MAA262 Management Accounting Individual Assignment Report, 2019

This report presents solutions to a management accounting assignment (MAA262) focusing on financial analysis and decision-making. It begins with a revenue budget for Clear Limited, calculating total revenues based on unit sales and selling prices for different bottle sizes. The report then addresses inventory management, determining the minimum number of bottles to be produced. Further, it analyzes cash collection from sales, providing a breakdown of cash received from debtors over several months. The report also delves into profitability analysis, computing Return on Investment (ROI) and residual income for different divisions. It evaluates whether to process products further, comparing sales values and additional costs. Finally, the report examines variance analysis, calculating direct material and labor variances. The report includes calculations for direct material price and quantity variances, as well as direct labor rate and efficiency variances, highlighting the interrelation of these variances.

Running head: REPORT 0
Management accounting
MAY 9, 2019
student details:

REPORT 1
Answer 1.
1. Revenue Budget for Clear Limited the year ending 31 Dec 2019
Particulars Selling price Units sold Total Revenues
1 Litre Bottle 0.20 38,40,000 7,68,000
15 Litre Containers 1.20 9,60,000 11,52,000
19,20,000
2. Minimum number of 1 litre bottles produced during
2019
Budgeted Unit sales (1 Littre Bottles)
38,40,00
0
Add: Target ending finished goods inventory 4,80,000
Total Requirements
43,20,00
0
less: Finished goods inventory at beginning 7,20,000
Unites to be produced
36,00,00
0
3. Beginning inventory of 15 Litre Containers on 1 January 2019
Budgeted Sales 9,60,000
Add: Target ending inventory 1,60,000
Less: Budgeted Production 10,40,000
Inventory at beginning 80,000
Answer 2
January February March April May
Total sales 50000 40000 35000 24000 50000
Credit sales 40000 32000 28000 19200 40000
cash sales 10000 8000 7000 4800 10000
Collection form sale of may 20000
Collection form sale of April 6720
Collection form sale of march 3500
Cash received from debtors in
May 30220

REPORT 2
Answer 3
a. when the company effectively uses the investment and produces gain, ROI would be higher.
Whereas if the firm unproductively uses the investment and produces loss, ROI would be low.
For investor, selecting the firm with the good return on investment is very essential because the
higher ROI means that the firm is successfully using the investments to produce the higher return. In
the above situation, division trouser is more effective.
b. Computation of residual income for each
division
Particulars Shirts Trouser
Minimum required
ROI 12% 12%
Net operating income 4,50,000 1,00,000
Charge for use of
capital 3,60,000 60,000
residual income 90,000 40,000
particulars Shirts Trouser
Minimum required
ROI 15% 15%
Net operating income 4,50,000 1,00,000
Charge for use of
capital 4,50,000 75,000
residual income - 25,000
Particulars Shirts Trouser
Minimum required
ROI 18% 18%
Net operating income 4,50,000 1,00,000
Charge for use of
capital 5,40,000 90,000
residual income
-
90,000 10,000
c. The trouser department is simply larger than the shirt Division and for this reason alone one will
expect that this will have the great amount of residual income. In fact, based on the data above, the

REPORT 3
trouser Division does not appear to be as well managed as the shirt Division. The trouser Division has
an 20% return on investment as compared to 15% for the shirt Division. It can say that Residual
income cannot be used to compare the performance of divisions of different sizes. Larger divisions
will almost always look better.
Answer 4
Particulars Small shoes Average shoes
Large
shoes
Sales value at the split off point 170000 70000 150000
Sales value if processed further 260000 100000 200000
Additional cost 90000 30000 50000
further processing cost 120000 40000 40000
Difference in cost if further process -30000 -10000 10000
Decision: non-beneficial non-beneficial Beneficial
Answer 5
a. Direct material
variance
(Standard quantity-actual quantity)*selling
price
<=((6500*15)-90000)*10
75000
Direct material price
variance =(actual cost-standard cost)*actual quantity
<=((95000/6000)-10)*90000
525000
b. Direct labour rate
variance =Actual hours*(actual rate-standard rate)
<=9000*((95000/9000)-14.4)
-34600
Direct efficiency variance =(Actual hours-standard hours)*standard rate

REPORT 4
<=((9000-(6500*1.4))*14.4)
-1440
C. There is a relationship between direct labour variances and direct material variances. If it is
supposed that, the lower costing material is purchased to get the favourable materials price
variance. If the materials have some negative attributes, then this is probable that the unfavourable
materials usage variance may result. In a case where the characteristics of material cause additional
labour hours, in that case the unfavourable direct labour efficiency variance would result. Further
when the materials needed extra experienced labour, this is possible that the labour rate variance
would also take place.

REPORT 5