Management Accounting Report: Cost Analysis and Ethical Issues

This report offers a comprehensive analysis of management accounting, encompassing various aspects such as cost allocation, job costing, process costing, and Cost-Volume-Profit (CVP) analysis. It delves into different cost allocation methods including direct, step-down, and reciprocal methods, and a...Read More

Management accounting

EXECUTIVE SUMMARY
The report summarize about management accounting and its practical knowledge. Under the
report different kinds of calculation are done in accordance of given data set and requirement of
brief. Apart from the calculations some theoretical concepts are also covered in report such as
ethical conflict, break even analysis and many more.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................4
MAIN BODY...................................................................................................................................4
Question 1: Support Department cost allocation........................................................................4
Question 2: Support Department Cost allocation and Job Costing.............................................6
Question 3: Process Costing........................................................................................................7
Question 4: Cost Volume and Profit (CVP) Analysis.................................................................8
Question 5: Planning: Operational Budgets..............................................................................11
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting is the process of defining, evaluating, assessing, interpreting and
transmitting financial reports to managers in order to meet the aims of the company. It differs
from cost reporting and the goal of management accounting is to enable users inside the
organization to make well-informed business choices (Pelz, 2019). The report is based on
different kinds of theoretical and practical framework of management accounting. Most of the
calculations are based on cost analysis, breakeven analysis and many more. In the last part of
report, a case has been analyzed in order to review ethical issues.
MAIN BODY
Question 1: Support Department cost allocation
a)
Support Departments
Manufacturing
Departments
Legal Personnel Laptop Workstation Total
Overhead costs before any
inter department cost
allocations $9,055 $4,000 $240,000 $200,000
$453,05
5
Legal hours 2 3 37 20 62
Personnel hours 40 30 200 160 430
Direct Method
Support Departments
Manufacturing
Departments
Legal Personnel Laptop Workstation Total
Overhead costs before any
inter department cost
allocations $9,055 $4,000 $240,000 $200,000
$453,05
5
Legal hours (37/57;20/57) -$9,055 $5,877.81 $3,177.19
Personnel hours
(200/360;160/360) -$4,000 $2,222.22 $1,777.78
Total 0 0 $248,100 $204,955
$453,05
5

Step down method
Support Departments
Manufacturing
Departments
Legal Personnel Laptop Workstation Total
Overhead costs before any
inter department cost
allocations $9,055 $4,000 $240,000 $200,000
$453,05
5
Legal hours
(3/60;37/60;20/60) -$9,055 $452.75 $5,583.92 $3,018.33
Personnel hours
(200/360;160/360) -$4,452.75 $2,473.75 $1,979.00
Total 0 0 $248,058 $204,997
$453,05
5
Reciprocal Method
Se
rvi
ce
s
Pr
ov
id
ed
Department
Departmental
overhead before
distribution Legal Personnel
Laptop $240,000 40% 20%
Workstation $200,000 40% 50%
Legal $9,055 30%
Personnel $4,000 20%
Total dept.
overhead $453,055
100
% 100%
Solving Equation:
Legal = $9,055 + 0.3 Personnel ……..equation 1
Personnel = $4000 + 0.2 Legal ………equation 2
After solving the equation; the value of Legal and personnel gets:
Legal = $9,055 + 0.3 ($4000 + 0.2 Legal)

= $9,055 + $1,200 + 0.06 Legal
Legal – 0.06 Legal = $10,255
Legal = $10,255 / 0.94 = $10,910
Putting the value of legal in equation 2:
Personnel = $4000 + 0.2 ($10,910)
= $6,182
Reciprocal Method
Support Departments
Manufacturing
Departments
Legal Personnel Laptop Workstation Total
Overhead costs before any
inter department cost
allocations $9,055 $4,000 $240,000 $200,000
$453,05
5
Legal hours
(20%,40%,40%) -$10,910 $2,182 $4,364 $4,364
Personnel hours
(30%,20%,50%) $1,855 -$6,182 $1,236 $3,091
Total 0 0 $245,600 $207,455
$453,05
5
Question 2: Support Department Cost allocation and Job Costing
a)
Using cost
allocated by
Reciprocal
method
Manufacturing
Departments
Total
cost
Machine
hours
Labor
hours
Machine Department
$9,000,00
0 200,000 15,000
Assembly Department
$7,000,00
0 80,000 35,000
280,000 50,000

