Management Accounting Report: Cost Analysis and Strategic Decisions

This management accounting report analyzes various aspects of cost accounting and strategic decision-making. It begins with a cost of goods sold schedule and discusses the advantages of Australian dairy products in China, contrasting Chinese and Western approaches to management accounting, and exploring concepts of guanxi and power distance. The report then evaluates a project proposal, using capital budgeting techniques to determine whether to upgrade a production line, considering financial and strategic risks. It also distinguishes between fixed and variable costs, and product and period costs, and the relevance of relevant range. Finally, the report presents a strategic management accounting case study, evaluating the impact of a new strategy on sales volume and return on total assets, followed by an ethics case study, offering recommendations on how to handle a situation involving potentially misleading financial information.

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

1MANAGEMENT ACCOUNTING
Table of Contents
Answer to question 1:.................................................................................................................2
Answer to question 2:.................................................................................................................3
Answer to question 3:.................................................................................................................4
Requirement a:.......................................................................................................................4
Requirement b:.......................................................................................................................6
Requirement c:.......................................................................................................................7
Answer to question 4:.................................................................................................................7
Answer to question 5 (Strategic Management Accounting Case Study):..................................9
Requirement i:........................................................................................................................9
Requirement ii:.......................................................................................................................9
Requirement iii:....................................................................................................................10
References list:.........................................................................................................................12

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Answer to question 1:
Particulars Amount Amount
$ $
Direct Material Consumption:
Purchases of Manufacturing Raw Materials 86,51,500
Add: Freight Inwards 1,00,500
Add: Opening Raw Material Inventory 4,86,000
92,38,000
Less: Closing Raw Material Inventory 7,86,500
Total Direct Material Cost 84,51,500
Direct Labour 43,28,500
PRIME COST 1,27,80,000
Manufacturing Overhead:
Indirect Labour 1, 250,000
Direct Manufacturing Overhead 22,55,500
Other Manufacturing Overhead 8,47,000
Factory Rent 2,50,000
Factory heat,light & power 15,67,500
Total Manufacturing Overhead 49,20,000
TOTAL MANUFACTURING COST 1,77,00,000
Add: Opening WIP Inventory 6,20,000
1,83,20,000
Less: Closing WIP Inventory 11,87,500
COST OF GOODS MANUFACTURED 1,71,32,500
Cost of Goods Manufactured Schedule
for the period ended 31st December 2017
Cost of Goods Sold Schedule
for the period ended 31st December 2017
Particulars
Amoun
t Amount
$ $
Cost of Goods Manufactured
1,71,32,50
0
Add: Opening Finished Stock
Inventory 2,75,500
1,74,08,00
0

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Less: Closing Finished Stock Inventory 7,52,000
COST OF GOOD SOLD
1,66,56,00
0
Particulars Amount Amount
$ $
Sales Revenue 3,57,26,840
Cost of Goods Sold 1,66,56,000
GROSS PROFIT 1,90,70,840
Operating Expenses:
Sales Rep Salary and Commission Costs 33,24,500
Administration Salaries and Costs 8,75,500
Freight Outwards 65,500
Accounting & Audit costs 1,50,000
Sales & Marketing Expenses 8,71,500
Total Operating Expenses 52,87,000
NET OPERATING PROFIT 1,37,83,840
Financing Cost 5,47,500
PROFIT BEFORE TAX 1,32,36,340
Income Tax Expenses 39,70,902
NET PROFIT FOR THE PERIOD 92,65,438
INCOME STATEMENT
for the period ended 31st December 2017
Answer to question 2:
Australian dairy products advantage in China:
Chinese consumers rate the dairy products of Australia highly for safety and quality
and this is particularly important given their role in toddler and baby products. This would
help in expanding the profiles and availability of Australian dairy products. For the
Australian dairy producers, China is becoming the focal point. Broadening demand of dairies
product in China is creating huge transformation in Chinese society and new opportunities for
consumer ready products.

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Differences between Chinese and western approaches to management accounting:
In the West, management accounting is the cost accounting of its predecessor that has
been developed since early 19th century. Development of management accounting is affected
by the factor of management science development. Management accounting in western
culture is the practical application of discipline based on management activities. On other
hand, management accounting application in China is restricted by Chinese culture. For
promoting the wider use of management accounting, cultural factors are also taken into
account.
Concepts of guanxi and power distance:
Power distance is the extent to which the fact is accepted by society that there is
unequal distribution of power. Each person has a rightful place in society if culture has large
power distance. On other hand, people in culture with small power distance try to look
younger and powerful people do not show their power and status. The principle of guanxi is
another Chinese cultural value that reflects the philosophy of Confucianism.
Answer to question 3:
Requirement a:
SALES BUDGET:
Actual
Particulars 2017 2018 2019 2020 2021 2022
Total Budgeted
Sales
Inflation Rate 2.25% 2.25% 2.25% 2.25% 2.25%
Add: Mark-up 2% 2% 2% 2% 2%
Selling Price Growth Rate 4.25% 4.25% 4.25% 4.25% 4.25%
Sales Volume Growth Rate 10% 10% 10% 10% 10%
Sales Units 51850500 57035550 62739105 65000000 65000000 65000000 65000000
Wholesale Price per unit $2.25 $2.35 $2.45 $2.55 $2.66 $2.77
Annual Budgeted Sales $13,40,33,543 $15,37,10,807 $16,57,50,000 $17,29,00,000 $18,00,50,000 $18,00,50,000
Budget

