Management Accounting Techniques and Planning Tools

Report

Table of Contents
Task 2...............................................................................................................................................3
P3 Cost calculation......................................................................................................................3
M2 Range of management accounting techniques......................................................................6
P4 Advantages and disadvantages of planning tools...................................................................7
P5. Adaption of management accounting systems......................................................................8
Conclusion.....................................................................................................................................11
References......................................................................................................................................12

Task 2
P3 Cost calculation
Quarter 1 & 2
First we need to calculate product cost per unit:
Quarter 1 Quarter 2
Variable Cost
(78000 × 0.65) 50700 42900
+ Fixed Cost 16000 16000
= Total Product
Cost 66700 58900
÷ Total Units
Produced 78000 66000
= Product Cost Per
Unit 0.85 0.89
The assimilation wage is then calculated using the unit cost. The cost of bids, products sold, and
other costs during that period are calculated using units sold through paid advertising (not
produced units).
Income Statement (Absorption)
Quarter 1 Quarter 2
Sales (66000 × £1/ unit)
6600
0 Sales (74000 × £1/ unit)
7400
0
- COGS (66000 × 0.85)
5610
0 - COGS (74000 × 0.89)
6586
0
Gross Profit
990
0 Gross Profit
814
0
Less: Operating Expenses: Less: Operating Expenses:
Selling & administer.
Expenses 5200 Selling & administer. Expenses 5200
Net Operating Income 470 294

0 0
Note: 1. Selling cost / unit is assumed to be £1/unit.
2. Variable cost/ Unit = Total variable cost/ No. of units produced
= 52000/80000 = £0.65/ unit
3. COGS = Cost of goods sold
Income statement through Variable costing technique:
Quarter 1 Quarter 2
Sales (66000 × £1/unit) 66000 Sales (74000 × £1/unit) 74000
Less: Variable Cost Less: Variable Cost
Cost of Goods Manufacturing
(78000 × 0.65)
50700
Cost of Goods Manufacturing
(66000 × 0.65)
42900
Less: Closing Stock (12000 ×
0.65) 7800
Add: Opening stock (12000 ×
0.65) 7800
Less; Closing Stock (4000 ×
0.65) 2600
Contribution Margin 23100 Contribution Margin 25900
Less Period Expenses Less Period Expenses
Fixed Manufacturing cost 16000 Fixed Manufacturing cost 16000
Fixed Selling and Admin.
Expenses 5200
Fixed Selling and Admin.
Expenses 5200
Net Operating income 1900 Net Operating income 4700
Interpretation:Total production is multiplied by variable cost per unit (£0.65/Unit) to get the cost
of products manufactured. Manufacturing costs are an expense, thus they must be deducted from
sales revenue. Closing stock, on the other hand, is deducted from total variable cost because it
has not been sold and should not be deducted from revenue.
Difference between absorption and variable approaches for computing profit and loss or income
statement: