Management Accounting Tutorial Questions Assignment 2 - HA2011

This document presents a comprehensive solution to a Management Accounting assignment, addressing tutorial questions from weeks 7 to 11. The assignment covers key concepts such as activity-based costing (ABC), including calculating cost per unit; direct material purchasing calculations; variance analysis, focusing on direct material price and quantity variances; transfer pricing, including minimum transfer price calculations; return on investment (ROI) and residual income calculations; and break-even analysis. The solution includes detailed calculations, interpretations, and working notes to illustrate the application of these concepts in managerial decision-making. The assignment aims to assess the student's understanding of cost accounting, variance analysis, transfer pricing, and performance evaluation techniques. The analysis is supported by references to relevant academic literature.

Management Accounting

Table of Contents
INTRODUCTION ..........................................................................................................................3
Week 7.............................................................................................................................................3
Week 8.............................................................................................................................................4
Week 9.............................................................................................................................................5
Week 10...........................................................................................................................................6
a...................................................................................................................................................6
b...................................................................................................................................................7
Week 11...........................................................................................................................................7
a...................................................................................................................................................8
b...................................................................................................................................................8
CONCLUSION ...............................................................................................................................8
REFERENCES ...............................................................................................................................9

INTRODUCTION
MA refers to the presentation of analysing the business activities towards an internal
management in order to facilitate appropriate decision-making. It involves the preparation and
facilitating the timely financial and the statistical information to the business managers for the
purpose of making routine and current managerial decisions. The present study includes the
computation of the activity cost, variance and transfer pricing. Moreover, it includes the break
even analysis and evaluation of budgeted sales unit and contribution per unit.
Week 7
Activity based costing means as the method that determine the activities within the
company and assigns the cost for each and every activity to all the services and the products as
per an actual consumption by each of the activity (Almeida and Cunha, 2017). It is the model
that assigns the most of the indirect costs into the direct costs as compared to the conventional
costing. With the use of activity based costing, company can take into account direct as well as
the overhead cost in producing each and every product.

Week 7
Calculating cost
per unit for cheap
Activity Amount ($) Cost driver Amount ($) Per unit cost
Material handling 225000
Number of parts
per unit 10 22500
Material insertion 2475000 Number of parts 10 247500
Automated
machinery 840000 Machine hours 1 840000
Finishing 170000 Labor hours 2 85000
Packaging 170000 Orders shipped 1000 170
1195170
Total
manufacturing cost 3880000
Total cost per
unit for cheap 0.31
Interpretation- from the above assessment it has been seen that the cost per unit of cheap
resulted as 0.31 by dividing the total cost of each cost driver with that of total manufacturing or
production cost.
Week 8
Week 8
July
Budgeted production units 180000
Direct material per unit 0.5
Budgeted material 90000
Add: closing inventory 5000
Direct material kilogram to be purchase in
July 95000

Interpretation- From the analysis it has been indicated that the direct material kilogram
that is to be purchased in the month of July accounted as 95000 kg (Zhuang and Chang, 2017). It
is computed by computing the total budgeted material in value through multiplying production
units with material per unit. Further, the closing inventory is added in the budgeted material for
determining the direct material to be purchased.
Week 9
Variance analysis- It is the study of the deviation of the actual behavior against the
standard in the budgeting process. It is mainly concerned with the different resulted between
actual and the planned behavior that indicates the manner in which performance of the business
is being impacted or affected (Chiu and et.al., 2018). In other words it means as the process of
determining the causes of the variation in income and the expenses of present year from
budgeted values. It helps or enables in understanding the reason for resulting fluctuation and the
appropriate measures that is to be taken for reducing the adverse variance. It eventually helps in
making the budgeting activity accurate and better.
Week 9
Particulars Formula Standard Actual
Price 3 per kg 3.10 per kg
Quantity per kg 2.5 kg 2.67
Actual Quantity 3200 3000.00
Direct material price
variance (SP-AP)*AQ -300
Direct material quantity
variance SP*(SQ-AQ) 600
Total direct material
variance (SP*SQ)-(AP*AQ) 300 (F)

Interpretation- The above table shows that favourable variance is resulted of value 300
which shows the actual cost resulted is less that the budgeted cost or planned cost. This in turn
means that company is working effectively and making optimum use of the resources.
Working note:
Material purchase 8000
Standard per unit 2.5
Standard quantity 3200
Week 10
a.
Transfer pricing – It is the setting of price for the services and goods that is sold between
the controlled or the legal entities within the organization (Rugman and Eden eds., 2017). For
example- if the subsidiary company sells the goods to parent company, cost of goods paid by
parent to subsidiary is called as the transfer price. It is an accounting and the taxation practice
which allows for the pricing transactions internally within the subsidiaries and businesses which
operates under the common control and the ownership. It is the mechanism through the use of
which firm can shift its tax liabilities to the low-cost tax jurisdictions.
Week 10
Particulars Formula Cost ($)
Variable cost 2
Opportunity cost 0.5
Additional cost 0
Transfer price
Variable cost + opportunity
cost + additional cost 2.5
Interpretation- The above results reflects that the minimum transfer price resulted as
2.50 which is computed by calculating the sum of excess variable cost, opportunity cost and the