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PRODUCTION BUDGET:
Actual
Particulars 2017 2018 2019 2020 2021 2022
Total Budgeted
Production
Maximum Production
Capacity 65000000 65000000 65000000 65000000 65000000 65000000
Annual Sales Volume 57035550 62739105 65000000 65000000 65000000 314774655
Less: Opening Stock 985000 1096838 1206521 1206521 1206521 985000
56050550 61642267.5 63793479 63793479 63793479 313789655
Add: Closing Stock 1096838 1206521 1206521 1206521 1206521 1206521
Annual Budgeted
Production 57147388 62848789 65000000 65000000 65000000 314996176
Budget
PURCHASE BUDGET:
Actual
Particulars 2017 2018 2019 2020 2021 2022
Total Budgeted
Production
Inflation Rate 2.25% 2.25% 2.25% 2.25% 2.25%
Add: Mark-up 1% 1% 1% 1% 1%
Material Cost Growth Rate 3.25% 3.25% 3.25% 3.25% 3.25%
Budgeted Production
Volume 57147388 62848789 65000000 65000000 65000000 314996176
Raw Material Cost per unit $0.61 $0.62 $0.64 $0.67 $0.69 $0.71
Cost of Raw Material
Required $3,56,97,830 $4,05,35,208 $4,32,85,149 $4,46,91,916 $4,61,44,403 $21,03,54,506
Less: Opening Stock of Raw
Material $12,10,000 $21,97,976 $24,17,261 $25,00,000 $25,00,000 $12,10,000
$3,44,87,830 $3,83,37,232 $4,08,67,887 $4,21,91,916 $4,36,44,403 $20,91,44,506
Add: Closing Stock of Raw
Material $21,97,976 $24,17,261 $25,00,000 $25,00,000 $25,00,000 $25,00,000
Annual Purchase Budget $3,22,89,854 $3,59,19,971 $3,83,67,887 $3,96,91,916 $4,11,44,403 $20,66,44,506
Budget
Cost of Goods
Manufactured Schedule:
Particulars 2017 2018 2019 2020 2021
Production Volume 57147388 62848789 65000000 65000000 65000000
Inflation Rate 2.25% 2.25% 2.25% 2.25% 2.25%
Direct Material Purchased $3,22,89,854 $3,59,19,971 $3,83,67,887 $3,96,91,916 $4,11,44,403
Add: Opening Stock of Raw
Material $12,10,000 $21,97,976 $24,17,261 $25,00,000 $25,00,000
$3,34,99,854 $3,81,17,947 $4,07,85,149 $4,21,91,916 $4,36,44,403
Less: Closing Stock of Raw
Material $21,97,976 $24,17,261 $25,00,000 $25,00,000 $25,00,000
Direct Material Cost $3,13,01,877 $3,57,00,686 $3,82,85,149 $3,96,91,916 $4,11,44,403
Direct Labor Cost $0.080 $0.082 $46,74,656 $0.084 $52,56,704 $0.086 $55,58,957 $0.087 $56,84,033 $0.089 $58,11,924
PRIME COST $3,59,76,533 $4,09,57,390 $4,38,44,105 $4,53,75,949 $4,69,56,327
Manufacturing Overhead $1.458 $1.505 $8,59,99,318 $1.554 $9,76,53,001 $1.604 $10,42,77,858 $1.656 $10,76,66,888 $1.710 $11,11,66,062
Factory Manager Salary $15,00,000 $15,33,750 $15,68,259 $16,03,545 $16,39,625 $16,76,517
Dep'n Factory Plant &
equipment $7,65,000 $7,65,000 $7,65,000 $7,65,000 $7,65,000 $7,65,000
COST OF GOODS
MANUFACTURED $2.175 $12,42,74,601 $2.243 $14,09,43,651 $2.315 $15,04,90,508 $2.391 $15,54,47,462 $2.470 $16,05,63,906
2022

