Deakin Uni MAA262 Management Accounting Assignment Solution 2018

This assignment solution addresses key aspects of management accounting, including error correction in financial statements, cost of goods manufactured, and income statement preparation for Twister Pty Ltd. It covers the allocation of various expenses, depreciation calculations, and provides a profitability analysis. The solution also discusses the financial viability of the company, focusing on securing an overdraft facility and ethical considerations related to raw material sourcing. The document includes detailed workings for cost of goods sold, administrative expenses, and selling & distribution expenses. It emphasizes the importance of maintaining quality and ethical standards in business operations. Desklib offers a range of similar solved assignments and past papers to aid students in their studies.

Management Accounting
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Solution 1:
Part a.
Item Error Correction
Wages for factory
staff directly involved
in making the gym
equipment
These expenses are in the
nature of capital
expenses and should not
be debited to income
statement
Installation expenses should be
capitalised with the asset
Rent & Production
managers salary
Expenses have not been
allocated to their
respective heads
Expenses which have been jointly
incurred should be proportionately
distributed among various departments
Factory Equipment,
Office Equipment and
Sales Managers
Vehicle
These expenses are in the
nature of capital
expenses and should not
be debited to income
statement
These are assets purchased and should
be shown in the balance sheet at the
depreciated values
Closing stock of raw
material, work in
progress and finished
goods
No Adjustment in the
income statement made
The stock of these assets will be used in
the next year. The amount of such
closing stocks should be deducted from
the income statement and shown in the
balance sheet
Depreciation No Adjustment in the
income statement made
Depreciation for the assets should be
charged to the income statement and the
asset should be shown at the reduced
value in the balance sheet.
Gas The amount paid for gas
has not been included in
the income statement
The amount paid for gas should be
reported under appropriate head in the
income statement
Note: there is a difference of $6500 in the statement of Pl. this amount has been assumed to
be paid towards gas expenses.
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Part b.
Cost of Goods Manufactured
Particulars Amount Amount
Raw Material Used
Add: Opening Stock -
Add: Purchases of Raw Material 2,60,000
Less: Closing Stock 26,000 2,34,000
Work in Progress
Add: Opening Stock -
Less: Closing Stock 52,000 -52,000
Wages for other factory staff 13,000
Factory Cleaning Cost 6,500
Rent 22,750
Electricity 5,850
Production Managers Salary 26,000
Gas 6,500
Depreciation on Factory
equipment 55,900
Cost of Goods Manufactured 3,18,500
Statement of Income
Particulars Amount Amount
Sales 5,85,000
Less:
Cost of Goods Sold 2,46,500
Administrative Expenses 55,250
Selling and Distribution Expenses 58,500 3,60,250
Profit for the year 2,24,750
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Working Notes:
Cost of Goods Sold
Particulars Amount
Opening Stock of Finished Goods -
Add: Cost of Goods Manufactured 3,18,500
Less: Closing Stock of Finished goods 72,000
Total 2,46,500
Administrative Expenses
Particulars Amount
Purchase of office supplies 13,000
Administrative Wages 13,000
Administrative Expenses 10,400
Depreciation on Office Equipment 2,600
Rent 3,250
administration manager 13,000
Total 55,250
Selling And Distribution Expenses
Particulars Amount
Sale staff salaries 28,600
Advertising 6,500
Rent 6,500
Depreciation on Sales Manager Vehicle 3,900
Sales manager 13,000
Total 58,500
Calculation of Depreciation
Particulars Amount
Factory Equipment- Purchase Cost 1,82,000
Add: Installation Cost- Wages for factory staff directly involved in making
the gym equipment 97,500
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Total Cost 2,79,500
Depreciation 55,900
Office Equipment-Purchase Cost 13,000
Depreciation 2,600
Sales Manager Vehicle- Purchase Cost 19,500
Depreciation 3,900
Allocation of Rent Expense
Particulars Amount
Factory 22,750
Administration 3,250
Selling and distribution department 6,500
Allocation of Production Managers Salary
Particulars Amount
Factory 26,000
Administration 13,000
Selling and distribution department 13,000
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Part c:
Based on the calculation and statement of profit above we can see that Twister Pty ltd has
earned a profit of $ 224750 for the current year. Cam Rollins has started a new business and
initially any new businesses require huge capital investment (Seal, 2012). In the given
scenario we see that the company has invested its major funds in assets and now is in deficit
of cash. In order to avail for overdraft facility Cam needs to convince the bank managers that
the company will be performing well enough to pay back the amount loaned.
