 1
Management Accounting
Name
University Affiliation

MANAGEMENT ACCOUNTING 2
Month Total
Flights Commercial Flights
Privat
e
Flight
s
Airport
Costs
January 1,000 950 50 $20,000
February 800 400 400 $17,000
March 1,400 1,100 300 $19,000
April 900 850 50 $18,000
May 1,000 925 75 $19,000
June 1,200 1,000 200 $20,000
July 1,100 750 350 $18,000
August 1,400 895 505 $24,000
September 1,000 700 300 $19,000
October 1,200 915 285 $21,000
November 900 840 60 $17,000
December 1,500 1000 500 $21,000
1 Use the Hi-Lo method to estimate variable per flight and
fixed costs.
Max $ 24,000 1,500
Min $ 17,000 800
Change $ 7,000 700
Variable Cost per
flight
$ 10

MANAGEMENT ACCOUNTING 3
Fixed Costs $ 9,000
2 Write the cost equation based on your answer above.
Equation:
Y=9000+10
X
3 Use the regression output below to write a cost equation that incorporates commercial and private
flights.
SUMMARY OUTPUT
Regression
Statistics
Multiple R 0.740610474
R Square 0.548503874
Adjusted R
Square 0.448171401
Standard
Error 1467.299438
Observation
s 12 0
ANOVA
df SS MS F
Significance
F

MANAGEMENT ACCOUNTING 4
Regression 2 23539957.91 11769978.96
5.4668629
2
0.02792178
2
Residual 9 19376708.76 2152967.64
Total 11 42916666.67
Coefficient
s Standard Error t Stat P-value Lower 95%
Upper
95%
Lower
95.0%
Upper
95.0%
Intercept
12278.923
6 2387.313477 5.143406486 0.0006085
6878.44533
8
17679.401
9
6878.4453
4
17679.401
9
Commercia
l
6.2859863
4 2.475050667 2.539740468
0.0317242
9
0.68703274
5
11.884939
9
0.6870327
4
11.884939
9
Private
6.7480024
8 2.657548722 2.53918298
0.0317533
2
0.73620960
7
12.759795
4
0.7362096
1
12.759795
4
Equation
:
Y=12278.92362+6.2859863(x)
+6.748002484(z)
Least square regression model is the most accurate method of cost estimation since it considers all the variables of the variables under
investigation. It mainly focuses on having a constant and on the other hand coming up with regression formula that generates all the
values to improve the model of calculation. Basically, having it in place ensures that the organization can be able to project all its costs
in a most effective and feasible. It involves analyzing past data using mathematical techniques to determine the variables and fixed
components of a cost and provide an equation that can be used to predict the future expenses. The disadvantage with this cost
estimation techniques is that is complicated and more complex and does not favor personnel who are not well equipped with
mathematics related courses.
Problem 3

MANAGEMENT ACCOUNTING 5
Total budgeted
manufacturing overhead
$235,000
Total budgeted machine
hours
46,550
During January, the company began the following jobs:
Job Number Direct Material Direct Labor Machine Hours
A79 $6,500 $2,950 1,000
N08 $13,500 $4,290 2,500
P82 $3,800 $1,750 500
1 Compute the company’s predetermined overhead rate for the current year.
Total budgeted manufacturing
overhead
$235,000
Total budgeted machine hours 46,550
Pre-determined overhead rate $5.05
2 How much manufacturing overhead was applied to each job during January?
Job Number Application rates Manufacturing

MANAGEMENT ACCOUNTING 6
Overheads
A79 $1,000 $5.05 5048.335124
N08 $2,500 $5.05 12620.83781
P82 $500 $5.05 2524.167562
3 Calculate the over-applied or under-applied overhead for January.
Job Number Manufacturing Overheads
A79
5,048.34
N08
12,620.84
P82
2,524.17
Estimated Overhead
20,193.34
Over/(Under Applied)
Overhead
Actual overheads
26,000.00
Undersupplied
5,806.66
4 If the company wants to earn a 40% profit on their jobs,
Price for job A79 Price for job A79 Amounts

MANAGEMENT ACCOUNTING 7
Direct Materials $6,500
Direct Labor $2,950
Machine Hours $1,000
Total $10,450
Target Profit $14,630.0
Charge $14,630.0
Problem 4
Production Report
For the month of August
Physical Units Percentage
Complete
Work-in-Process, August 1 40,000 80%
Units started during August 80,000
Units completed and transferred out 100,000
Work-in-process, August 31 20,000 30%
Direct Material Conversion Total
Work-in-process, August 1 $42,000 $305,280 $347,280

MANAGEMENT ACCOUNTING 8
Costs incurred during August $96,000 $784,400 $880,400
Total $138,000 $1,089,680 $1,227,680
Use the FIFO method of process costing in
completing the following:
1 Compute equivalent units for materials
and conversion.
Equivalent
units
Physical units % of
completion
Direct
Materials
Conversio
n
Work in progress, August 1 40,000 80%
Units started during August 80,000
Total units to account for 120,000
Units completed and transferred 100,000 100% 100000 100000
Work in progress, August 31 20,000 30% 20000 6000
Units to account for 120,000
Total equivalent units 120000 106000
Less equivalent units represented in August 40,000 32000

