MAA262 Management Accounting Assignment: Analysis of Stylish Chairs

This assignment solution analyzes the case of Stylish Chairs, a company facing challenges in its management accounting processes, particularly cost accounting. The solution addresses several questions, including ethical violations related to the appointment of an unqualified management accountant. It provides detailed calculations and analyses of fixed and variable costs, product costs, and different costing methods, such as marginal and absorption costing. Furthermore, the solution explores the impact of production volume on costs and evaluates the financial implications of further processing options. The analysis also considers overhead allocation methods and their impact on cost management, offering insights into how the company can improve its financial decision-making and profitability. Finally, the assignment covers topics such as the impact of economies of scale and over-allocation of overhead costs.

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

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MANAGEMENT ACCOUNTING
Table of Contents
Answer to Question 1.....................................................................................................2
Answer to Question 2.....................................................................................................3
Answer to Question 3.....................................................................................................5
Answer to Question 4.....................................................................................................6
Answer to Question 5.....................................................................................................8
Answer to Question 6...................................................................................................10
Reference......................................................................................................................11

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Answer to Question 1
The main purpose of the analysis is proper study the case of Stylish Chairs which is
small company which is engaged in making and selling replicas of an 18th-century rococo chair. The
owners of the business Anni-Frid and Benny are having difficulties in appropriately handling
the management accounting process of the business mainly the cost accounting part and
therefore wishes to appoint an expert to look after the operational process of the business. As
per the case, Bjorn is appointed by the owners who are basically associates with each other.
The owners are expecting that Bjorn would bring about some transparency in the operational
process of the business (Rothaermel, 2016). However, it is to be noted that the competency of
Bjorn is a major issues which is not considered by the owners and this can create a conflict
with the ethical regulations which are applicable on the company. The provisions which are
stated by Competency standards reflects that a management accounting needs to have proper
training and knowledge to perform as a management accountant and the professional should
always thrive to continuous developments. The cases makes it clear that Bjorn does not have
any such skills or qualifications and therefore the company is in violation of the rules which
are formulated by the Institute of Management Accountants.
In pursuance of the duties of a management accountant, all relevant regulations must
be followed by the professional and it should also be ensured that a strict code of conduct is
maintained in the process of the entity (Namnai, Ussahawanitchakit & Janjarasjit, 2015).
Therefore, on an overall basis, it can be said that Bjorn and the company of Stylish chairs are
in violations of the competency standards.
Answer to Question 2
Part a

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Particular Fixed
Costs
Variable
Costs
Direct
Costs
Indirect
Costs
Product
Costs
Period
Costs
Rent   
Warehouse rent   
Administrative Costs for
Staff
  
Commission   
Invoicing system fees   
Miscellaneous Costs   
Full Time employee fee   
Miscellaneous costs of
Warehouse
  
Delivery Costs   
Fabric   
Timber   
Foam   
Button stud   
Varnish   
Bolt   
Woodworking costs   
Assembling costs   
Varnishing Costs   
Part b
Quarter Delivery costs Units Delivered
First $ 360.00 125
Second $ 400.00 150
Third $ 340.00 125
Quarter $ 300.00 100
Total $ 1,400.00 500
Highest Activity Costs $ 400.00
Lowest Activity Costs $ 300.00
Highest units delivered 150
Lowests Units Delivered 100
Variable Costs Per Unit $ 2.00
Fixed Costs $ 100.00
Part c

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Computation of Total Product Costs

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Particulars Amt $
Rent $ 20,000.00
Warehouse rent $ 30,000.00
Amnistrative Costs for Staff $ 100,000.00
Commission $ 35,000.00
Invoicing ystem fees $ 500.00
Miscellanous Costs $ 4,000.00
Full Time employee fee $ 80,000.00
Miscellanous costs of Warehouse $ 5,000.00
Delivery Costs $ 1,400.00
Fabric $ 3,000.00
Timber $ 36,000.00
Foam $ 150.00
Button stud $ 450.00
Varnish $ 10,000.00
Bolt $ 500.00
Woodworking costs $ 87,500.00
Assembling costs $ 12,500.00
Varnishing Costs $ 35,000.00
Total Product Costs $ 461,000.00
Unit Product Costs $ 922.00
Answer to Question 3
Part a
Under Marginal Costing System
Profit and loss A/c (Marginal Costing System)
Particulars Unit Price per unit Amt $
Sales 500 $ 1,000.00 $ 500,000.00
Less: Variable Costs 500
Commission 500 $ 70.00 $ 35,000.00
Invoicing System Fees 500 $ 1.00 $ 500.00
Miscellanous Costs 500 $ 4,000.00
Miscellanous costs of Warehouse 500 $ 5,000.00
Delivery Costs 500 $ 1,400.00
Fabric 500 $ 3,000.00
Timber 500 $ 36,000.00

