AYB225 Management Accounting Report: Costing Methods and Analysis

This report analyzes the financial performance of T&K Accounting Services, evaluating the impact of an advisory department on profitability. Task A presents an email notification to stakeholders, detailing budget comparisons and profit margins before and after the addition of the advisory department, advocating for its inclusion based on increased profitability and cost segregation. Task B focuses on the costing processes, comparing the current costing method with the ABC costing system. The analysis reveals that ABC costing improves the company's performance by distributing costs and profits more equitably across departments. The report recommends the adoption of ABC costing to enhance overall performance and provides detailed calculations to support its conclusions. The report concludes that ABC costing is a superior method for the company, and proper supervision should be maintained to achieve better profits. This report provides detailed financial analysis and budget comparisons to support its recommendations.

Running head: MANAGEMENT ACCOUNTING
Management Accounting
Name of the Student:
Name of the University:
Author’s Note:

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Table of Contents
Task A..............................................................................................................................................2
Part A:..........................................................................................................................................2
Part B:..........................................................................................................................................2
Part C...........................................................................................................................................2
Task B..............................................................................................................................................5
Part A:..........................................................................................................................................5
Part B:..........................................................................................................................................5
Introduction..............................................................................................................................5
Discussion................................................................................................................................6
Conclusion...............................................................................................................................7
Reference List..................................................................................................................................7

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Task A
Part A:
BUDGET 2019
Taxation Bookkeeping Advisory Total
$ $ $ $
Billable hours 3,520 2,310 3000
Chargeout rate per billable hour 263$ 137$ 280$
Professional labour rate per hour 155$ 67$ 180$
Professional labour hours 4,224 2,772 3,600
Revenue 924,000 315,315 840,000 2,079,315
Professional labour costs 652,608 185,585 648,000 1,486,193
Gross margin 271,392 129,730 192,000 593,122
Office staff wages 56,667 56,667 56,667 170,000
Rent & Utilities 20,833 20,833 20,833 62,500
Printing & stationary 7,500 7,500 7,500 22,500
IT Support 6,600 6,600 6,600 19,800
Advertising 6,667 6,667 6,667 20,000
Depreciation 3,667 3,667 3,667 11,000
Client entertainment costs 27,720 9,459 25,200 62,379
Total Support costs 129,653 111,393 127,133 368,179
Budgeted Profit before tax 141,739 18,337 64,867 224,942
2019 Master Budget for T&K Accounting Services
Part B:
Budget Sensitivity Analysis - Business Advisory Department
Business Advisory
Billable hours
Business Advisory
Revenue
Business Advisory
Labour hours
Business Advisory
Gross Margin
Business Advisory
Support Costs
Business Advisory
Net Profit
Business Advisory
Net Profit % Change
from Master budget
3,000 840,000 3,600 192,000 127,133 64,867 0%
2,700 756,000 3,240 172,800 124,613 48,187 26%
2,400 672,000 2,880 153,600 122,093 31,507 51%
1,800 504,000 2,160 115,200 117,053 1,853- 103%
Part C
To,

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Mr. Thompson and Mr. Chua
T & K Accounting Services,
Brisbane
Australia
To Who It May Concern,
This is to notify you that the analysis that was asked for regarding the inclusion of the advisory
department within the company has been completed and the necessary actions that can be taken
has been explained in this letter. I have gone through the entire case and accordingly have made
certain calculations with the help of which we can understand whether the company will attain
profit or not. The calculations that have been done has been done on the basis of the creating a
budget for the existing departments and creating an estimated budget with the help of the new
departments as well.
Proper and detailed calculations have been done and thereby proper and extensive understanding
can be ascertained. The comparison of the values and the figures is helpful in understanding the
value of the new department. It is seen that the profit for the company before the addition of the
company has been around $160,120 and the cost associated with it has been $223,380. The profit
margin has been moderate and on the other hand the cost has been within the limit as well.
However undertaking an analysis of the new budget explains the fact that the cost of the
company has increased to $368,179 and the estimated profit before tax has been $224,942. This
explains that the profit of the company has drastically increased and the cost of the company
even though has increased but the percentage of rise has been less.

