Comprehensive Solution: Advanced Management Accounting Assignment

This document presents a comprehensive solution to an advanced management accounting assignment. It begins with multiple-choice questions covering key concepts such as policies, value chain management, quality-related activities, and global reporting principles. Section B delves into comprehensive problems, starting with transfer pricing calculations, evaluating profit maximization strategies, and analyzing the implications of transfer prices. The solution also includes calculations for Cool Roof's financial performance, including profit, ROI, residual income, and EVA, along with insightful commentary. Furthermore, the assignment explores various types and sources of business risks, agency costs, and activity-based costing (ABC). The ABC section involves calculating activity cost rates, determining customer profitability, and identifying the least profitable customer, along with recommendations for improvement. The solution provides detailed calculations, analysis, and recommendations to aid in understanding and applying advanced management accounting principles.

Advanced management
accounting

TABLE OF CONTENT
SECTION A: MULTIPLE CHOICE QUESTION....................................................................3
SECTION B: Comprehensive problems......................................................................................5
QUESTION 1.................................................................................................................................5
QUESTION 2.................................................................................................................................6
QUESTION 3.................................................................................................................................8
1...................................................................................................................................................8
2...................................................................................................................................................8
3...................................................................................................................................................8
QUESTION 4.................................................................................................................................9
REFERENCES............................................................................................................................11

SECTION A: MULTIPLE CHOICE QUESTION
1)
b
Policies and procedure are not so specially made in the office of the managers. The main reason
behind this is that overall focus on having the effective decision by both managers and
supervisors.
2)
d)
it focuses on the overall procedure of the organization so that effective value chain management
to meet the objective of the business can become possible.
3)
d)
it focuses on then the all the types of the activities mentioned as it is the long term procedure
which improves the processes by focusing on all the areas so that optimum utilization of
resources can be done to offer higher customer satisfaction.
4)
d)
Quality related activity of prevention is done to eliminate the errors and fault possessing units.
It as well pay attention on having the effectual analysis of risk and focuses on having such form
of the design so that standardized products can be offered to customers.
5)
b)
This is not included in the seven guiding principle of global report initiative. The particular
report focuses on having system of interconnected standards so that reliable structured way that
is transparent to stakeholders can be formulated.
6)

d)
The outbound logistic is associated with conducting the activities which can help in delivering
the products to customers. In this procedure, the sustainability activity which is required to be
focused is having proper from of employee safety and conducting reliable handling &
transportation of products.
7)
b)
Monitoring is the solution that is taken into the consideration for the purpose of reducing agency
costs. This is taken into practice for monitoring expenditure by principal to limit any aberrant
activities of agent that helps in declining costs.
8)
a)
The management accountant does not require to have the significant ability to communicate
with external financiers and pay roll team of business. It is basically used for internal parties
and pay roll is management by particular accountant so that management accountant does not
need to do this.
9.
d
Enabler of the value is not the suitable role which is given by the international federation
accountant for the management accounting as associated with having proper collaboration and
coordination with business requirements according to the high quality international standards.
10
b
Higher compensation for executives is promoted by share based compensations o that effectual
performance can be derived through eliminating cash payments to motivate employees.

SECTION B: Comprehensive problems
QUESTION 1
1.
Transfer pricing:
Total cost of pong department =
Material and labour cost + fixed cost + advertising and marketing cost
= $2.10 + $0.80 + $0.75
= $3.65
Selling price charge by pong department = $5.50
So, the profit per bats = $5.50 - $3.65
= $1.85
Transfer price need to charge by ping department from pong department is as follows:
= $1.20 + $1.85 = $3.05
From the above calculation it can be said that it should pay attention on making bats by itself so
that higher profit such as $1.85 per bats can be derived by selling it in the market.
2.
As per the computations it can be seen that the transfer price is equivalent to $ 3.05 that
represents that the pong department should not be considering paying for the ping department. It
is because if this is done than the profits of the company will be equivalent to zero. Hence it is
not advisory for the particular unit to change its transfer price.
3.
The answer will not change in the case the ping department does not operate at its full efficiency.
Because of the reason that the per unit price remains the same. Alternatively the transfer price
should be $ 2.20 per kilo.

QUESTION 2
1.
Cool Roof’s profit for the year
Particulars Calculation Amount ($)
Sales 320000
Less Variable costs 95000
Contribution 225000
Less Fixed costs 60000
Less overheads allocated 25000
Total 85000
Operating profit 140000
Less finance cost $1125000 * 11.30% 127125
Income before tax 12875
Less Tax 12875 * 30% 3862.5
Net income 9012.5
2. Calculation of ROI of Cool Roof’s
Formula of Return on Investment (ROI) = Net income / Cost of investment * 100
= $9012.5 / $280000 * 100
= 3.21%
The cost of the investment for the particular case can be identified as as the non of the current
assets of the significant organization is long term investment.
Comment: Comment: from the assessment it can be identified that the Cool Roof organization
is require to pay 14% for the obtained money from the outside. In addition that the firm will
received 50% of the money they have invested as the return obtained from the investment is
3.21%. the cost of the capital is higher than return on investment which shows that company
performance is poor which helps in recognizing that will not be able to recover its cost of capital.