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Particulars 2018 2019 2020 2021 2022 TOTAL
Budgeted Cost of Goods
Manufactured $12,42,74,601 $14,09,43,651 $15,04,90,508 $15,54,47,462 $16,05,63,906 $73,17,20,128
Add: Opening Stock of
Finished Inventory $21,00,000 $23,85,219 $27,05,725 $27,93,385 $28,85,395 $21,00,000
Budgeted Cost of Goods
Available for Sale $12,63,74,601 $14,33,28,870 $15,31,96,233 $15,82,40,847 $16,34,49,301 $73,38,20,128
Less: Closing Stock of
Finished Inventory $23,85,219 $27,05,725 $27,93,385 $28,85,395 $29,80,366 $29,80,366
Budgeted Cost of Goods
Sold $12,39,89,382 $14,06,23,145 $15,04,02,848 $15,53,55,452 $16,04,68,935 $73,08,39,763
Budgeted Schdule of Cost of Goods Sold:
Particulars 2018 2019 2020 2021 2022 TOTAL
Budgeted Sales Revenue $13,40,33,543 $15,37,10,807 $16,57,50,000 $17,29,00,000 $18,00,50,000 $80,64,44,350
Less: Budgeted Cost of
Goods Sold $12,39,89,382 $14,06,23,145 $15,04,02,848 $15,53,55,452 $16,04,68,935 $73,08,39,763
BUDGETED GROSS PROFIT $1,00,44,161 $1,30,87,662 $1,53,47,152 $1,75,44,548 $1,95,81,065 $7,56,04,587
Budgeted Gross Profit:
Requirement b:
Capital Budgeting Analysis:
Particulars 0 1 2 3 4
Upgradation Cost -$50,00,000
Gross Profit for Increased
Capacity $1,30,87,662 $1,64,36,989 $2,08,87,972 $2,50,79,790
Gross Profit for Normal
Capacity $1,30,87,662 $1,53,47,152 $1,75,44,548 $1,95,81,065
Incremental Profit $0 $10,89,837 $33,43,424 $54,98,725
Income Tax Expenses $0 -$3,26,951 -$10,03,027 -$16,49,617
Incremental Operating Cash
Flow $0 $7,62,886 $23,40,397 $38,49,107
Net Incremental Cash Flow -$50,00,000 $0 $7,62,886 $23,40,397 $38,49,107
Cost of Capital 12% 12% 12% 12% 12%
Discounted Cash Flow -$50,00,000 $0 $6,08,168 $16,65,848 $24,46,177
Net Present Value -$2,79,806
IRR 10.12%

7MANAGEMENT ACCOUNTING
Requirement c:
The report is prepared for recommending whether to take up the option of purchasing
the upgrade for increasing the productive capacity. It has been ascertained that the production
capacity of baby formula of Kiewa factory will increase by 25% due to upgrading of
packaging and drying production line. From the computation of budget after increase in
production capacity, it can be seen that forecasted budgeted gross profit of factory is
increasing. However, when applying the technique of capital budgeting analysis, it can be
seen that net present value of project is negative at -$ 279806. Therefore, present value of
future cash flow is negative, hence upgrading of packaging and drying production line should
not be undertaken. Furthermore, the cost of capital or required rate of return for upgrading
packing and production line is 12%. The computed amount of internal rate of return stood at
10.12%. It can be seen internal rate of return is greater than cost of capital indicating that
upgrading of product line should be undertaken. It is also required to consider all the relevant
strategic financial risk associated with the project. It can be seen that actual budgeted gross
profit is increasing year on year, and it is feasible to conduct business without increasing
production constraints. Nevertheless, it is essential to consider all strategic risks and
opportunities when making decision for undertaking the project. When new practice is
involved, one of the particular concerns is operational risks (Schaltegger & Burritt, 2017).
The project has significant cost implications if it has impact on core operations of business or
quality of products.
Answer to question 4:
Distinction between fixed and variable cost:
Fixed cost Variable cost
Fixed cost is the cost that remains fixed Variable cost on other hand is the cost that

8MANAGEMENT ACCOUNTING
irrespective of level of output produced by
organization.
varies with change in level of output.
Fixed cost is the combination of fixed
administrative overhead, fixed production
overhead and fixed selling and distribution
overhead.
Variable cost is the combination of direct
labor, direct material, variable selling and
distribution overhead, variable production
overhead and direct expenses.
Examples of fixed cost involve rent,
depreciation, salary and tax.
Examples of variable cost involve wages,
material consumed, packing expenses and
commission on sales.
Distinction between product and period cost:
Product cost Period cost
Product cost is incurred when the products are
produced or acquired.
Period cost is incurred even when there are no
inventory purchasing or production activities.
Product cost is one of the important components
of manufacturing costs.
Period cost is not necessary part of
manufacturing process.
Relevant range refers to specific level of activities that is bounded by maximum and
minimum amount. Certain cost and revenue level are likely to occur within the designated
boundaries indicated by relevant range. Expenses and revenues are likely to differ from the
expected amount outside that relevant range. Relevant range is regarded as critical qualifier
when allocating and budgeting fixed costs (Eldenburg et al., 2016).

