Management Accounting Homework Solution: Costing and Statements

This management accounting assignment solution addresses key concepts including job costing, process costing (weighted average and FIFO methods), and the preparation and analysis of income statements. The assignment begins with an analysis of job costing, including calculations and explanations. It then delves into cost flows and the importance of proper cost classification in income statements for effective decision-making. The solution further explores process costing, comparing and contrasting the weighted average and FIFO methods, and provides detailed calculations and interpretations. The document also examines the impact of different costing methods on reported profits and provides recommendations based on the specific scenario. Overall, the assignment provides a comprehensive understanding of core management accounting principles and their application in various business contexts.

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

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Table of Contents
Question 1: Job Costing...................................................................................................................3
Requirement (i):...........................................................................................................................3
Requirement (ii):..........................................................................................................................3
Requirement (iii):.........................................................................................................................4
Requirement (iv):.........................................................................................................................4
Requirement (v):..........................................................................................................................4
Requirement (vi):.........................................................................................................................5
Question 2: Cost Flows and Income Statement...............................................................................5
Requirement (i):...........................................................................................................................5
Requirement (ii):..........................................................................................................................6
Requirement (iii):.........................................................................................................................7
Requirement (iv):.........................................................................................................................7
Requirement (v):..........................................................................................................................7
Question 3: Process Costing............................................................................................................8
Part A: Weighted Average...........................................................................................................8
Requirement (i):.......................................................................................................................8
Requirement (ii):......................................................................................................................9
Requirement (iii):.....................................................................................................................9

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Part B: FIFO..............................................................................................................................10
Requirement (i):.....................................................................................................................10
Requirement (ii):....................................................................................................................10
Requirement (iii):...................................................................................................................11
Requirement (iv):...................................................................................................................11
Requirement (v):....................................................................................................................12
References:....................................................................................................................................13

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Question 1: Job Costing
Requirement (i):
Requirement (ii):

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Requirement (iii):
Requirement (iv):
Requirement (v):

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Requirement (vi):
The cost of finished goods inventory has increased by the cost of complete units
transferred to it ($205,000 and $113,500). However, the Job G65 has been sold, which has
resulted in increase in cost of finished goods inventory by $210,000.
Question 2: Cost Flows and Income Statement
Requirement (i):
LTC is identified as a manufacturer of plumbing and tap materials. The organisation does
not have any specialised accountant. It uses cost plus 50% mark-up in order to price its products.
After analysing the income statement of the organisation, it has been identified that it does not
categorise its costs in the income statement into direct and indirect or variable and fixed costs.
LTC considers all expenses together for calculating its overall expenses and the profit or loss is
computed by subtracting from overall expenses from overall revenue. The cost classification in
the income statement assists in better cost management, which could not be found in the income
statement of LTC (Fullerton, Kennedy & Widener, 2014).

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Requirement (ii):

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Requirement (iii):
Requirement (iv):
The income statement that the book-keeper has prepared did not categorise expenses into
fixed, variable or period costs. It becomes problematic for the managers to undertake critical
decisions based on such an income statement (Lavia López & Hiebl, 2014). On the other hand, in
case of revised income statement, the total expenses are categorised into fixed costs and variable
costs, which assist the management in enforcing better cost control strategies along with
undertaking significant decisions. In addition, the revised income statement categorises the total
profit into contribution margin and net profit, which assists in enhanced decision-making.
Requirement (v):
Product costing is the method of allocating costs to inventory as well as production
depending on the expenses that go into purchasing or producing inventory. This is particularly a

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significant process for the manufacturers and there are a number of benefits to such customised
costing. With the help of product costing analysis, it becomes possible to ensure accuracy in
variable costing, in which product units are allocated to the variable costs related to their
creation, while leaving fixed costs to other expense accounts (Modell, 2014). This assists in
enforcing the value principle by attaching costs to the value created throughout the organisation.
Moreover, when a business manager undertakes decisions, they often include return on
investment and the amount of profit an organisation could obtain from a specific action. Product
costing could be a foundation on which these decisions would be undertaken. For instance, a
manager used to absorption costing where all production costs are related to products, it might
not be possible to realise the advantages of particular pricing contracts not appearing to include
profit (Otley, 2016). However, when variable costing is used, the manager might find that the
variable costs are the only expenses changing and that the contract would be profitable.
Question 3: Process Costing
Part A: Weighted Average
Requirement (i):

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Requirement (ii):
Requirement (iii):

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Part B: FIFO
Requirement (i):
Requirement (ii):

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Requirement (iii):
Requirement (iv):
From the above table, it could be witnessed that the total cost of goods completed and
transferred out under FIFO is computed as $120,000, while the same is obtained as $124,000
under weighted average. This implies that the cost is lower by $4,000 under FIFO. This is due to
the fact that the FIFO method segregates the costs among periods and it assumes that opening

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work-in-process would be completed first, while weighted average would simply take total costs
for averaging them to find out the unit costs transferred out (Quattrone, 2016). In the procedure,
it would incorporate some of the ending work-in-process inventory cost (according to FIFO) into
the cost of goods completed during the existing month and therefore, the overstatement of costs
takes place under the weighted average method.
Requirement (v):
After considering all the above aspects, it could be said that Rachael needs to accept the
request of Phil by changing from weighted average to FIFO. On certain occasions, it becomes
difficult to identify the cost of goods sold at the selling point and FIFO assists in rectifying the
matter (Tucker & Lowe, 2014). Moreover, as the summer season is profitable for Cool Fizzy
Limited, use of FIFO would help the organisation in reporting higher profits. The reason is that
the cost of sales includes inventory figure and since initial inventories would have lower cost
than current inventories, there would be increased profit. Therefore, FIFO is a reliable and usable
method, as it depicts fair and true overview with a logical assumption of processing first
introduced units first and the process goes on.

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References:
Fullerton, R. R., Kennedy, F. A., & Widener, S. K. (2014). Lean manufacturing and firm
performance: The incremental contribution of lean management accounting
practices. Journal of Operations Management, 32(7-8), 414-428.
Lavia López, O., & Hiebl, M. R. (2014). Management accounting in small and medium-sized
enterprises: current knowledge and avenues for further research. Journal of Management
Accounting Research, 27(1), 81-119.
Modell, S. (2014). The societal relevance of management accounting: an introduction to the
special issue. Accounting and Business Research, 44(2), 83-103.
Otley, D. (2016). The contingency theory of management accounting and control: 1980–
2014. Management accounting research, 31, 45-62.
Quattrone, P. (2016). Management accounting goes digital: Will the move make it
wiser?. Management Accounting Research, 31, 118-122.
Tucker, B. P., & Lowe, A. D. (2014). Practitioners are from Mars; academics are from Venus?:
An investigation of the research-practice gap in management accounting. Accounting,
Auditing & Accountability Journal, 27(3), 394-425.