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The analysis therefore explains the fact that the company will gain profit from the addition of the
new department. It is even seen that the addition of the new department will be helpful to the
other departments as well. The burden of the other departments will fall and the overall cost of
the company will be segregated within the all the departments. It can therefore be suggested that
advisory department can be added within the company as this would add in benefits to the
company and the performance of the company will increase as well. Kindly look into the detailed
calculations attached herewith in order to take any further actions.
Regards
Anthony Johnson

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Task B
Part A:
ACT IVIT Y BAS E D COS T ING AL L OCAT ION OF OVE RHE AD COS T S
Activity Total Cost Activity driver Total activity Cost per activity Tax Bookkeeping Advisory
Rent, Utilities 62,500$ Floor Space (sqm) 380 164.47$ 21,382 9,046 32,072
IT Support 19,800$ # of IT requests 136 145.59$ 6,697 2,184 10,919
Support Staff, Printing & Stationery,
Depreciation 203,500$ Billable Hours 8,830 23.05$ 81,123 53,237 69,139
Advertising, client entertainment 82,379$ # Clients 200 411.90$ 30,068 7,826 44,485
368,179$ 139,271$ 72,293$ 156,616$
Activity by service
Allocated Support costs $ Allocated Support Costs $
Tax 129,653$ Tax 139,271$
Bookkeeping 111,393$ Bookkeeping 72,293$
Advisory 127,133$ Advisory 156,616$
Net Profit $ Net Profit $
Tax 141,739$ Tax 132,121$
Bookkeeping 18,337$ Bookkeeping 57,436$
Advisory 64,867$ Advisory 35,384$
Existing Allocation of Support Costs ABC Allocation of Support Costs
Budgeted Profit by Service - existing allocation Budgeted Profit by Service - ABC allocation
Part B:
Introduction
The concern of the current report is to have an extensive idea about the costing process
that can be incorporated with the help of which the performance of the company can be
enhanced. The company has their own existing supportive allocation cost process and is looking
for a better alternative with the help of which their performance can be improved. This report

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will therefore look to provide a detailed justification for the maintenance of the current costing
process or the incorporation of ABC costing method and a relationship among the two processes
with the help of which the company can have the knowledge about which of the two processes is
more efficient for the development of their company. A proper detailed explanation will be done
so that precise and lucid idea about why the decision has been taken can be understood.
Discussion
The new costing process that has been discovered has been ABC costing system. ABC
costing is a new mechanism that assigns the overhead cost of manufacturing to the products in a
practical manner than the conventional process of allocating the expenses based on the
dependent hours. ABC costing initially assigns the expenses to the operations that are the actual
reason of the overhead. The process allocates the cost of activities to the products that are
demanding for the activities. The company on the other hand at the current time period has been
making use of the conventional costing process. A comparison is done with the current costs and
the profits that are aligned with the various departments with the estimated costs and profits that
can be added with the help of ABC costing with the help of which an idea can be attained as to
whether the company will gain any benefit out of it. It has been observed that cost that has been
incurred for the various departments with the existing method has been $129,653, $111,393 and
$127,133 for the three departments and the profit has been $141,739, $18,337 and $64,867 for
the concerned three departments.
On the other hand the calculations that have been undertaken with the help of ABC
costing show different results. The costs attained with the help of existing process have been
$139271, $72,293 and $156,616 and that of the profit has been $132,121, $57,436 and $35, 384
for the three companies. It is seen that the performance of the company changes with the

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incorporation of ABC costing and the costs as well the profit of the company has been
distributed equally.
It can therefore be said that the performance of the company improves with the
incorporation of ABC costing and therefore it is recommended that this process is used instead of
the current process as this will enhance the performance of the company in an effective manner.
In the existing process, it is seen that the costs and the profits are not distributed and therefore
are overvalued in some of the departments. However, with the help of ABC costing the costs and
the profits are equally maintained and therefore the true picture can be depicted.
Conclusion
The results therefore explains the fact that ABC costing is a much better process for the
company instead of the current method and proper supervision has to be done in order to attain
better profits. ABC costing on the other hand even assists the company to understand the
performance of the company and accordingly take actions with the help of which performance
can be enhanced.
Reference List
Hoozée, S., & Hansen, S. C. (2017). A comparison of activity-based costing and time-driven
activity-based costing. Journal of Management Accounting Research, 30(1), 143-167.
McLaren, J., Appleyard, T., & Mitchell, F. (2016). The rise and fall of management accounting
systems: A case study investigation of EVA™. The British Accounting Review, 48(3),
341-358.

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Schaltegger, S., & Burritt, R. (2017). Contemporary environmental accounting: issues, concepts
and practice. Routledge.
Thomas, T. F. (2016). Motivating revisions of management accounting systems: An examination
of organizational goals and accounting feedback. Accounting, Organizations and
Society, 53, 1-16.