Considering the above financial data we can see that the company has been performing well.
In the first year of its existence the company has managed to earn sufficient profits.
Therefore, the bank should extend the overdraft facility to Twister Pty Ltd. while ascertain
the credit rating of the company the bank may also ask for financial statements of the
company. They may also require a forecasted set of financial statement in order to understand
the financial viability of the company (Siciliano, 2015). The company will also be required to
keep a security with the bank, which can be used in case they fail to repay the overdraft
amount. The bank would take a lot of points into consideration before extending the overdraft
facility to the company.
The banks firstly require the credit rating of the company in order to evaluate the financial
viability of the company. These rating are done by financial institutions. Availability of line
of credit is highly dependent on the credit rating of the company. All the past credit history of
the entity is taken into consideration in order to arrive at this credit rating. The bank would
take into consideration the financial statements of the company in order to determine the net
work and profitability of the company they may also require that the financial statements be
audited by a proper accountant (Taillard, 2013). After taking the financial performance of the
company into consideration the bank would ask for sufficient collateral to cover the overdraft
amount. All the assets cannot be used as collateral, only the assets that can be easily
marketable can only be used as collateral. Apart from the collateral the bank may also ask of
personal guarantee from one or more of the owners of the business. They are required to
provide their own financial details in order to avail the credit facility form bank. Apart from
collateral and guarantees bank also considers the personal relation of the client with the bank.
Therefore, the bank should extend the overdraft facility to Twister Pty Ltd as the financial
position of the company is healthy.
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Solution 2:
In the given scenario we see that Cam has been approached by a new supplier who would
supply him the raw material for the factory asset at a very cheap rate. The quality of such raw
material is not as good as that of the current material. The supplier informed Cam that minor
accidents may take place due to poorer quality of the raw material. Even after taking the
compensation for injuries provided to customers the raw material would still be cheaper to
the Cam.
Taking the above data into consideration we are of the view that Cam should not change his
supplier for raw material in order to save. Cam has just set up a new business and it need to
provide quality services to its customers. If they fail to provide proper quality services to the
customers then it will harm the financial position of the company in the long run. Using the
cheap quality material in his factory will increase the chances of injury to its customers.
Though the supplier said the injuries which occur are minor, the customers will not want to
refer the services to any other people. Also, in case if any customer is dissatisfied or harmed
with any of the product, they may file a legal suit in the court of law (Girard, 2014). This may
hamper the goodwill of the business and will definitely cast too much financial burden on the
company.
The quality of the services to be provided should never be compromised with. Maintaining
the work and quality will help grow the business in future. It will also help them expand and
create a reputation for the brand name (Lerner, 2009). Also, using a low grade product to
provide services may be against the regulatory norms. In case the regulatory authority comes
across such information then it may land the bunnies in hot waters. This will result in os of
reputation and fines and penalties. The company needs to provide good quality services in
order to maintain the reputation of the business. Customer satisfaction should be the major
aim for the newly established business (McLaney & Adril, 2016). Also we see that company
has been earning sufficient profits. There is no need for the company to cut back on any of
the expenses. So they should not use low quality materials.
Therefore we see that in order for the company to maintain its reputation and goodwill, and
also for them to avoid any legal and regulatory fines and penalties they should not switch to
lower quality raw materials (Piper, 2015). Trying to save a dollar on raw material may cost
them lots in order to cover for the losses incurred due to them. Hence, the company should
not switch to lower quality products in order to save money.
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References
Girard, S. L. (2014). Business finance basics. Pompton Plains, NJ: Career Press.
Lerner, J. J. (2009). Schaum's outline of principles of accounting. New York: Schaum.
McLaney, E., & Adril, D. P. (2016). Accounting and Finance: An Introduction. United
Kingdom: Pearson.
Piper, M. (2015). Accounting made simple. United States: CreateSpace Pub.
Seal, W. (2012). Management accounting. Maidenhead: McGraw-Hill Higher Education.
Siciliano, G. (2015). Finance for Nonfinancial Managers. New York: McGraw-Hill.
Taillard, M. (2013). Corporate finance for dummies. Hoboken, N.J.: Wiley.
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