3. Calculation of residual income of Cool Roof company
Formula of residual income = Operating income – (target profit margin * average total assets)
= $140000– (12% * $223776)
= $113146.88
Assets turnover ratio = Net sales / average total assets
1.43 = $320000 / average total assets
Average total assets = $320000 / 1.43
= $223776
Comment:
It is recognized from the calculation that net income is lower than the residual income which
shows that its profit after covering all the expenses $113146.88.
4. EVA
Formula of economic value added =
Net operating profit after tax – (WACC * capital invested)
= $101862.5 – (11.30% * $1125000)
s
-25262.5
Calculation of net operating profit after tax
= operating profit – adjusted tax charges
= $140000 – (127125 * 30%)
= $101862.5
Comment: economic value added of Cool Roof company is -25262.5 that is depicting that it will
be able to get higher profit then cost of the capital.

QUESTION 3
1.
Types and Sources of Risks with Examples
Inventory Damage - the sources of this type of risks are natural events such as disasters which
have the potential to affect both the wholesale and retail business of the firm by causing damages
to the goods that are stored into the warehouses. The other impacts of natural calamities are that
they create frequent power outages which further leads to the deterioration of the products that
are stored and perishable. The entire supply chain gets disrupted.
Failure in monitoring the competitors - The next type of risk to with the business is exposed to is
the risk of not being able to monitor the activities of the competitors. The result of this
phenomenon is clear which is the inability to retain or attract the customers and losing them.
This puts the business into the long term disadvantages. For example the competitor of the
business made its products available through online means which helped the competitor to offer
the products at lower prices because of lower operating costs can be a major loss for the concern.
2.
Issues that may be faced
Employee Attitudes - The issue in doing this is that the employees doing hard work for the bonus
might get the feeling of not doing well as their efforts will cause benefits to even those
employees that are not even that hard working and in fact lazy. The bonus is given as the
percentage of sales and all the employees are benefit ted with it irrespective of their contribution
(Blythe, Gray and Collins, 2020).
Performance Factors - Motivating employees through such a system only advantage employees if
they are able to fetch the deal hence the employees gets the feeling that if in spite of all their
efforts the deal is not achieved then they will not get any returns. Hence their performance gets
impacted.
3.
Three types of Agency Costs
Monitoring costs - it is one of the direct agency costs, monitoring costs are the costs that are
incurred in monitoring of the business by its board of directors. These costs are lower when the
management of the company put together its benefits with that of the shareholders of the
company. The example is the employee stock option plan (Hopkins and Maslen, 2019).
Bonding Costs - This refers to the direct agency costs that are incurred as a result of creation
contractual obligations between the agent and the company. The example is manager working for
the company even if the company is acquired.
Indirect Agency Costs - The expenses that are incurred as a result of the losing of opportunity
are classified as the indirect agency costs. An example of this is a project for the Garden Express
that is good for the progress and growth of the company but can ultimately result in losing of the

job of the management. So it is decided that the opportunity will be left and the cost of this will
be huge losses to the entity.
QUESTION 4
1.
activity cost rate of each of the activities:
Activity Allocation formula Activity cost rate
Processing of order $150000 / 640 orders $234.375 per order
Deliveries $250000 / 560 deliveries $466.428 per deliveries
Administration cost $75000 / 640 orders $117.187 per order
Marketing expenses $70000 / 65 sales visit $1076.923 per sales visit
2. activity cost for each of the customers
Activity Fluffy Sooty Pooch
Processing of order
$234.375 per order
$234.375 * 400 =
$93750
$234.375 * 150 =
$35156
$234.375 * 90 =
$21094
Deliveries $466.428
per deliveries
$466.428 * 500 =
$233214
$466.428 * 40 =
$18657
$466.428 * 20 =
$9329
Administration cost
$117.187 per order
$117.187 * 400 =
$46875
$117.187 * 150 =
$17578
$117.187 * 90 =
$10547
Marketing expenses
$1076.923 per sales
visit
$1076.923 * 40 =
$43077
$1076.923 * 15 =
$16154
$1076.923 * 10 =
$10769
Total cost assigned $416916 $87545 $51739
3.
Profit of each of the customer are as follows:
ABC technique using for
customer profitability analysis
Fluffy Sooty Pooch
Sales $1200000 $450000 $575000
Less cost of sales 900000 350000 450000
Gross Profit $300000 $100000 $125000

Less activity costs allocated $416916 $ 87545 $51739
(refer subsection 2)
Contribution ($116916) ($12455) ($73261)
4.
From the calculation it can be said that the Pooch is the least profitable customer for the
particular business. The two reasons for its lower profitability are that the customer purchases
low level of materials. And the second reason is that cost of sales are higher as compared to other
customers.
5.
 It is suggested to pat attention on having the effectual form of the procedure fro
identifying the irrelevant aspects which can reduce the profitability so that effective form
of the growth and development can be derived
 This is recommended to focus on having optimum utilization of resource so that good
ability to reduce cost to incline profitable can become possible.
 It is advised to particular frim to emphasize on having reliable execution of having proper
schedule for executing activities to get appropriate managing of actions to get greater
performance.

REFERENCES
Books and Journals
Blythe, J.M., Gray, A. and Collins, E., 2020, July. Human Cyber Risk Management by Security
Awareness Professionals: Carrots or Sticks to Drive Behaviour Change?.
In International Conference on Human-Computer Interaction (pp. 76-91). Springer,
Cham.
Hopkins, A. and Maslen, S., 2019. Risky rewards: How company bonuses affect safety. CRC
Press.
Gascón, Santiago, 2022. "Value conflict, lack of rewards, and sense of community as
psychosocial risk factors of burnout in communication professionals (press, radio, and
television)." International Journal of Environmental Research and Public Health 18,
no. 2 (2021): 365.