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MANAGEMENT ACCOUNTING
Foam 500 $ 150.00
Button stud 500 $ 450.00
Varnish 500 $ 10,000.00
Bolt 500 $ 500.00
Woodworking costs 500 $ 35.00 $ 87,500.00
Assembling costs 500 $ 25.00 $ 12,500.00
Varnishing Costs 500 $ 35.00 $ 35,000.00
Total Variabke Costs 500 $ 231,000.00
Contribution Margin 500 $ 269,000.00
Less: Fixed Cpsts 500
Rent 500 $ 20,000.00
Warehouse rent 500 $ 30,000.00
Amnistrative Costs for Staff 500 $ 100,000.00
Full time employee wages 500 $ 80,000.00
Total Fixed Costs 500 $ 230,000.00
Profits 500 $ 39,000.00
Part b
Under Absorption Costing System
Profit and loss A/c Absorbtion Costing System)
Particulars Unit
Price per
unit Amt $
Sales 500 1000 $ 500,000.00
Direct Material Costs
Fabric 500 $ 3,000.00
Timber 500 $ 36,000.00
Foam 500 $ 150.00
Button stud 500 $ 450.00
Varnish 500 $ 10,000.00
Bolt 500 $ 500.00
Total Direct Material $ 50,100.00
Direct Labour costs
Woodworking costs 500
$
35.00 $ 87,500.00
Assembling costs 500
$
25.00 $ 12,500.00
Varnishing Costs 500
$
35.00 $ 35,000.00

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MANAGEMENT ACCOUNTING
Total Direct Labour $ 135,000.00
Variable Maunufacturing Overhead
Commission 500 70 $ 35,000.00
Invoicing System Fees 500 1 $ 500.00
Miscellanous Costs 500 $ 4,000.00
Miscellanous costs of Warehouse $ 5,000.00
Delivery Costs $ 1,400.00
Total Variable Overheads $ 45,900.00
Fixed Overheads
Rent 500 $ 20,000.00
Warehouse rent 500 $ 30,000.00
Amnistrative Costs for Staff 500 $ 100,000.00
Full time employee wages 500 $ 80,000.00
Total Fixed Overhead $ 230,000.00
Profits $ 39,000.00
Answer to Question 4
Part a
Particulars Amt$
Manufacturing Costs
Fabric $ 3,600.00
Timber $ 43,200.00
Foam $ 180.00
Button stud $ 540.00
Varnish $ 12,000.00
Bolt $ 600.00
Woodworking costs $ 105,000.00
Assembling costs $ 15,000.00
Varnishing Costs $ 42,000.00
Direct Manufacturing costs $ 222,120.00
Rent $ 20,000.00
Warehouse rent $ 30,000.00
Amnistrative Costs for Staff $ 100,000.00
Commission $ 42,000.00
Invoicing ystem fees $ 600.00
Miscellanous Costs $ 4,000.00
Full Time employee fee $ 80,000.00
Miscellanous costs of Warehouse $ 5,000.00