additional cost. In this case additional cost is zero because no shipping cost is charged for
transferring the material to cologne division.
Working note :
External sales price of bottle
division 3
Cologne division could
purchase same bottles in
external market 2.5
Opportunity cost
External sales price –
external market price 0.5
b.
Return on investment- It is the performance measures that is used for evaluating an
efficiency of the investment or comparing the number of different types of investments (Klassen,
Lisowsky and Mescall, 2017). It is determined by dividing the cost or amount of money invested
by that of net profit.
Particulars Formula Amount ($)(in million )
Net profit 54
Cost of investment 450
Return on investment Net profit/Cost of investment 12.00%
Interpretation- the above table depicts that the ROI resulted as 12% means as the
company would be generating 12% by making in investment of 450 million in the project,
Residual income- It is represented as an excess of income generated higher than the
minimum rate of return (Chisholm and et.al., 2016). It is the profits that shareholders, owners
and partners are been entitled to get after the debtors are been recovered.
Particulars Formula Amount ($)(in million )
Profit 54

Invested capital 450
Imputed interest rate 10.00%
Residual income
Profit-(invested
capital*interest rate) 9
Interpretation- The above table analysed that the residual income of trek corporation
attained as 9 million applying an appropriate formula by multiplying the invested capital with
that of interest rate and reducing the profit from it.
Week 11
Particulars Speedie Spunkie
Selling price per unit 100 120
Less: Variable cost per unit 40 70
Contribution per unit 60 50
a.
Break-even analysis- It is the financial tool that helps in determining the stage at which
the company will be earning profits (Budagaga, 2017). It is the financial computation for
identifying the number of the services and products which the company must sell in covering its
cost.
Particulars Formula Amount /units
Weighted average contribution
per unit
Contribution margin of
Speedie*40%+Contribution
margin of Spinkie*60% (100-40)*40%+(120-70)*60%
Contribution per unit (in
units) 54

Particulars Formula Amount /units
Fixed cost 108000
Contribution per unit 54
Break even analysis (in units)
Fixed costs/Weighted average
contribution margin 2000
Interpretation- The analysis reflects that the break even point accounted as 2000 units
which shows that at 2000 units, an entity would start generating profits (Hatch and et.al., 2017).
It is accounted as by dividing contribution per unit with that of the fixed cost.
b.
Particulars Formula Amount /units
Margin of safety 20000
Break even sales 110000
Budgeted sales( in units ) 130000
CONCLUSION
From the above analysis it has been summarized that MA plays an a crucial role in
running the business operations smoothly. Variance analysis helps in ensuring effective
controlling within the business and result to accomplishment of goals as per the budgeted
standards. ABC helps in analysing the cost that is been incurred from each cost driver in
producing the product so that manager could plan for the appropriate measures accordingly and
could set the adequate sales target. Moreover, break-even analysis helps the firm in knowing the
stage at which the profits will be generated and in identifying the products which is to be sold for
covering the cost.

REFERENCES
Books and journal
Almeida, A. and Cunha, J., 2017. The implementation of an Activity-Based Costing (ABC)
system in a manufacturing company. Procedia manufacturing. 13. pp.932-939.
Budagaga, A., 2017. Dividend payment and its impact on the value of firms listed on Istanbul
stock exchange: A residual income approach. International Journal of Economics and
Financial Issues. 7(2). p.370.
Chisholm, D. and et.al., 2016. Scaling-up treatment of depression and anxiety: a global return
on investment analysis. The Lancet Psychiatry. 3(5). pp.415-424.
Chiu, C. H. and et.al., 2018. Optimal advertising budget allocation in luxury fashion markets
with social influences: a mean‐variance analysis. Production and Operations
Management. 27(8). pp.1611-1629.
Hatch, M. D. and et.al., 2017. The cost effectiveness of vancomycin for preventing infections
after shoulder arthroplasty: a break-even analysis. Journal of shoulder and elbow
surgery. 26(3). pp.472-477.
Klassen, K. J., Lisowsky, P. and Mescall, D., 2017. Transfer pricing: Strategies, practices, and
tax minimization. Contemporary Accounting Research. 34(1). pp.455-493.
Rugman, A. M. and Eden, L. eds., 2017. Multinationals and transfer pricing. Routledge.
Zhuang, Z. Y. and Chang, S. C., 2017. Deciding product mix based on time-driven activity-
based costing by mixed integer programming. Journal of intelligent manufacturing. 28(4).
pp.959-974.