The Institute of Management Accountants

Running head: MANAGEMENT ACCOUNTING
Management Accounting
Name of the Student
Name of the University
Author Note

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MANAGEMENT ACCOUNTING
Table of Contents
Answer to Question 1...................................................................................................................2
Answer to Question 2...................................................................................................................2
Answer to Question 3...................................................................................................................6
Answer to Question 4...................................................................................................................9
Answer to Question 5.................................................................................................................10
Answer to Question 6.................................................................................................................12
Bibliography...............................................................................................................................14

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Answer to Question 1
The main standard which is being jeopardised, as provided by the Institute of
Management Accountants (IMA) is that of competence. It states that the members of IMA
should maintain an appropriate level of professional leadership by enhancing their knowledge
and skills. They should also perform their professional duties in accordance with the relevant
laws, regulations and technical standards. However, in the given situation Bjorn does not have
any necessary skills or qualifications required for performing the role of a management
accountant. As the person being hired by Anni-Frid and Benny does not have the required
professional knowledge, it cannot be expected that they will be able to expand their knowledge
or skills. Similarly, they will also not be able to perform their professional duties with relevant
laws, regulations or technical standards. It also cannot be expected that they would be able to
identify any risk or manage it appropriately. Hence, as the person lacks any of the professional
competencies required to become a Management Accountant, it can be said that the ethical
standard of competence is being violated in this regard.
Answer to Question 2
a) Fixed costs are the ones which remain the same irrespective of the level of production
undertaken by the entity. They continue to remain the same for every year and are to be
paid irrespective of whether a business undertakes any activity. In this case, the fixed
costs incurred by Stylish Chairs are as follows:
Rent of Administrative Offices in CBD and Dandenong
Cost of handling bureaucracy
Miscellaneous costs of administrative office
Salary of supervisor in Dandenong

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Administrative costs of warehouse
The variable costs incurred by an entity are the ones which are incurred by an entity on
the basis of the change in the level of production incurred by it. Some of the variable
costs are as follows:
Sales Commission
Invoicing Costs
Material Costs
Costs of labour including carpenter and
assembler
Mixed Costs are the ones which are neither completely fixed nor completely
variable in nature and vary between the two. In this case, the quarterly delivery costs of
the products can be classified as being mixed in nature.
Direct Costs are the ones which are identifiable directly with the costs incurred by the
business whereas indirect costs are the ones which may not be directly identified with the
cost of the goods manufactured by the entity. In this case, the direct and indirect costs are
identified as follows:
Direct Costs Indirect Costs
Sales Commission CBD Bureaucracy
Invoicing costs Administrative office rent
Supervisor salary Miscellaneous costs of administrative

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office
Delivery Costs
Material costs
Labour costs
The product costs are the costs which can be directly associated with the products
produced by the entity while period costs are those which are associated with the passage
of time. In the given case, the costs can be classified as follows:
Product Costs Period Costs
Sales Commission Administrative Rent of offices
Invoicing Charges Bureaucracy costs
Material Costs Miscellaneous Costs
Wages Salary of supervising staff
Assembling and Varnishing Costs Delivery Costs
b)
Particulars Formula Amount
Variable Cost
per unit
Highest Activity Cost - Lowest Activity Cost/Highest Activity
Units - Lowest Cost Units
2
Fixed Cost Highest Activity Cost -(Variable Cost per unit*Highest
Activity Units)
100

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From the above cost, it is evident that the variable delivery cost per unit is $2 per unit
while the fixed delivery costs of the business are $100. Hence, the fixed costs remain constant
while the variable costs incurred by the business change on the basis of the level of delivery
undertaken by the entity.
c)
Particulars Amount
Direct Materials:
Fabric 3000
Timber 36000
Foam 150
Button stud 450
Varnish 10000
Bolt 500
Direct Labour:
Woodworking 87500
Assembling 12500
Varnishing 35000
Overhead Costs:
Sales Commission 35000

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Invoivcing costs 500
Leasing costs 4000
Supervisor salary 80000
Warehouse costs 5000
Delivery Costs 1400
Total product cost 311000
Unit Product cost 622
Answer to Question 3
a) In the given case, the total costs are calculated on the basis of the variable income
statement. Here, the variable costs are incurred on the basis of the level of production
whereas the fixed costs are allocated separately and deducted from the contribution
incurred by the business to calculate the net operating income.
Variable Costing Income Statement
Particulars Amount Amount
Sales 500000
Less: Cost of Goods Sold
Direct Materials 50100
Direct Labour 135000

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Variable Overheads 36500
221600
Contribution 278400
Less: Period Expenses
Fixed Manufacturing Costs
Leasing costs 4000
Supervisor salary 80000
Warehouse costs 5000
Delivery Costs 400 89400
Fixed Marketing and Administrative
Expenses
Office Rent 54000
Administrative staff salary 100000 154000
Net Operating Income 35000
b) In case of absorption costing, the manufacturing related costs are allocated to the
products on the basis of the costs incurred by the business. The fixed and variable
administrative costs are however, charged in the same manner in which they are incurred.
Hence, this becomes the basis for calculating the profits earned by the business in a given
financial year.
Absorption Costing Income Statement

