This document provides a comprehensive study material on Management Accounting. It covers topics such as cost assignment, ABC costing, support department cost allocation, CVP analysis, and more. The document also includes solutions to assignments and essays related to Management Accounting.
Contribute Materials
Your contribution can guide someone’s learning journey. Share your
documents today.
Running head: MANAGEMENT ACCOUNTING Management Accounting Name of the Student: Name of the University: Author’s Note: Course ID:
Secure Best Marks with AI Grader
Need help grading? Try our AI Grader for instant feedback on your assignments.
3MANAGEMENT ACCOUNTING Part A: Requirement I: Cost pool means collection of individual costs into a group based on a department or cost centre. It is used for allocation of costs to the cost units. From the case study of Mia’s animal shelter, it can be observed that the company is providing three types of services, Housing services to animals, Animal training services and animal health care services. Based on their cost objects, their costs can be classified into three cost pools, Housing costs, Training costs and Health care services costs. Cost assignment to Cost Pools: Part B: Question 1: ABC Requirement I: Indirect expenses are collectively called as overhead expenses. All those elements of cost depend on certain activities; those activities are known as activity drivers. Analyzing the
Paraphrase This Document
Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
4MANAGEMENT ACCOUNTING cost structure of Mia’s animal shelter and their cost objects following activity drivers can be identified. Cost PoolActivity Driver Housing costsNumber of Animal days Training costsNumber of Family class attended Health care service costsNumber of Animal Visit Requirement II: Computation of direct cost per unit of activity driver using ABC costing system: Question 2: Support department cost allocation: Requirement I: Allocation of Building and Grounds costs:
5MANAGEMENT ACCOUNTING Computation of total direct cost of each department after adding the grounds costs: Requirement II: Allocation of service department costs to production departments:
6MANAGEMENT ACCOUNTING Requirement III: Allocation of service department costs to production departments: Computation of overhead rate per direct labour hour: Requirement IV: Factory administration cost is an overhead, which needs to be allocated to other service and production departments. To allocate such expenses total labour hours can be selected as the basis. There are certain advantages and disadvantages of using total labour hour as the basis of administration overhead distribution. Advantage: Total labour hour includes both direct and indirect labours which constitutes the actual men strength of any department. Therefore, it can be considered as a rational basis and it allocates to costs more efficiently (Braun et al., 2014).
Secure Best Marks with AI Grader
Need help grading? Try our AI Grader for instant feedback on your assignments.
7MANAGEMENT ACCOUNTING Disadvantage: There are 500 total labour hours in the administration department itself. Rationally, a part of the total administration costs needs to be allocated to the administration department itself, which is a disadvantage of this system (Mihăilă, 2014). Requirement V: If some of the machining activities are outsourced, then direct labour hours in the machiningdepartmentwouldbereduced.Asaresult,theoverheadexpensesofthe department would be lower as well. However, certain points to be kept in mind for a profitable outsourcing of activities, which are – Direct labour costs of the in-house production must be considered. Total outsourcing costs of the activity must be lesser than the direct labour costs. Whether other fixed costs are incurred irrespective of the outsourcing, needs to be considered. Requirement VI: From the management’s decision and explanation, it can be observed that they are using direct labour hour as the basis for overhead allocation. If they outsource some the machining department’s activities, then no overhead would be allocated to the machining department, as there will be no direct labour hour (Weygandt, Kimmel & Kieso, 2015). Hence, the total overhead would be allocated to other departments. The share of overhead, which would have been allocated to the machining department, will be allocated to other departments too. As a whole the company is incurring the same amount of overhead, the only difference is that no overhead is allocated to the machining department. So, it cannot be
8MANAGEMENT ACCOUNTING considered profitable unless a comparative analysis is being done. If the total profit in outsourcing the activities is greater than the budgeted total profit, then it can be considered profitable (Weygandt, Kimmel & Kieso, 2015). Question 3: CVP Analysis Requirement I: Computation of contribution margin per unit and break-even point in dollars: Requirement II: Computation of Margin of safety in dollars: Requirement III: Computation of required number of units to be sold to earn $1.254 after tax profit:
9MANAGEMENT ACCOUNTING Requirement IV: Computation of underestimated amount of profit: Requirement V: Comparative analysis of management’s decision to increase advertising costs: From the revisedincome statement, it can be concluded that the management’s decision to increase advertising costs will not improve the financial situation of the company; rather it will cause the operating income to decrease by $1,559,200. Question 4:
Paraphrase This Document
Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
10MANAGEMENT ACCOUNTING CKwas incurring a huge amount of loss on their Wallpaper segment. After closing the Wallpaper segment and extending the carpeting segment using the facilities of wallpaper segment, the company can make some extra profit. Therefore, it would be beneficial for the company to drop the wallpaper segment. Requirement II: Decision regarding keep and drop of a particular segment of a company depends on certain quantitative and qualitative factors. Quantitative factors mostly include profits and financial performance of the business. On the other hand, qualitative factor includes the quality of the products, which is produced using the existing facilities, customers’ needs and demands, employees’ interest and suppliers’ interest. Some of the qualitative factors can be elaborated as below (Butler & Ghosh, 2015). Quality of the Products: Quality of the products, which are being produced using the facilities of the dropped segment, may not be as good as is expected. Extension of a product line must be done without affecting the quality of the product.
11MANAGEMENT ACCOUNTING Employee: If a particular segment is dropped then employment of that department’s employees must be considered. Some of the employees may lose their work; their interest must be protected while taking such a decision. Customers’ interest: Customers who were purchasing the product will not get the product in future. Their needs and demands must be considered in such a situation (Malina, 2018). Suppliers’ interest: Suppliers who are supplying materials for that particular product will lose their customer. Their interest in the business also needs to be considered.
12MANAGEMENT ACCOUNTING References: Braun,K.W.,Tietz,W.M.,Harrison,W.T.,Bamber,L.S.,&Horngren,C.T. (2014).Managerial accounting. Boston: Pearson. Butler,S.A.,&Ghosh,D.(2015).Individualdifferencesinmanagerialaccounting judgments and decision making.The British Accounting Review,47(1), 33-45. Malina, M. A. (Ed.). (2018).Advances in management accounting. Emerald Publishing Limited. Mihăilă,M.(2014).Managerialaccountinganddecisionmaking,inenergy industry.Procedia-Social and Behavioral Sciences,109(5), 1199-1202. Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2015).Financial & managerial accounting. John Wiley & Sons. Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2015).Managerial accounting. Wiley.