Management Accounting

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MANAGEMENT ACCOUNTING 1
MANAGEMENT
ACCOUNTING

MANAGEMENT ACCOUNTING 2
Answer 1:
The following are the relevant calculations:
(i)
Weighted
Average
Costing
System
Statement of
Equivalent
Production Units Materials Conversion Cost
%
Completion
Equivalent
Units
%
Completion
Equivalent
Units
Finished Goods 950 100% 950 100% 950
Closing WIP 150 100% 150 33.33% 50
1100 1100 1000
Statement of
Cost Materials
Conversion
Cost Total Cost
Cost of
Opening WIP 300 1300 1600
Cost added
during the
period 1600 13700 15300
1900 15000 16900
Equivalent 1100 1000

MANAGEMENT ACCOUNTING 3
Units
Cost / Unit
1.
73 15
1
6.73
Unit
Cost per
Unit Total Cost
Cost of
Completed
Units 950
16.
73
15,89
0.91
(ii)
FIFO Costing
System
Statement of
Equivalent
Production Units Materials Conversion Cost
%
Completion
Equivalent
Units
%
Completion
Equivalent
Units
Opening WIP 100 0 0 40% 40
Finished Goods 950 100% 950 100% 950
Closing WIP 150 100% 150 33.33% 50
1100 1040
Statement of
Cost Materials
Conversion
Cost Total Cost
Cost added 1600 13700 15300

MANAGEMENT ACCOUNTING 4
during the
period
1600 13700 15300
Equivalent
Units 1100 1040
Cost / Unit
1.
45
1
3.17
1
4.63
Equivalent
Unit
Cost per
Unit Total Cost
Cost of 100
units in
Opening WIP 60
1,60
0.00
Add:
Additional cost
Incurred
Conversion
Cost 40
13.
17
52
6.92
Cost of 850
Units
Completed
during the
period 850
14.
63
12,43
3.48
14,56

MANAGEMENT ACCOUNTING 5
0.40
Answer 2:
The following are the relevant calculations:
A
Units Completed
During the month
1,00,000
.00
Add: Units in
Closing WIP
70,000
.00
Less: Units in
Opening WIP
-
62,000.00
Units added during
the month
1,08,000
.00
B
Weighted Average
Costing System
Statement of
Equivalent
Production Units Conversion Cost
%
Completion
Equivalent
Units
Finished Goods
1,00,000
.00 1.00
1,00,000
.00
Closing WIP 70,000 28,000

MANAGEMENT ACCOUNTING 6
.00 0.40 .00
1,70,000
.00
1,28,000
.00
C Statement of Cost
Conversio
n Cost
Cost of Opening
WIP
90,00
0.00
Cost added during
the period
7,10,00
0.00
8,00,00
0.00
Equivalent Units
1,28,00
0.00
Cost / Unit 6.25
D
Cost of Closing
WIP
Units
%
Completion
Equivalent
Units
Cost
per
Unit Total Cost
Materials
70,000
.00 1.00
70,000
.00 2.00
1,40,000.0
0
Conversion Cost 70,000 28,000 1,75,000.0

MANAGEMENT ACCOUNTING 7
.00 0.40 .00 6.25 0
3,15,00
0
E
Process A/c would
be credited to
record the
completed
production
Answer 3:
The following are the relevant calculations:
A Actual Manufacturing Overhead for the year
Total Debit Manufacturing Overheads
8,72,00
0
Less: Sales Commission
-
20,000
Actual Manufacturing Overhead for the year
8,52,00
0
B Manufacturing Overhead applied to Production 8,75,00

MANAGEMENT ACCOUNTING 8
0
C
Manufacturing Overheads have been Under-applied during the
year
Budgeted Overhead
9,00,00
0
Less: Applied to Production
-
8,75,000
25,00
0
D Adjusted Cost of Goods Sold
Balance of Cost of Good Sold Account
36,80,00
0
Less: Under-applied Overheads
-
25,000
36,55,00
0
E Machine Hours actually work during the year
Overheads applied
8,75,00
0
Pre-determined rate of overhead per Machine Hour
2
0
No. of Machine Hours worked 43,75

MANAGEMENT ACCOUNTING 9
0
F Budgeted Machine Hours
Budgeted Overheads
9,00,00
0
Pre-determined rate of overhead per Machine Hour
2
0
No. of Budgeted Machine Hours
45,00
0
Answer 4:
The following are the major differences:
 Tangibility of the output: the main difference between the firms that provide
services and the manufacturers is the tangibility of their output. The output given out
by the service firm, the example of which includes consultancy, training or
maintenance, is intangible. The manufacturers produces the physical goods that the
final user could see and touch
 Production on demand: the service firms or the service companies do not hold any
inventory. They merely create the product as per the requirements of the customer and
sell them when the client requires the same. The manufacturers produces the goods
for the stock, with the levels of the inventory which is aligned with the forecasts of
the demand which exists in the market. There are some of the manufactures that keep
some minimum amount of the stock so that they are able to supply or provide the

