Management Accounting: T&K Accounting Services Case Study Report

This report presents a comprehensive analysis of T&K Accounting Services, focusing on management accounting principles. Task A evaluates the potential addition of an advisory department, comparing projected costs and profits to determine its financial viability. The analysis uses provided financial data, including billable hours, chargeout rates, and support costs, to assess the impact on net profit before tax. Task B examines the suitability of the current cost allocation method versus the Activity-Based Costing (ABC) method. It compares the costs and net profits of the tax, bookkeeping, and advisory departments under both methods. The report concludes that the ABC method is more effective for aligning costs and profits, leading to improved decision-making and overall business development. The report includes an introduction, discussion, conclusion, and a reference list to support the analysis.

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

1
MANAGEMENT ACCOUNTING
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..................................................................................................................................8

2
MANAGEMENT ACCOUNTING
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
What-if-scenario 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
Original budget 3,000 840,000 3,600 192,000 127,133 64,867 0%
10% reduction in billable hours 2,700 756,000 3,240 172,800 124,613 48,187 26%
20% reduction in billable hours 2,400 672,000 2,880 153,600 122,093 31,507 51%
40% reduction in billable hours 1,800 504,000 2,160 115,200 117,053 1,853- 103%
Part C
To,

3
MANAGEMENT ACCOUNTING
Mr. Terry Thompson and Mr. Kerry Chua
T & K Accounting Services,
Brisbane
Australia
Respected Sir,
This mail has been drafted in accordance to the discussion that had been made earlier in order to
provide a detailed evaluating report. The main concern that has been highlighted in this case has
been the addition of the advisory department within the organization. There are several
departments that are existent within the company and they have been performing in an effective
manner. The main concern which has been highlighted has been the fact whether the advisory
department will be useful for the company or not.
An extensive analysis has been made with the help of which various values and figures have
been identified. A comparison of the existing expenses along with the forecasted expenses has
been taken into consideration with the help of which a proper understanding can be determined.
One of the main concerns has been the attainment of profit. The inclusion of the department will
be done on the basis of the changes in the profit and the changes in the cost of the company. The
total cost that has been determined by summarizing the two departments has been $223,380 and
the net before tax has been found to be $160,120. The figures have been extensively good and it
is seen that there for the advisory department to be incorporated the costs need to fall and the
profit need to increase as well.

4
MANAGEMENT ACCOUNTING
The analysis that has been made determines the fact that the inclusion of the advisory department
will be a fruitful decision for the organization. It is due to the fact that the new department will
ease the operational activities of the business as well as distribute the costs among the three
departments and thereby the overall cost will decline. The results indicate the fact that the
budgeted profit before tax for the company will increase to $224,942, which is significantly
higher than that of the profit that the company attained earlier. The cost of the company will
increase as well but the amount of increase will be lower with respect to the increase in the level
of profit. It can therefore be said that the advisory department can be added within the company
as this will be profitable for the business.
It can therefore be said that the analysis explains the addition of the department. The documents
have been attached with the mail and therefore kindly check and take necessary actions.
Regards
Steven Clay

5
MANAGEMENT ACCOUNTING
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
This report has been prepared in order to have an understanding of whether the existing
allocating supporting cost method is a suitable one or the incorporation of ABC costing method
will be useful for the organization. It is seen that there are several costing methods that can be
implied and the incorporation of the best costing method will be taken into consideration. A

6
MANAGEMENT ACCOUNTING
proper analysis as well as detailed discussion will be done with the help of which an effective
idea can be ascertained as to which of the two processes are ideal for them. A comparison of the
two processes will be done and thereafter the decision will be taken as to which costing method
is ideal for the company.
Discussion
The company has been operating efficiently with the help of the current costing process.
However, ABC costing is one of the techniques that have been developed with the help of which
the performance of the companies can be enhanced as well. It is seen that ABC Costing is a
method of accounting that recognizes and allocates costs to their overhead activities and
thereafter allocates these costs to the products. ABC costing identifies the relationship among the
costs, products manufactured and the overhead activities and with the help of this relationship
assigns the indirect expenses to the products. This process is a much easier and technique and is
helpful to the companies as well.
However, the benefit of ABC costing is variable depending on the sort of company that
operates in the economy. It is due to this fact that proper analysis and comparison has been done
with the help of which the costing process that is ideal for the concerned company can be taken
into consideration.
The calculations that have been done with the help of the existing allocation and support
costs explains the fact that the cost of is tax $129,653, bookkeeping is $111,393 and that of
advisory is $127,133. On the other hand, the net profit that is attained with the help of the
existing system has been found to be $141,739 for tax department, $18,337 for the bookkeeping
department and $64,867 for the advisory department.

7
MANAGEMENT ACCOUNTING
However, on the other hand the allocated support costs with the help of the ABC method
has been found to be $139271 for tax, $72,293 for bookkeeping and $156,616 for the advisory
department. The net profit attained with the help of ABC costing has been found to be $
$132,121 for tax, $57,436 for bookkeeping and $35, 384 for advisory department.
By undertaking a comparison one can say that ABC costing process can be incorporated
simply due to the fact that ABC method aligns the cost and the profit among the three
departments in an effective manner. In the existing costing process it is seen that some of the
departments are overvalued and therefore the actual profit and cost of the company cannot be
attained. However, ABC costing eliminates the overvaluation process and the costs are properly
aligned among all the departments and therefore their actual position can be understood.
Conclusion
The report therefore clearly mentions the fact that ABC costing should be incorporated
instead of the existing method as this will assist the company towards development. The
company should therefore take necessary actions in order to make use of this process in an
effective manner.

8
MANAGEMENT ACCOUNTING
Reference List
Almeida, A., & Cunha, J. (2017). The implementation of an Activity-Based Costing (ABC)
system in a manufacturing company. Procedia manufacturing, 13, 932-939.
Arora, A. K., & Raju, M. S. S. (2018). A Comparative Analysis of Perceived and Actual Benefits
from Implementation of Activity Based Costing in Selected Manufacturing Units in
India. Review of Professional Management, 16(2), 55-61.
Chenhall, R. H., & Moers, F. (2015). The role of innovation in the evolution of management
accounting and its integration into management control. Accounting, organizations and
society, 47, 1-13.
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
Hopper, T., & Bui, B. (2016). Has management accounting research been critical?. Management
Accounting Research, 31, 10-30.
Jamil, C. Z. M., Mohamed, R., Muhammad, F., & Ali, A. (2015). Environmental management
accounting practices in small medium manufacturing firms. Procedia-Social and
Behavioral Sciences, 172, 619-626.
Maas, K., Schaltegger, S., & Crutzen, N. (2016). Integrating corporate sustainability assessment,
management accounting, control, and reporting. Journal of Cleaner Production, 136,
237-248.

9
MANAGEMENT ACCOUNTING
Mahal, I., & Hossain, A. (2015). Activity-Based Costing (ABC)–An Effective Tool for Better
Management. Research Journal of Finance and Accounting, 6(4), 66-74.