MANAGEMENT ACCOUNTING 9
1 WIP
New equivalent units for August 80,000 74000
2 Compute the cost per equivalent unit.
Matrial Conversion
$1.20 $10.60
Cost per unit
3 Compute the cost of goods completed
and transferred out during August.
Cost of August 1 WIP inventory $347,280.00
Cost incurred to finish the August 1 WIP
inventory
$84,800.00
Cost incurred to produce units that were both
started and completed during August
$472,000.00

MANAGEMENT ACCOUNTING 10
Total cost of goods completed and
transferred
$904,080.00
4 Compute the dollar amount of ending
work-in-process inventory.
Work-In-Progress Inventory
August 1 balance $347,280.00 Cost of goods
transferred out
$904,080.0
0
Costs incurred during August $880,400.00
August 31 balance $24,000.00
Problem 5
Weeders Hedge Clippers Leaf Blowers
Unit sales 50,000 50,000 100,000
Unit selling price $28 $36 $48
Variable manufacturing cost per unit $13 $12 $25
Variable selling cost per unit $5 $4 $6

MANAGEMENT ACCOUNTING 11
Prepare a contribution margin formatted budgeted income statement for 2018.
Weeders Hedge Clippers Leaf Blowers
Unit Sales 50,000.00 50,000.00 100,000.00
Unit sale price 28.00 36.00 48.00
Variable Manufacturing cost/unit 13.00 12.00 25.00
Variable selling cost per unit 5.00 4.00 6.00
Contibution Margin Per Unit 10.00 20.00 17.00
Total Contribution Margin 500,000.00 1,000,000.00 1,700,000.00
Fixed Manufacturing overhead 500,000.00 500,000.00 1,000,000.00
Fixed Selling and Administrative
Expenses
150,000.00 150,000.00 300,000.00
Net Profit
(150,000.00)
350,000.00 400,000.00
2. Assuming the sales mix remains as budgeted, determine how many units of each product CTC must sell in order to break even in 2018
Weeders Hedge Clippers Leaf Blowers
Fixed Manufacturing overhead 500,000.00 500,000.00 1,000,000.00
Fixed Selling and Administrative
Expenses 150,000.00 150,000.00 300,000.00
Contribution Margin/Unit 10.00 20.00 17.00
Total Fixed Cost 650,000.00 650,000.00 1,300,000.00
Break Even Quantity in Units 65,000.00 32,500.00 76,470.59
Weeders Hedge Clippers Leaf Blowers
Unit Sales 50,000.00 50,000.00 300,000.00
Unit sale price 28.00 36.00 48.00
Variable Manufacturing cost/unit 13.00 12.00 30.00

MANAGEMENT ACCOUNTING 12
Variable selling cost per unit 5.00 5.00 6.00
Contibution Margin Per Unit 10.00 19.00 12.00
Total Contribution Margin 500,000.00 950,000.00 3,600,000.00
Fixed Manufacturing overhead 500,000.00 500,000.00 1,000,000.00
Fixed Selling and Administrative
Expenses
150,000.00 150,000.00 300,000.00
Net Profit
(150,000.00)
300,000.00 2,300,000.00
Weeders Hedge Clippers Leaf Blowers
Total Contribution Margin 500,000.00 950,000.00 3,600,000.00
Fixed Manufacturing overhead 500,000.00 500,000.00 1,000,000.00
Fixed Selling and Administrative
Expenses 150,000.00 150,000.00 300,000.00
Contribution Margin/Unit 10.00 19.00 12.00
Total Fixed Cost 650,000.00 650,000.00 1,300,000.00
Break Even Quantity in Units 65,000.00 34,210.53 108,333.33
Case Study
Income Statement for Café Xaragua
Assumption Number
of Days in a Year
equals 365
Sales Price/unit Quantity Sales/day Annum Totals
Drip Coffeee 3.00 200.00 600.00 219,000.00
Special Coffee 4.00 300.00 1,200.00 438,000.00

MANAGEMENT ACCOUNTING 13
Accompaniments 2.50 250.00 625.00 228,125.00
Raw coffee sales 16.50 50.00 825.00 301,125.00
Total Revenue 1,186,250.00
Sales Price/unit Quantity Sales/day Annum
Drip Coffeee 0.60 200.00 120.00 43,800.00
Special Coffee 0.80 300.00 240.00 87,600.00
Accompaniments 0.50 250.00 125.00 45,625.00
Raw coffee sales 3.30 50.00 165.00 60,225.00
Cost of purchases 237,250.00
Gross Profit 949,000.00
Operating Expenses
Marketing and Promotion 22,000.00
Legal fees, incorporation, Licenses and Permit 10,000.00
Insurance 3,000.00
Miscellaneous Administrative expense 4,200.00
Installation fee 10,000.00
Machine maintenance 6,000.00
Rental deposit 6,000.00
Annual utilities 23,565.00
Rent expense 5,891.25
Staff salaries and wages 164,832.00
Total expenses 255,488.25
Profit 693,511.75