9MANAGEMENT ACCOUNTING
Answer to question 5 (Strategic Management Accounting Case Study):
Requirement i:
i) Analysis of Empire's Group:
Particulars Cost p.u. Amount Amount Cost p.u. Amount Amount
Total Sales Volume 3000000 3900000
Gross Sales Value $15.00 $4,50,00,000 $15.00 $5,85,00,000
Less: Rebate $0.00 $0 $0.80 $31,20,000
Net Sales Value $15.00 $4,50,00,000 $14.20 $5,53,80,000
Prime Costs $5.00 $1,50,00,000 $5.00 $1,95,00,000
Manufacturing Costs:
Fixed $5.58 $1,67,40,000 $4.29 $1,67,40,000
Variable $0.62 $18,60,000 $0.62 $24,18,000
Total Manufacturing Costs $6.20 $1,86,00,000 $4.91 $1,91,58,000
Logistic Costs:
Fixed $1.35 $40,50,000 $1.04 $40,50,000
Variable $0.15 $4,50,000 $0.15 $5,85,000
Total Logistics Costs $1.50 $45,00,000 $1.19 $46,35,000
Total Costs $12.70 $3,81,00,000 $11.10 $4,32,93,000
GROSS PROFIT $2.30 $69,00,000 $3.10 $1,20,87,000
Tootbrush Factory Total Assets $4,00,00,000 $4,00,00,000
ROTA 17.25% 30.22%
Before Strategy Implication After Strategy Implication
Requirement ii:
ii) Analysis of Death Star Manufacturing:
Particulars Cost p.u. Amount Amount Cost p.u. Amount Amount Cost p.u. %
Total Sales Volume 2400000 1725000
Prime Costs $5.00 $1,50,00,000 $5.00 $86,25,000 $0.00 0.00%
Manufacturing Costs:
Fixed $5.58 $1,33,92,000 $7.76 $1,33,92,000 $2.18 39.13%
Variable $0.62 $14,88,000 $0.62 $10,69,500 $0.00 0.00%
Total Manufacturing Costs $6.20 $1,48,80,000 $8.38 $1,44,61,500 $2.18 35.22%
Logistic Costs:
Fixed $1.35 $32,40,000 $1.88 $32,40,000 $0.53 39.13%
Variable $0.15 $3,60,000 $0.15 $2,58,750 $0.00 0.00%
Total Logistics Costs $1.50 $36,00,000 $2.03 $34,98,750 $0.53 35.22%
Total Costs $12.70 $3,34,80,000 $15.41 $2,65,85,250 $2.71 21.35%
Before Strategy Implication After Strategy Implication Increase/(Decrease)

10MANAGEMENT ACCOUNTING
Requirement iii:
The report is prepared outlining the key findings generated from the strategy
undertaken by Empire’s group in context of profit implications and accounting costs. It can
be ascertained from the analysis of strategy implementation that the total sales volume of Star
wars electronic Toothbrush is increasing from 3000000 to 3900000. There has been increase
in total costs incurred from $ 38100000 to $ 43293000. However, gross profit of organization
is increasing from $ 6900000 to 12087000 and thereby indicating a significant increase in
return on total assets to 30.22%.
After the implementation of strategy, reverse impact has been witnessed sales volume
of death star manufacturing. Consequently, there has been fall in total manufacturing cost to $
14461500 as against $ 14880000. Moreover, there is decline in total costs. Therefore, it can
be seen that there is positive impact on sales volume and return on total assets of star war
electronic toothbrush. Hence, it is recommended to strategic committee to go ahead with the
planned changes.
Answer to question 5 (Ethics Case Study):
It would be advised to Burdon to perform objectivity that is expected from
management accountant in relation to obligation for communicating the information correctly
even though such information is not in favor of person requesting it. Therefore, Burdon
should be suggested to highlight the accounting treatment to upper management level.
Burdon is recommended to take following actions:
 It is required by Burdon to determine the fact of situation and identifying the ethical
issue associated with the situation.
 Values related to situation should be identified.

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 Alternative course of actions should be specified
 Possible consequences of each course of actions should be identified

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References list:
Eldenburg, L. G., Wolcott, S. K., Chen, L. H., & Cook, G. (2016). Cost management:
Measuring, monitoring, and motivating performance. Wiley Global Education.
Schaltegger, S., & Burritt, R. (2017). Contemporary environmental accounting: issues,
concepts and practice. Routledge.