Managerial Accounting: Budgets, Ratios, Variances, ROI and Residual Income

This article covers various topics in Managerial Accounting such as Budgets, Ratios, Variances, ROI and Residual Income. It includes solved examples and calculations for better understanding.

Running head: MANAGERIAL ACCOUNTING
Managerial Accounting
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
Question 1:.................................................................................................................................3
a) Sales Budget:..........................................................................................................................3
b) Cash receipt Budget:..............................................................................................................3
c) Production Budget:................................................................................................................3
d) Direct Material Budget:.........................................................................................................4
e) Cash disbursements Budget for raw materials purchases:.....................................................4
Question 2:.................................................................................................................................5
a) Computing variable cost ratio and contribution margin ratio:...............................................5
b) Computing breakeven point in units and ringgit:..................................................................5
c) Number of units sold for earning profit of RM30,000:..........................................................6
d) Computing additional profits if sales were RM25,000 more than expected:........................6
e) Computing the margin of safety in units and ringgit:............................................................7
f.i) Expected change in operating income for revised forecast:.................................................7
f.ii) Expected total operating income after revising the sales forecast:.....................................7
Question 3:.................................................................................................................................8
a) Computing the direct material price and quantity variance and direct labour rated and
efficiency variance, while indicating whether the variance is favourable or unfavourable:......8
b) Explaining the main reasons behind the possible reasons for the variances:........................9
Question 4:.................................................................................................................................9
a) Computing the ROI for the most recent years:......................................................................9
b) Indicating whether being a Division Head of Office Products Division the new product line
is accepted or rejected:.............................................................................................................10
c) Indicating whether the general manager is anxious for the office products division to add
the new product line:................................................................................................................10

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d.i) Computing the Office Products Division’s residual income for the most recent year:.....10
d.ii) Indicating whether the new product line is accepted or rejected, as being the Division
Head of Office Products Division:...........................................................................................11
Bibliography:............................................................................................................................12

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Question 1:
a) Sales Budget:
Sales Budget
Jubina Sdn. Bhd. (Jubina) manufactures for 2017
Particulars Q1 Q2 Q3 Q4 Year
Sales in units 2,000 6,000 8,000 4,000 20,000
Sale price 25 25 25 25 25
Total Sales 50,000 150,000 200,000 100,000 500,000
b) Cash receipt Budget:
Cash Receipts Budget
Jubina Sdn. Bhd. (Jubina) manufactures for 2017
Particulars Q1 Q2 Q3 Q4 Year
Sales in units 2,000 6,000 8,000 4,000 20,000
Sale price 25 25 25 25 25
Total Sales 50,000 150,000 200,000 100,000 500,000
Receipts from Q1 30,000 20,000 50,000
Receipts from Q2 90,000 60,000 150,000
Receipts from Q3 120,000 80,000 200,000
Receipts from Q4 60,000 60,000
Total Cash Receipts 30,000 110,000 180,000 140,000 460,000
c) Production Budget:
Production Budget
Jubina Sdn. Bhd. (Jubina) manufactures for 2017
Particulars Q1 Q2 Q3 Q4 Year

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Sales in units 2,000 6,000 8,000 4,000 20,000
Add: Desired ending finished goods 200 600 800 400 2,000
Less: Beginning finished goods units (200) (200) (600) (800) (1,800)
Required units to Produce 2,000 6,400 8,200 3,600 20,200
d) Direct Material Budget:
Direct Material Budget
Jubina Sdn. Bhd. (Jubina) manufactures for 2017
Particulars Q1 Q2 Q3 Q4 Year
Units to be produced 2,000 6,000 8,000 4,000
Direct Material per unit 2 2 2 2
Total Direct Material needed for
production 4,000 12,000 16,000 8,000
Add: desired ending Direct
Materials 1,200 1,600 800 480
Less: beginning Direct Materials (480)
(1,200
)
(1,600
) (800)
Direct Material Purchases 4,720 12,400 15,200 7,680
Cost per pound 5 5 5 5
Cost of Direct Material purchase 23,600 62,000 76,000 38,400
200,00
0
e) Cash disbursements Budget for raw materials purchases:
Cash Disbursements Budget
Jubina Sdn. Bhd. (Jubina) manufactures for 2017
Particulars Q1 Q2 Q3 Q4 Year
Cost of Direct Material
purchase 23,600 62,000 76,000 38,400
Beginning Balance 10,980

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First Quarter Purchase 16,520 7,080
Second Quarter Purchase 43,400 18,600
Third Quarter Purchase 53,200 22,800
Fourth Quarter Purchase 26,880
Total Cash
Disbursements Budget 27,500 50,480 71,800 49,680 199,460
Question 2:
a) Computing variable cost ratio and contribution margin ratio:
Particulars Total RM
Sales (A) 200,000
Total Variable cost (B) 120,000
Variable cost ratio (C=B/A) 60%
Particulars Total RM
Sales (A) 200,000
Total Variable cost (B) 120,000
Contribution margin (C=A-B) 80,000
Contribution ratio (D=C/A) 40%
b) Computing breakeven point in units and ringgit:
Particulars Per Unit RM
Sales (A) 20
Total Variable cost (B) 12
Contribution margin (C=A-B) 8