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Delivery Costs $ 1,600.00
Indirect Manufacturing costs $ 283,200.00
Total Manufacturing costs $ 505,320.00
Direct Labour hours $ 4,800.00
Overhead per direct labour hours $ 59.00
Working Notes
500 chairs Total costs per unit costs 600 chairs Total costs
Materials units units
Fabric 1500 3000 2 1800 3600
Timber 6000 36000 6 7200 43200
Foam 500 150 0.3 600 180
Button stud 4500 450 0.1 5400 540
Varnish 500 10000 20 600 12000
Bolt 5000 500 0.1 6000 600
Part b
The indirect activities of the business are considered to be important as the same
forms the basis through which the management of the company decides which overhead
method is to be utilized for allocation of costs of the business. The analysis shows that
woodwork has the higher costs out of three main activities and therefore higher allocation of
overhead costs would be to such an activity of the business (Filomena, Neto & da Cunha,
2017). The level of operations of the business is also an important aspect which needs to be
considered before allocating the costs to different activities of the business. In case the
management of the company decides to enhance the scale of operations or move out to new
products than this would automatically enhance the indirect as well direct costs of the
business.

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Answer to Question 5
Part a
Profit and loss A/c
Particulars Unit Price per unit Amt $
Variable Costs 500
Commission 500 $ 70.00 $ 35,000.00
Invoicing System Fees 500 $ 1.00 $ 500.00
Miscellanous Costs 500 $ 4,000.00
Miscellanous costs of Warehouse 500 $ 5,000.00
Delivery Costs 500 $ 1,400.00
Fabric 500 $ 3,000.00
Timber 500 $ 36,000.00
Foam 500 $ 150.00
Button stud 500 $ 450.00
Varnish 500 $ 10,000.00
Bolt 500 $ 500.00
Woodworking costs 500 $ 35.00 $ 87,500.00
Assembling costs 500 $ 25.00 $ 12,500.00
Varnishing Costs 500 $ 35.00 $ 35,000.00
Total Variabke Costs 500 $ 231,000.00
Fixed Cpsts 500
Rent 500 $ 20,000.00
Warehouse rent 500 $ 30,000.00
Amnistrative Costs for Staff 500 $ 100,000.00
Full time employee wages 500 $ 80,000.00
Total Fixed Costs 500 $ 230,000.00
Further processing costs 500 52.5 $ 52,500.00
Total Costs $ 513,500.00
Revised Sales Expected $ 625,000.00
Profits $ 111,500.00
The above table shows computation of total costs for the business and also examines
the further processing options which the business has for ensuring that a right decisions is
taken for maintaining the profitability of the business. The further processing option if
implemented would also mean that the business would be able to enhance the sale price for

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the products as more value is being added to the products and also ensure that the same
enhances the sales of the business (Bjørnenak & Helgesen, 2013). As per the case, further
processing would only require additional varnishing which would provide a stylish coat to the
chairs and make the same 21st style chairs which are comparatively new to the market. It is
therefore for such reasons that it is anticipated that chair prices can be increased to $ 1250 per
chair.
The above computation shows that the management can proceed with new venture as
the same would generate appropriate profits which is beneficial for the business from the
perspective of long run. As per the analysis the increase in the expenses which can be
anticipated is the varnishing costs for the rich coat to the chairs considering the scale of
operations remains the same and there is no hike in other costs of the business (Wynn et al.,
2014). Hence, it can be said that the owners should implement the new processes so that the
entity is able to generate more revenue and rediscover itself in the market and also attract
more customers.
Answer to Question 6
Part a
The analysis of the costs shows that with the increase in the production of chair units,
the overall per unit costs for the product would be reduced. This can be due to variety of
factors which has an influence on the operational process of the business. The analysis can be
attributed to the concept of economies of scale as it states that when a business is able to
enhance the production in terms of units produced than the entity can also systematically
reduce the overall per unit costs (Lee et al., 2015). Therefore, it can be justified that a hike in
the sales of the entity would increase the number of units products and this would result in
decline in the costs of operations of the business/.

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Part b
In case there is a fall in the scale of production for the business and the same is not
according to the plans of the business than a situation may arise where there is over allocation
of overhead costs. This would hamper the costs analysis and influence the price which is to
be set for the product considering the market trends. The management of Stylish chairs in
such a case needs to make necessary adjustments to the cost statement so that proper
presentation can be made of the costs structure and proper analysis can also be conducted in
respect of the same.
Reference
Bjørnenak, T., & Helgesen, Ø. (2013). Customer relations and cost management. The
Routledge Companion to Cost Management, 250-266.