Management Accounting Assignment Analysis and Solutions - Finance

This document provides a comprehensive solution to a management accounting assignment, addressing key concepts such as cost analysis, journal entries, and variance calculations. The solution includes detailed computations for total incurred costs, along with journal entries for various costs in different departments. It also offers variance analysis, determining favorable and unfavorable variances for material price, material quantity, labor rate, and direct labor consumption. The assignment further analyzes a juice corner's financial performance, focusing on incremental costs and benefits, and concludes with a production planning problem, determining the optimal production mix to maximize profit given machine hour constraints, including contribution margin calculations for different products. The solution references several financial management and cost accounting texts to support its analysis.

MANAGEMENT ACCOUNTING
STUDENT ID:
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Question 1
a) For the computation of total incurred cost, the respective costs in the two departments
ought to be computed as carried out below.
Unit bottle cost for the company = (Total production costs/Total production quantity) =
(192000/160000) = $ 1.2
b) The journal entries for the various costs in the two departments can be recorded as
highlighted below

Question 2
The specified variances have to be computed on the basis of information provided.
a) The following formula is relevant for the specified variance (Bhimani, Horngren, Datar &
Foster,2017).
Considering the fact that the actual material price was higher than the standard material price,
thus the given variance would be termed as unfavourable.
b) The following formula is relevant for the specified variance (Damodaran, 2015).
It is noteworthy that the higher actual quantity of material has been consumer than the
standard quantity and thus the given variance would be termed as unfavourable.
c) The following formula is relevant for the specified variance (Drury, 2016).

It is noteworthy the labour rate actually charged is higher than the expected rate of labour and
thus the given variance would be termed as unfavourable.
d) The following formula is relevant for the specified variance (Parrino & Kidwell, 2014).
It is apparent that the consumption of direct labour is actuality has been lower than envisaged
based on the information provided and thus the given variance would be termed as
favourable.
Question 3
a) The analysis that has been conducted by Sam is incorrect as analysis also encompasses
certain costs that would not be labelled as incremental cost and are not directly or indirectly
related to the operating of the juice corner. For conducting a financial analysis of the juice
business, it is of utmost importance to focus only on the incremental benefits and costs
related to the juice corner operations (Petty et. al., 2015).
b) The necessary analysis of the financial performance of the given juice corner operations is
indicated as follows

The following items have not been considered.
 Building Depreciation – The depreciation of the building does not get altered by the
setting up of the juice corner and hence this is not incremental cost.
 Manager Salary – The manager has not been hired after the setting of the juice
business and existed before the juice business. Also, no incremental salary is given to
the manager for supervision of juice business and hence this is not incremental cost.
Question 4
(a) Based on the information provided and the fact that fixed manufacturing overhead is
applied at $ 20 per hour, the variable manufacturing overhead per unit can be computed from
the total manufacturing overhead. This is required so that the contribution margin for each of
the products may be determined as it is an accurate representation of the profitability as the
fixed expenses for both the products is same (Parrino & Kidwell, 2014). The contribution
margin computation for each of the two products is as shown below.
It is apparent that Deluxe product has $48 as the contribution margin which exceeds the
corresponding contribution margin of Standard product and hence Deluxe product has higher
profitability (Petty et. al., 2015).
(b) As there is constraint of machine hours availability, hence the production ought to be
carried out so as to ensure maximum production of product which produces higher profit per
unit machine hour. This comparison is carried out below.

From the above, it is evident that company would maximise the production of standard
product and would entertain deluxe product only if machine hours are left.
Total demand of standard model = 40,000 units
Usage of machine hours for fulfilling above demand =4 0000*1 =- 40000 hours
Machine hours remaining after fulfilling complete demand for standard model = 60000-
40000 – 20,000 hours
Thus, production of deluxe model = 20000/2 = 10,000 units
From the above, it is evident that profits of the company would be maximised if it produces
40,000 units of standard model and 10,000 unit of deluxe model in June.

References
Bhimani, A., Horngren, C.T., Datar, S.M. & Foster, G. (2017), Management and Cost
Accounting 4th ed. Harlow: Prentice Hall/Financial Times
Brealey, R. A., Myers, S. C. & Allen, F. (2014) Principles of corporate finance, 6th ed. New
York: McGraw-Hill Publications
Damodaran, A. (2015). Applied corporate finance: A user’s manual 3rd ed. New York:
Wiley, John & Sons.
Drury, C. (2016) Cost and Management Accounting: An Introduction. 6th ed. New York:
Cengage Learning
Parrino, R. & Kidwell, D. (2014) Fundamentals of Corporate Finance, 3rd ed. London:
Wiley Publications
Petty, J.W., Titman, S., Keown, A., Martin, J.D., Martin, P., Burrow, M. & Nguyen, H. (2015).
Financial Management, Principles and Applications, 6th ed.. NSW: Pearson Education,
French Forest Australia