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Total Fixed cost (D) 64,000
Computing breakeven point in units (E=D/C) 8,000
Computing breakeven point in ringgit
(F=E*A)
160,000
c) Number of units sold for earning profit of RM30,000:
Particulars Value
Sales per Unit RM 20.00
Total Variable cost Unit RM 12.00
Contribution margin Unit RM 8.00
Fixed Cost 64,000.00
Target profit 30,000.00
Units to be sold for earning 30,000 11,750.00
d) Computing additional profits if sales were RM25,000 more than expected:
Particulars Total RM Per Unit
RM
Number of
Units
Sales 200,000
Additional Sales 25,000
Total Sales (A) 225,000 20 11,250
Total Variable cost (B) 135,000 12 11,250
Contribution margin (C=A-B) 90,000
Total Fixed cost 64,000
Operating Income New 26,000

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Operating Income Old 16,000
Additional profit if sales increase by
25,000
10,000
e) Computing the margin of safety in units and ringgit:
Particulars Value
Sales 200,000
Breakeven point in sales 160,000
Margin of safety in ringgit 40,000
Sales price per unit 20
Margin of safety in units 2,000
f.i) Expected change in operating income for revised forecast:
Particulars Total RM
Revised Operating Income 40,000
Operating Income 16,000
Percentage change in
profit
150%
f.ii) Expected total operating income after revising the sales forecast:
Particulars Total RM Per Unit RM
Sales (A) 260,000 20
Total Variable cost (B) 156,000 12
Contribution margin (C=A-B) 104,000
Total Fixed cost (D) 64,000

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Operating Income (E=C-D) 40,000
Question 3:
a) Computing the direct material price and quantity variance and direct labour rated
and efficiency variance, while indicating whether the variance is favourable or
unfavourable:
Particulars Value
Actual unit price of materials (A) 7.30
Standard unit price of materials (B) 7
Actual quantity of materials used
(C)
4,200
Material price variance (D=(A-B)/C) 1,260 unfavourable
Particulars Value
Actual quantity of material used (A) 4,200
Standard quantity of material used (B) 4,000
Standard unit price of material (C) 7
Material Quantity variance (D=(A-
B)*C)
1,400 unfavourable
Particulars Value
Actual Labour rate per hour (A) 18.10
Standard labour rate per hour (B) 18

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Actual number of labour hours worked
(C)
6,450
Labour rate variance (D=(A-B)*C) 645 unfavourable
Particulars Value
Actual number of Labour hours worked (A) 6,450
Standard number of labour hours allowed (B) 6,000
Standard Labour rate per hour (C) 18
Labour efficiency variance (D=(A-B)*C) 8,100 unfavourable
b) Explaining the main reasons behind the possible reasons for the variances:
From the evaluation of the differences, it could be detected that the due to the
presence of higher cost of material purchased by the organisation the unfavourable conditions
appear. In addition, the materials used in the production process also increased from the
standard quantity, which can be seen in the above calculations. Likewise, the difference in
wages per hour paid and the standard rate has indicated the unfavourable variance for the
production process. Lastly, the unfavourable condition in labour efficiency variance indicates
the excessive expenses, which is been spent by the company on labour charges.
Question 4:
a) Computing the ROI for the most recent years:
Particulars Present New Line Total

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Sales 10,00
0
2,000 12,000
Net Operating income 80
0
160 960
Operating assets 4,00
0
1,000 5,000
Margin 8.00% 8.00% 8.00%
Turnover 2.5 2.0 2.4
ROI 20.0% 16.0% 19.2%
b) Indicating whether being a Division Head of Office Products Division the new
product line is accepted or rejected:
The new product line should be rejected, as it will decrease the return on investment
of the organisation by 0.08%. The above calculation relevantly indicates that initially the
organisation is making a 20% ROI, while inclusion of the new product line will decrease the
ROI to 19.2%.
c) Indicating whether the general manager is anxious for the office products division to
add the new product line:
The general manager is anxious, as they anticipate that the inclusion of the new
product line will increase the ROI of the company in total.
d.i) Computing the Office Products Division’s residual income for the most recent year:
Particulars Present New Line Total
Operating assets 4,000 1,000 5,000

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Minimum return required 12% 12% 12%
minimum net operating
income
480 120 600
Actual net operating income 800 160 960
Residual Income 320 40 360
d.ii) Indicating whether the new product line is accepted or rejected, as being the
Division Head of Office Products Division:
From the perspective of residual calculation the inclusion of new product line will be
accepted by the organisation, as the residual income has increased from 320 to 360.

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Bibliography:
Noreen, E. W., Brewer, P. C., & Garrison, R. H. (2014). Managerial accounting for
managers. New York: McGraw-Hill/Irwin.
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2015). Financial & managerial accounting.
John Wiley & Sons.