Management Accounting

This document provides answers to questions on absorption costing, marginal costing, and budgeted income statement for the year 2017. It also discusses the role of management accountants in decision making.

Running head: MANAGEMENT ACCOUNTING
Management Accounting
Name of the Student:
Name of the University:
Author’s Note:

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Table of Contents
Answer to question F:................................................................................................................2
Sub part (i): Summarised Absorption costing Income statement for 2017:...........................2
Sub part (ii): Summarised Marginal costing Income statement for 2017:.............................3
Subpar (iii): Budgeted Income statement for 2018:...............................................................4
Answer to question G:................................................................................................................4
References and bibliography:.....................................................................................................6

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Answer to question F:
Sub part (i): Summarised Absorption costing Income statement for 2017:
UNILEVER
Summarised Absorption Costing Income Statement
For the year 2017
Amount
In million
Amount
In million
Sales Revenue € 53,715
Less: Cost of Goods Sold € 27,306
Gross Profit € 26,409
Less: Selling and Administrative Expenses:
Distribution Costs € 3,241
Selling and Administrative expenses € 14,311
Total of selling and administrative expenses € 17,552
Operating Profit € 8,857
Notes:
From the consolidated income statement, total turnover and operating profit can be
taken. The notes number 3 to the financial statement shows the breakup of costs and the
details of operating expenses. Information has been taken from that notes to the financial
statement to prepare the summarised income statement under absorption costing system of
accounting. In this concept full manufacturing costs are deducted from the sales revenue to
get the gross profit and then other operating expenses are deducted from the gross profit to
get the net operating profit. For preparing the absorption costing income statement, it is
assumed that the cost of sales as given in the notes 3 to the financial statement is the total cost
of goods sold, which includes both the fixed and variable manufacturing expenses.

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Sub part (ii): Summarised Marginal costing Income statement for 2017:
UNILEVER
Summarised Contribution Margin Income Statement
For the year 2017
Amount
In million
Amount
In million
Sales Revenue € 53,715
Less: Variable costs of goods sold € 13,653
Gross Contribution Margin € 40,062
Less: Variable costs of distribution € 3,241
Contribution Margin € 36,821
Less: Period Expenses:
Fixed Manufacturing Overhead € 13,653
Fixed selling and administration expenses € 14,311
Total of period expenses € 27,964
Operating Profit € 8,857
Notes:
Marginal costing income statement shows the operating profit, breaking it up into
gross contribution margin and contribution margin. In other way, it classifies the variable and
fixed costs in the income statement (Collis and Hussey 2017). They do not classify their cost
of goods sold into fixed or variable, but it is important for the marginal costing income
statement to classify the cost of goods sold into fixed and variable components. As per the
given instruction, 50% of their cost of sales is considered to be the variable and the rest 50%
is considered to be fixed. It is also assumed that the selling and administrative expenses are
fixed in nature.

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Subpar (iii): Budgeted Income statement for 2018:
UNILEVER
Budgeted Income Statement
For the year 2017
Amount
In million
Amount
In million
Sales Revenue € 56,132
Less: Variable costs of goods sold € 14,267
Gross Contribution Margin € 41,865
Less: Variable costs of distribution € 3,387
Contribution Margin € 38,478
Less: Period Expenses:
Fixed Manufacturing Overhead € 13,653
Fixed selling and administration expenses € 14,311
Total of period expenses € 27,964
Operating Profit € 10,514
Notes:
From their annual report, it can be observed that, they are having an overall sales
growth of 3 to 5 percent. For the preparation budgeted income statement, a 4.5% sales growth
is assumed. Further, the same rate of variable costs is assumed and the selling administration
expenses are assumed to remain fixed.
Answer to question G:
Managers are one of the internals users of financial information who takes certain
important decisions for the company. They rely on the information provided by the
management accountants of the company, but sometime it becomes difficult for the
management accountants to provide meaningful and relevant information to the management.
Management accountants can help the managers in decision making by providing various
meaningful, accurate and relevant information in time (Kaplan and Atkinson 2015). Some of
such information can be described as below.

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Product cost and cost components: Management accountants can provide the details of per
unit product costs classifying them into variable and fixed costs.
Demand and Sales growth: Demand and sales growth information also becomes helpful for
the management in various key decisions.
Details of Fixed Costs: Details of fixed costs helps the managers to review the process and
curtail unnecessary fixed costs to gain more advantage from the existing business process.
Price and Profitability: Information about per unit price and profitability of various
products helps the managers to make certain important decisions about keeping or dropping a
particular product or product line. It also helps in assessing the opportunities and strengths of
a company in the competitive market.
Marginal Costing information: The most important and helpful information which a
management accountant can provide to the managers is the marginal costing information,
which helps in product mix decision, make or buy decision, keep or drop decisions and
various other important decision making (Collis and Hussey 2017).

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References and bibliography:
Bromwich, M. and Scapens, R.W., 2016. Management accounting research: 25 years
on. Management Accounting Research, 31, pp.1-9.
Collis, J. and Hussey, R., 2017. Cost and Management Accounting. Macmillan International
Higher Education.
Cooper, R., 2017. Supply chain development for the lean enterprise: interorganizational cost
management. Routledge.
Fisher, J.G. and Krumwiede, K., 2015. Product costing systems: Finding the right
approach. Journal of Corporate Accounting & Finance, 26(4), pp.13-21.
Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.
Otley, D., 2016. The contingency theory of management accounting and control: 1980–
2014. Management accounting research, 31, pp.45-62.