MANAGEMENT ACCOUNTING 10
goods as and when the demand arises for the same. The inventory also shows the cost
for the manufacturing company.
 Customer specific production: the firms that provide some service to the customers
do not mainly produce any sort of a service unless and until the customer’s order the
same. This happens when the company designs and develops the products in
accordance with the orders. The firms manufactures the products as per the specific
requirements of each customer such as 12 hours of consultancy, 14 hours of deigning
etc. these manufacturers are able to produce the goods without any order of the
customer or forecasting of the customer demand. Hence, the production of any sort of
the goods aiming at meeting the market demand is considered to be of a poor strategy.
 Labour requirements and the processes of automation: the firms that provide
some specific services to the customers hire the people with some specific knowledge
and skill set. These companies are mainly labour intensive and these services are
capable of being automated. The management is able to create a knowledge centre for
such services. The manufacturers of the products are able to automate the process of
production for the reason of reducing the labour requirements, even when there are
some if the companies that are labour intensive, especially in the countries that have
low labour costs (Oreilly, 2019).
 Physical production location: There are many of the firms that provides the services
which do not have any production site. The people that create the products for the
others can be found anywhere. The audit firms such as PWC have some established
communication networks so that they can approach clients from anywhere in the
world. But this is not possible for the manufacturers. The production of the goods
need not be on the site of the owner and thus can take place at any point in the chain
of supply (Small business chron, 2019).

MANAGEMENT ACCOUNTING 11
Answer 5:
The following are the main differences that exists:
 The product based companies offer much more in terms of knowledge when
compared with the service based companies
 The work of development plays a major role in the product based companies but the
same is not possible in the case of service based companies.
 In the product based companies, one is allowed to learn new technologies and apply
own creativity so as to develop new products but this is not so in the service based
companies. In the service based companies, the existing technologies have to be used
and managed accordingly.
 The product based companies are able to allow more increments to the customers due
to longer product cycle and small number of employees. Keeping in mind the size of
the team, the delivery of the dependency is much high and this helps in finding the
replacements costlier.
 These companies are able to drive the process on one hand and drive innovation on
the other. These companies are ready invest money even in these processes
Answer 6:
The following are the desired calculations:
A
Let the total cost of Personnel Department including cost
allocated from Computing Department be "P"
Let the total cost of Computing Department including cost
allocated from Personnel Department be "C"
The cost of Personnel department will have allocated cost of
Computing Department which is allocated in the ratio of Service
Hours, i.e. Personnel Department will have 1/5th of total cost of
Computing Department
Similarly, the cost of Computing department will have allocated
cost of Personnel Department which is allocated in the ratio of

MANAGEMENT ACCOUNTING 12
number of Employees, i.e. Computing Department will have
1/11th of total cost of Personnel Department
Mathematically, equations are as under:
P = 40000 + C*1/5
Eq
ua
tio
n
1
C = 72000 + P*1/11
Eq
ua
tio
n
2
Multiply equation 1 by 1/11
P*1/11 = 40000*1/11 + C*1/55
Eq
ua
tio
n
3
Rearrange equation 2
- P*1/11 = 72000 - C
Eq
ua
tio
n
4
Add: Equation 3 & 4
C - C*1/55 = 72000+40000*1/11
This gives us C =
77
03
7.
04
Putting this value of C in equation 1 gives us P
55
40
7.
41
i.e Total Cost allocated out of Personnel Department
(rounded) $ 55407
B
Total Support Department Cost allocated to Assembly
Department
$ R $

MANAGEMENT ACCOUNTING 13
ati
o
Personnel Department Cost
55
40
7
25
/4
5
3
0
7
8
2
Computing Department Cost
77
03
7
8/
25
2
4
6
5
2
5
5
4
3
4
Answer 7:
The following are the disadvantages:
 The implementation of activity based costing needs the use of major resources of the
company. Even after the same has been implemented, an increased amount of
resources are required since there are many data collections that have to be checked
and fed into the system (Kaplan, 2019).
 The data produced by the activity based costing system produces a wide variety if
product margins and reports that do not conform to the generally accepted principles
of accounting. But since the managers are used to consider this old method of costing,
they still use it for the purposes of evaluating the performance of the companies and
of the products (Accounting explanation, 2019).

MANAGEMENT ACCOUNTING 14
References:
Accountingexplanation.com. (2019). Advantages, Disadvantages and Limitations of Activity
Based Costing (ABC) System - AccountingExplanation.com. [online] Available at:
http://www.accountingexplanation.com/advantages_disadvantages_and_limitations_of_activi
ty_based_costing.htm [Accessed 6 May 2019].
Smallbusiness.chron.com. (2019). Five Differences Between Service and Manufacturing
Organizations. [online] Available at: https://smallbusiness.chron.com/five-differences-
between-service-manufacturing-organizations-19073.html [Accessed 6 May 2019].
Kfknowledgebank.kaplan.co.uk. (2019). ABC. [online] Available at:
http://kfknowledgebank.kaplan.co.uk/KFKB/Wiki%20Pages/Activity%20Based%20Costing
%20(ABC).aspx [Accessed 7 May 2019].
O’Reilly | Safari. (2019). Operations Management: An Integrated Approach, 5th Edition.
[online] Available at:
https://www.oreilly.com/library/view/operations-management-an/9781118122679/ch1-
sec006.html [Accessed 7 May 2019].