Management Accounting Frameworks and Cost Differentiation

AFM020 Management
Accounting
Frameworks

Table of Contents
INTRODUCTION ..........................................................................................................................3
SCENARIO 1...................................................................................................................................3
(a) Show the calculation of profit for the for years. ...................................................................3
b) Prepare a schedule for annual cash flows and investment appraisal for determining the
efficiency of project....................................................................................................................4
c) Provide insights into the CAPEX appraisal of the project and suggest whether to accept the
proposal or not.............................................................................................................................6
SCENARIO 2...................................................................................................................................7
Critically comment on the statement made by the manager. Provide illustrations for critique
and also gives comments.............................................................................................................7
CONCLUSION .............................................................................................................................11
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting can be defined as a process of preparation of reports related to
the operations of the business. This helps them in the continuing its target by recognising,
measuring, evaluating and interpreting the data which is to be communicated to the mangers.
Through this companies makes their long as well as short term decisions (Nielsen, 2018). The
company chosen in this report is MAF Associates. In the report the country chosen is Loland a
fictitious one. Firm deals in the buying and selling of computer equipments. The report is divided
into two sections. The first part deals in the calculation of profits and analysis of the investment
proposal. The second part discusses about the differentiation in the meaning of cost and the
problems created by it for the mangers along with illustrating it with the help of examples.
SCENARIO 1
(a) Show the calculation of profit for the for years.
Particulars Year 1 Year 2 Year 3 Year 4
Sales 1000000 1050000 1100000 1150000
Less: Variable
Costs
400000 420000 440000 460000
Less: Fixed
Costs (Salary)
100000 100000 100000 100000
Less:
Administration
Costs
200000 200000 200000 200000
Less:
Marketing and
advertising
costs
50000 50000 50000 50000
Depreciation on
Equipment
200000 200000 200000 200000
Surveyors and 100000 100000 100000 100000

legal fees
Profit before
tax
-50000 -20000 10000 40000
Corporation tax 2000 8000
Profit after tax 8000 32000
Calculation of depreciation of equipment
Cost of equipment = $ 1000000
Residual value = $ 200000
Number of years = 4
Value of depreciation = (1000000 – 200000) / 4
= 800000 / 4
= $ 200000
b) Prepare a schedule for annual cash flows and investment appraisal for determining the
efficiency of project.
Particulars Year 0 Year 1 Year 2 Year 3 Year 4
Sales 1000000 1050000 1100000 1150000
Less:
Variable
Costs
400000 420000 440000 460000
Less: Fixed
Costs
(Salary)
100000 100000 100000 100000
Less:
Administrati
on Costs
200000 200000 200000 200000
Less: 50000 50000 50000 50000