Cost per Unit
Machine cost per unit (Machine
department cost / Machine hours) $32.14
Labor cost per unit (Labor department
cost / Labor hours) $140
Total Cost of Job MT27
Job no. MT27
Machinin
g Assembly
Direct materials $36,000 $6,710
Direct labor cost $1,550 $1,650
Labor overhead cost $6,300 $9,800
Machine overhead cost $6,750 $643
Total Job cost $50,600 $18,803
b) Among different cost allocation methods, Reciprocal Method will be suitable. It's the most
reliable, the most complex. The connection between the service divisions is understood in the
reciprocal process (Cescon, Costantin and Grassetti, 2019). This means that the expenses of the
service department are transferred to and from the various service departments. The allocation of
service tech costs is insufficient if the system used for the distribution of funds lacks or fails to
provide legal approval to cross - departmental program. Inter - departmental services are
provided that several or more divisions offer to each other. Remember, for instance, the situation
whereby service tech A offers services to service tech B and, in exchange, department B offers
services to system A.
Question 3: Process Costing
a)
E
q
ui
v
al
e
nt
P
ro
d

u
ct
io
n
Material
Production data Output Units % Units % Units
Opening WIP 70,000 70% 49,000 40% 28,000
Units transferred out 380,000 100% 380,000 100% 380,000
Ending WIP 80,000 75% 60,000 25% 20,000
530,000 489,000 428,000
Statement
of cost
Item Amount
Equivalent
Production
Cost per
unit
Material $391,850 489,000 $0.80
Conversion $287,300 428,000 $0.67
Total cost
per unit $1.47
i. Weighted-Average method
Process
A/c FIFO
Method
Weighted-
Average
method
Units
Amoun
t Units
Amou
nt
Beginning
WIP 70,000 $50,050 Process transferred
450,00
0
$662,6
66
Materials
460,00
0
$391,85
0 Ending WIP (Balance) 80,000
$66,53
4
Conversion
$287,30
0
530,00
0
$729,20
0
530,00
0
$729,2
00
ii. FIFO method

Process A/c
FIFO
Method
Units Amount Units Amount
Beginning WIP 70,000 $50,050
Process
transferred
(Balance) 450,000 $667,800
Materials 460,000 $391,850 Ending WIP 80,000 $61,400
Conversion $287,300
530,000 $729,200 530,000 $729,200
Statement of evaluation
Ending WIP Material (60,000 × $0.80) = $48,000
Conversion (20,000 × $0.67) = $13,400
b)
Process
A/c FIFO
Method
Weighted-
Average
method
Units
Amoun
t Units
Amou
nt
Beginning
WIP 70,000 $50,050 Process transferred
450,00
0
$662,6
66
Materials
460,00
0
$391,85
0 Ending WIP (Balance) 80,000
$66,53
4
Conversion
$287,30
0
530,00
0
$729,20
0
530,00
0
$729,2
00
Question 4: Cost Volume and Profit (CVP) Analysis
(a) Breakeven point in units: Fixed cost/contribution per unit
Contribution per unit: Selling price-variable cost per unit

PC case S case TPU Case
Selling price 50 65 90
Variable Cost Per
unit
45 61 87
Contribution per unit 5 4 3
BEP:
PC case S case TPU Case
Fixed cost 35100 35100 35100
Contribution per
unit
5 4 3
BEP (In units) 7020 8775 11700
(b) Assuming that the given sales mix is maintained, what is the operating profit when 17,500
units are sold?
PC
case
S case TPU
Case
Sales
revenue
125000 650000 4500
00
Less:
Variable
cost
112500 610000 4350
00
Operatin
g profit
12500 40000 1500
0
(c) If the company sold 2,500 units of PC case, 7,500 units of S case and 7,500 units of TPU
case, what would be the operating income? What would be the new break-even point in units if
these new relationships persist in the next period?
PC
case
S case TPU
Case

Sales
revenue
125000 487500 6750
00
Less:
Variable
cost
112500 457500 6525
00
Operatin
g profit
12500 30000 2250
0
Calculation of New BEP:
PC
case
S case TPU
Case
Sales
revenue
125000 487500 6750
00
Less:
Variable
cost
112500 457500 6525
00
Operating
profit
12500 30000 2250
0
Contributio
n per unit 5 4 3
Fixed cost
35100 35100
3510
0
BEP (Units)
7020 8775
1170
0
(d) The CEO of the Bellroy Company reviewed the break-event points calculated the
requirement (a) and (c). After careful observation, she commented “It is always better for a
company to choose the sales mix that yields the lower break-even point”. Do you agree with the
CEO’s comment? Explain your answer.