MANAGEMENT ACCOUNTING 14
Q2. Should the partners open Cafe Xaragua? Why or why not?
Based on the information provided and projected cost, Café Xaragua stands a better chance to generate positive returns as projected by
the projected income statement, it outlines that the company can make a profit of approximately, 693, 511 annually. That will be
informed by a fact that if their model will remain viable and market changes will not interfere with their projections negatively.
Additionally, the kind of business they are operating is more consumer focused since it deals with consumer goods as compared to
other business out there. Therefore it stands a better chance of thriving. There, i believe the partners should go ahead and start the
business.
Q3. The partner should use their own equity and stop borrowing since the business is yet to establish itself. Additionally, they are not
certain that market will be in their favor and thus they should use equity since it is cheap and attracts zero penalties even when the
company faces hurdles in operation. However, after achieving stability, the firm can go ahead and borrow in order to take advantage
of the tax shield benefits that is applicable to debts.
Q4. I would like to start a classic pub that sells expensive spirit, wine and bears and focus on a certain class of people. That is a well-
defined target market
Part b
1. Wow! Total revenues increased a lot! How did each product contribute to the change in revenues?
High revenues were as a result of increased sales on regular coffee and Beans by 53% and 110% respectively
2. When the new manager came on board, he messed around with selling prices. How did those changes affect revenues for each
product?.
The changes in selling prices boosted the number of units sold in certain commodities which were selling slowly when the selling
prices was high. The increased number of units sold boosted sales revenue.
3. It looks like our customers purchased a different mix of product than we expected. Which product was the most different from
what we expected and how did the different mix affect revenues? Beans and special coffee were the most affected products. That led
to a mismatch of revenue mixes by 20% and 56% respectively.
4. We’re really happy about the big increase in revenues, but why is the gross margin percentage less than last year? Tell me how
each product contributed to the overall decline in our expected gross margin. Gross margin is less due to changes in selling prices of

MANAGEMENT ACCOUNTING 15
various commodities. Baked foods and regular coffee affected the revenues $69350 and $70,719 respectively. Other products
performed as it was expected.
5. What do you think we should do differently next year to increase our total gross margin? I’m counting on you to give me very
specific guidance. Boost the marketing of products and source a different supplier of materials in order to reduce the cost of goods
sold. Additionally, the company can reduce the variable selling and administrative cost as well as variable manufacturing overhead.
6. Do your findings suggest that customers like our strategy of providing a unique blend of sustainable coffee produced in Haiti or do
they regard us as just another coffee shop? From my analysis, customers have respected the brand and liked as reflected on the amount
of revenue receiving. Additionally, the business has been able to cover its cost entirely.
Case study
Based on your projections, do you think Norgan
should proceed with its reopening
Cash Budget Year 1
Community Funds Donations 65,000.00
Sales Proceed 115,500.00
Loan Financing 200,000.00
Cash at Hand 380,500.00
Financing Renovation cost 350,000
Cash at Hand 30,500
2008 2009
Revenue
Admission Receipts 327888 60,000.00
Sales of food and beverages 158846 12,000.00
Other 48748 150,000.00
Total revenue 535482 222,000.00

MANAGEMENT ACCOUNTING 16
Operating Expenses
Salaries and Wages 73,585 5000
Cost of goods sold 33,060 33,060
Fil rental and royalty payments 166,900 166,900
Other 214,590 27000
Total Operating expenses 488,135 231,960.00
Operating profit 47,347 (9,960.00)
Paid Admissions 0
Regardless of your decision about whether Norgan should proceed with its reopening, identify three estimates/assumptions used to
create your budget that are the most important.
 Assumptions
 Expected income remains constant
 The revenue stream will be consistent
 Donations will be done
Cash Flow statement Y1
Community Funds
Donations
Sales
Proceed
Loan
Financing
Cash at
Hand Interest rate Financing Renovation cost Cash at Hand
65,000.00 115,500.00 200,000.00 380,500.00 350,000 30,500
Y2
Sales 220,000.00 (1,500.00) 218,500.00
Calculate the amount of the loan that would be required to perform the renovations. Will Norgan be able to repay the loan? Explain
Calculate the amount of the loan that would be required to perform the
renovations. Will Norgan be able to repay the loan? Explain.
Cash Budget Year 1

MANAGEMENT ACCOUNTING 17
Community Funds Donations 65,000.00
Sales Proceed 115,500.00
Loan Financing 169,500.00
Cash at Hand 350,000.00
Financing Renovation cost 350,000
Norgan requires a loan of $169500
He will not be able to pay the loan since he has negative cash flows as per his financial statements and cash flows as well.

MANAGEMENT ACCOUNTING 18
References
Johnson, T. H., & Kaplan, R. S. (1987). Relevance lost: the rise and fall of management accounting.