Management Accounting

This article discusses strategies for cost reduction in management accounting, including the use of machines instead of manual labor, implementing electronic business, and adopting various strategic management accounting initiatives. It also covers techniques such as activity-based costing, just-in-time technique, cost-volume-profit analysis, balanced scorecard, and Kaizen costing. The article concludes with a discussion on the importance of bringing uniqueness to products and examining the method of depreciation.

Running Head: Management Accounting
Management Accounting

Management Accounting 2
Table of Contents
Task A....................................................................................................................................................3
Part a.................................................................................................................................................3
Part b.................................................................................................................................................3
Part c.................................................................................................................................................3
Part d.................................................................................................................................................3
Part e.................................................................................................................................................4
Part f..................................................................................................................................................4
Part g.................................................................................................................................................4
Part h.................................................................................................................................................4
Part j..................................................................................................................................................5
Part k.................................................................................................................................................5
Part l..................................................................................................................................................6
Part B.....................................................................................................................................................7

Management Accounting 3
Task A
Production Budget in units
Particulars Amounts
Expected Sales 2000
Add: Closing Stock of desk 300
Less: Opening Stock of Desk -200
Units required to be produced 2100
Part c
Direct material usage and purchase budget
Direct material usage Quantity
No. of desks 2100
Square meters per desk 3
No. of Legs per desk 4
Direct material usage Oaks tops Oaks Legs
Direct material requirement 6300 8400
(2100*3) (2100*4)
Purchase Budget
Oaks tops Oaks Legs
Direct material usage 6300 8400
Add: Closing Raw Material
Inventory 24 80
Material Required 6324 8480
Less: Opening Raw Material
Inventory -40 -100
Required Purchases 6284 8380
Part d
Direct Manufacturing Labour budget
Particulars Amounts
Part a
Revenue budget 2018
Particulars Amounts
Number of units
sold 2000
selling price per unit $ 800.00
Total Sales Revenue $ 16,00,000.00
Par
t b

Management Accounting 4
Number of desks required 2100
Number of hours required per desk 3
Total hours required 6300
Rate per hour $ 20.00
Total Labour cost $ 1,26,000.00
Part e
Manufacturing overhead budget
Particulars Amounts
Number of desks to be produced 2100
Variable manufacturing cost (2100*20*3) $ 1,26,000.00
Fixed manufacturing cost $ 50,000.00
Total manufacturing overhead $ 1,76,000.00
Part f
Manufacturing overhead rate
Particulars Amounts
Total manufacturing overhead
$
1,76,000.00
Total hours required 6300
Manufacturing overhead rate per
hour
$
27.94
Part g
Manufacturing overhead cost per unit in 2018
Total manufacturing overhead
$
1,76,000.00
Number of desks to be produced 2100
Manufacturing overhead cost for
output
$
83.81
Part h
Value of closing stock unit
Direct Material: Unit cost
Oak Tops (120*3) 360
Oak Legs (7*4) 28
$
388.00
Direct Labour (55*3)
$
165.00
Manufacturing overhead
$
83.81
Value of closing stock unit
$
636.81

Management Accounting 5
Part i
Closing Inventory budget
Direct Material Inventory Units Rate Amount
Oak Tops 24 $ 120.00 $ 2,880.00
Oak Legs 80 $ 7.00 $ 560.00
Finished Goods Inventory
Desks 300 $ 636.81 $ 1,91,042.86
Part j
Cost of Goods Sold
Oaks tops Oaks Legs Total
Opening Finished goods
inventory
$
80,000.00
Add Direct Material
Opening Stock
$
4,000.00
$
500.00
Add: Direct Material Purchases
$
7,54,080.00
$
58,660.00
Cost of direct material available
$
7,58,080.00
$
59,160.00
Less: Closing Stock
$
2,880.00
$
560.00
Cost of direct material in
production
$
7,55,200.00
$
58,600.00
$
8,13,800.00
Add Direct Labour
$
3,46,500.00
Add Manufacturing cost
Variable $ 1,26,000.00
Fixed
$
50,000.00
$
1,76,000.00
Les
s Closing Inventory
$
1,91,042.86
Cost of goods sold 1225257.143
Part k
Income Statement'
Revenue from Sales $ 16,00,000.00
Cost of Goods Sold $ 12,25,257.14

Management Accounting 6
Gross profit $ 3,74,742.86
Marketing costs
(20*100) $ 2,000.00
Non-Manufacturing cost $ 10,000.00
Net Profit $ 3,62,742.86
Part l
Balance Sheet
Assets Amount
Current Assets
Cash $ 3,82,742.86
Inventory $ 1,94,482.86
Non-Current Assets
Property Plant Equipment $ 5,50,000.00
Total $ 11,27,225.71
Liabilities
Current Liabilities $ 30,000.00
Non-Current Liabilities $ 59,340.00
Suspense account $ 25,142.00
Equity $ 10,12,742.86
Total $ 11,27,224.86

Management Accounting 7
Part B
To: Managing Director, Exhibition Furniture
From: Management Accountant
Re: Strategies for cost reduction
Date: 10-02-2018
The budgeting process that has been carried above for the exhibition furniture has determined
the estimated amount of profit that will be achieved by the firm, if everything goes according
to the budgeted plans. However, the estimated profits and sales could be increased if
successful strategies are implemented. The firm must offer various kinds of discounts and
other offers on the sale of furniture products so that it can attract wide customer base. Also,
the profitability can be increased by adopting possible methods of cost control and cost
reduction. Instead of using the manual labour force, the firm must implement machines for
the manufacturing of desk so that it can enhance the firm’s productivity. The use of machine
capital in place of labour capital will also reduce the training and staffing cost of the company
to a certain extent. The firm must also take its business on the electronic mode so that wide
range of potential customers can be generated. Further, the firm must adopt various strategic
management accounting initiatives to improve its overall profitability from the sales.
Management accounting has introduced advanced level of techniques and tools such as
Activity based costing, just in time technique, cost volume profit analysis, balanced
scorecard, Kaizen costing etc. (Bromwich, and Bhimani, 2005). Employment of such
techniques in the business will allow the furniture firm to manage its cost appropriately.
Activity based costing technique will enable the firm to determine the accurate cost involved
in the manufacturing of desks and other furniture products. The better cost allocation will
allow the firm to determine the appropriate selling price of the furniture products so that

Management Accounting 8
reasonable profits could be generated. Moreover, the firm must strive to bring uniqueness to
its products so that it can gain competitive advantage over the rival firms of the industry. The
method of depreciation must also be examined to check its appropriateness for the business of
the exhibition furniture. If the method is not reasonably correct as per the situation of
business, the firm must try to change the depreciation method so as to reduce its fixed cost.
Also the application of just in time technique will help the business to maintain an adequate
level of inventory that is necessary for the successful operation of the business and that will
avoid the excessive cost of blocking unnecessary funds in holding the inventory. Also, it will
help the business to meet the unexpected demands of the customers in specific situations.
These techniques will certainly help the business to manage its costs and improve its overall
profitability (Horngren, Bhimani, Datar, Foster and Horngren, 2002).

Management Accounting 9
References:
Bromwich, M. and Bhimani, A., 2005. Management accounting: Pathways to progress. Cima
publishing.
Horngren, C.T., Bhimani, A., Datar, S.M., Foster, G. and Horngren, C.T., 2002. Management
and cost accounting. Harlow: Financial Times/Prentice Hall.