Yes, I am agreeing with CEO’s comment. It is so because corporation is not necessarily free to
sell any amount of units of a commodity that produces the largest profit of the company. Since
the sale depends on a variety of external influences, including the demand of the customer for the
goods, the availability of raw materials, the manufacturing capability of the firm, restrictions
made by the government, etc. Since revenues depend on certain uncontrollable causes, the
ultimate aim of the businesses is to find a sales mix that will produce the highest benefit for them
(Fleischman and McLean, 2020). Generally, different goods have different purchase rates,
variable costs and contribution margins. Consequently, any change in the percentage wherein the
goods are sold has a substantial effect on the break-even rate. This shift is known as 'change in
sales mix' or 'change in market mix.'
Question 5: Planning: Operational Budgets
(a) Describe the ethical conflict that John is facing when asked to provide estimated sales
for next year?
Ethical conflict- Ethical disputes occur as people are faced with a disagreement between
the general frameworks of belief in morals, ethics or justice and their own particular
circumstances (Doktoralina and Apollo, 2019). Right and wrong are not necessarily
entirely straightforward, and certain cases include deciding between two "evils" where,
maybe, ethical decisions could result in physical or professional harm, or where an
individual may benefit from an ethical issue. Such disputes could take place on an
individual, technical or cultural scale.
Overview of case- As per the given information in brief this can be inferred that John is a
sales manager and due to COVID 19 situations have been changed. In this context, John
was asked to estimate sales for upcoming time period by CFO. Though, John is sales
manager and it is not possible for him to forecast accurately. As well as reason due to

which there can be conflict is that John’s bonus will depend on performance of sales
budget.
Establishing a sales and benefit budget that is significantly smaller than what is expected
to happen creates difficulties for the whole company. Development may be short of
supplies and manpower, leading to shortfalls in the manufacturing process. Selling and
logistical assistance could be insufficient due to underestimation of revenue. Customers
would not be happy if they have to wait for the item (Amir, Rehman and Khan, 2020).
The problem which John might face as a manager in this scenario is whether to do
whatever is better for company (set a low profit target to earn a bonus) or doing what is
best for the business (target specifically so that the budget represents actual revenue and
results needed).
Conad Company must understand this tension and have mechanisms in place to ensure
that both the needs of individual workers and the shareholders of the community as a
whole are represented. Employees, for example John will be compensated not only for
achieving the targets but also for offering reliable forecasts. Maybe a long-term
compensation program for stock options will include an incentive to do what is right for
the company, thus increasing shareholder equity. Whatever reward scheme is placed in
motion, companies must encourage truthful feedback from workers and beware of false
reporting in order to meet financial goals.
If John’s performance is measured by matching actual outcomes with budgeted details
have an opportunity to construct a budget that is simple to reach, and even impractical.
This will cause issues for the company as whole and, as product decisions are done on the
basis of budgeted revenue. If each project director sends a distribution budget that greatly
misunderstands sales, it is possible that the business will have a lack of inventories and
will miss out on sales when buyers move elsewhere to buy the commodity. While
management will have easy time meeting revenue and profit expectations, the business
will indeed lose. The ethical issue of deciding between what is better for the managing

director and what is best for the company will eventually lead to lower sales and unhappy
consumers.
(b) If John behaves unethically, how would his behavior impact the company and its
customers?
Unethical activity has significant implications on both people and organizations. If John
will behave unethically than he may lose his job and prestige, companies may lose their
integrity, general morals and competitiveness may decrease, or actions may result in
substantial penalties and/or financial losses.
Impact on company: Due to unethical behave of John the sales budget of company will
be wrong and inaccurate. As consequences, this will be difficult for company to estimate
demand of customers and they will not be able to meet demand of customers. Due to such
issue, there will be a huge loss to company because they will fail to meet need of
customers on right time when they need.
Impact on customers- Along with company, the customers will also affect in a negative
manner. It is so because customers will expect that company will fulfill their demand on
right time but due to wrong prediction of sales budget company will not be able to make
a balance between demand and supply. So due to unethical behave of John, there will be
chance of losing goodwill of company and customers will be suffered by cause of
insufficient demand. Though, this wrong prediction will not lead to lack of availability of
product but also there will be time in eight months when demand will be lower and
company will offer excess amount of products.
CONCLUSION
On the basis of above project report this can be concluded that management accounting is one of
the aspects of accounting that need to be followed and applied by companies. The report
concludes about different kinds of calculations under which outcome is produced in accordance

of performed way of accounting. The end part of report articulates that any wrong or unethical
behavior of an employee may lead to range of issues in a company as well as to customers. Apart
from this, company also should not put any condition related to bonus in accordance of
employees’ performance. There should be satisfaction by both employees and managers.

REFERENCES
Pelz, M., 2019. Can management accounting Be helpful for young and small companies?
Systematic review of a paradox. International Journal of Management Reviews, 21(2),
pp.256-274.
Cescon, F., Costantini, A. and Grassetti, L., 2019. Strategic choices and strategic management
accounting in large manufacturing firms. Journal of Management and
Governance, 23(3), pp.605-636.
Fleischman, R. and McLean, T., 2020. Management accounting: theory and practice. Routledge.
Amir, M., Rehman, S.A. and Khan, M.I., 2020. Mediating role of environmental management
accounting and control system between top management commitment and environmental
performance: A legitimacy theory. Journal of Management and Research, 7(1), pp.132-
160.
Doktoralina, C. and Apollo, A., 2019. The contribution of strategic management accounting in
supply chain outcomes and logistic firm profitability. Uncertain Supply Chain
Management, 7(2), pp.145-156.