Management Accounting

MANAGEMENT
ACCOUNTING

CONTENT
• Cost using techniques and cost analysis to produce income statement using marginal & absorption
costs
• Income statement under absorption costing

Cost using techniques and cost analysis to produce
income statement using marginal & absorption costs
3
Activity April May
Variable Manufacturing cost per unit 4 4
Fixed Manufacturing Overhead per unit 6 5
Total 10 9
Preparation of income statements:
Cost per unit under absorption costing-

Income statement under absorption
costing
4
Particulars April May
Sales 16000 16000
Less: Cost of sales 20000 23000
Fixed Manufacturing Overhead 15000 15000
Variable Manufacturing cost 10000 12000
Closing stock 5000 9000
Opening stock 0 5000
Gross loss -4000 -7000
Less: Fixed Non Manufacturing Cost -4000 -4000
Net Loss -8000 -11000

Cost per unit under absorption costing
5
Activity April May
Variable Manufacturing cost per unit 4 4
Particulars April May
Sales 16000 16000
Less: Marginal cost of sales 8000 10000
Variable Manufacturing cost 10000 12000
Closing stock 2000 4000
Opening stock 0 2000
Contribution 8000 6000
Less: Fixed Manufacturing Overhead 15000 15000
Less: Fixed Non Manufacturing Cost 4000 4000
Net Loss -11000 -13000

Reconciliation Statement
6
Particulars April May
Net loss under absorption costing -8000 -11000
Less: Closing stock -3000 -2000
Net loss under marginal costing -11000 -13000

Identify which costs are fixed and which costs
are variable
FIXED COST
7
Activity Amount
Manager’s Salary 5000
Rent 5000
Insurance 500
Utilities 500
Advertising cost 1000
£ 12000

VARIBALE COST
8
Activity Amount
Direct material costs per Pizza 3.50
Direct labour costs per Pizza 1.50
Direct overhead costs per Pizza 0.50
£ 5.50

Show the Break-even point using a Break-even
graph
BEP (In units): Fixed cost / contribution per unit
Contribution per unit: Selling Price - Variable cost per unit
= 9.50 - 5.50
= 4.00
BEP: 12000 / 4
= 3000 Units
BEP (In revenues): Fixed cost / PV ratio
PV ratio: Contribution / selling price* 100
= 4/ 9.50*100
= 42.10 %
BEP (In revenues) = 12000 / 42.10 %
= £ 28503
9

Preparation of graph
10
Activity Amount
Total Costs (12000+55000) 67000
Revenues per Unit (95000-67000)/10000 2.8 Per unit
Total Fixed Cost 12000
BEP point 28503

GRAPH
11

Flexible budget
12
Items Actual Budgeted Variance
Sales price 10 9.50 0.50 Fav.
Sales units 12000 10000 2000 Fav.
Revenues 120000 95000 25000 Fav.
Fixed cost 15000 12000 3000 Adv.
Variable cost 5 5.50 0.50 Fav.

13