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Particulars Amount Amount
Sales 500000
Cost of Goods Sold
Variable manufacturing costs 221600
Fixed Manufacturing Costs 89400 311000
Gross Profit 189000
Operating Expenses:
Variable Overheads -
Fixed Marketing Costs 154000
Operating Profit 35000

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Answer to Question 4
a)
Job Cost Sheet
Particulars Amount Amount
Material Costs
Fabric 120
Timber 1440
Foam 6
Button stud 18
Varnish 400
Bolt 20
2004
Direct Wages:
Woodworking 3500
Assembling 500
Varnishing 1400
Prime Cost 5400
Manufacturing Overhead
Sales Costs 1400
Invoicing Costs 20
Warehouse costs 167 1587

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Total Costs under Job
Costing
8991
b) In a direct allocation method, the overhead costs are allocated on the basis of all the
services provided to a production department. Any services which are provided by a
service department to another service department are disregarded and thus this method of
allocation becomes an extremely simple manner of allocating the overheads. In the given
situation, the costs incurred in producing the standard quantity of goods is highest in case
of woodworking. This is higher for woodworking when compared to assembling and
vanishing. Hence, any overheads which are allocated on the basis of the direct labour
hours will be allocated at the highest for the activity which consumes most of the
expenditure. This is also because the allocation is done on a proportionate basis. Hence,
any manufacturing overheads which are allocated by the business are highest in case of
woodworking.
Answer to Question 5
In this case, the decision to sell or further develop a product depends on the level of
profits earned from it in the current situation. If the operating profits exceed the previously
existing profits, then the product should be sold. If they do not exceed the profits, then the
decision should be made to further refine the product and make it increasingly cheaper to
produce. The calculation below suggests the variable costing operating income that can be
earned with the help of the product.

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Particulars Amount Amount
Sales 625000
Less: Cost of Goods Sold
Direct Materials 70100
Direct Labour 170000
Variable Overheads 36500
263100
Contribution 361900
Less: Period Expenses
Fixed Manufacturing Costs
Leasing costs 4000
Supervisor salary 80000
Warehouse costs 5000
Delivery Costs 400 89400
Fixed Marketing and Administrative
Expenses
Office Rent 54000
Administrative staff salary 100000 154000
Net Operating Income 105000
In the above case, the new variable income statement is calculated on the basis of the
change in the rate of overheads and the changes occurring in the cost of direct material used in
production. It is evident that the sale price along with the direct costs involved in the

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manufacture of products have increased significantly. However, in order to understand the
viability of the new product, the new income statement is prepared in accordance with the
changed costs and income. An analysis of the available information along these lines suggests
that the net operating income of the business has gone up to $105000. Hence, as producing the
new product is generating more returns for the business, the business will be better off by
producing the new product. The production of this particular product should be undertaken at a
large scale as long as the fixed costs remain under control.
Answer to Question 6
a) This statement of Bjorn is correct. This is because the unit cost of a product is calculated
by dividing the total cost of production with the total number of units manufactured by
the business. Hence, as the denominator continues to increase, the overall calculated
value will decrease. This is when the fixed costs which were incurred in the last year also
continue to remain the same in the current year. Even though the basis of apportionment
of the fixed overheads may change, the costs incurred tend to remain the same. When the
overall costs are calculated on the basis of traditional cost of manufacturing, then the
fixed costs remains the same. When calculated, this would bring down the cost incurred
per unit. Even when the absorption costing method is used, the costs incurred per unit
would come down by a significant amount. This is because the fixed costs also change
with the level of production. An increased level of production would reduce the total
costs. Hence, it can be said that the overall unit cost of production would decrease
because the fixed costs remain the same and there are no significant changes in the direct
costs incurred by the business.

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b) In this situation, the statement of Bjorn is wrong. This is because there arise situations
when the new businesses established by an entity find it difficult to allocate the indirect
costs incurred by them. This is particularly in case of the indirect or overhead costs
incurred by an entity. In the absorption costing method, allocation of overheads happens
on the basis of the different drivers determining the overhead costs incurred by the entity.
Hence, if the company is able to achieve more production than the budgeted production,
it can be said that there is an over allocation of overhead costs. However, if the company
is producing below the budgeted level of production, it can be said that the business is not
producing sufficient level of output for the amount of indirect costs available with it. This
would result in an under allocation of the overheads. In the given case, the company is
producing only 500 units whereas the budgeted production was 600 units. Hence, the
entity is clearly not able to use the overheads available with it in an efficient manner and
there is an under allocation of the indirect costs available with it.

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Bibliography
Collis, J. and Hussey, R., 2017. Cost and management accounting. Macmillan International
Higher Education.
Imanet.org. (2020). [online] Available at: https://www.imanet.org/career-resources/ethics-center?
ssopc=1 [Accessed 4 Apr. 2020].
Mueller, D., 2018. The usability and suitability of allocation schemes for corporate cost
accounting. In Game Theory in Management Accounting (pp. 401-427). Springer, Cham.