Management Cost and Control Report - University Name, Semester 1

This report delves into the core concepts of management accounting and cost control. It begins by differentiating between financial and management accounting, outlining their key functions and relevance to concepts like panopticism, control, and discipline. The report then presents financial statements, including the cost of goods manufactured and profit and loss statements. It explores job order costing and various cost allocation methods such as direct, step-down, and reciprocal, with justifications for preferring budgeted costs. The report further examines activity-based costing (ABC), determining per-unit manufacturing costs, analyzing cost drivers, and extracting profitable segments. The analysis includes journal entries and practical examples, providing a comprehensive overview of cost management techniques.

MANAGEMENT COST AND
CONTROL

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Q1................................................................................................................................................1
Q2................................................................................................................................................2
Q3................................................................................................................................................3
3.B Journal entries.......................................................................................................................4
3.D Presenting major cost for giving special focus ....................................................................4
Q4 Determination of allocation of service department...............................................................5
4.a Direct method for allocation..................................................................................................5
4.b Step down method for cost allocation...................................................................................5
4.c Reciprocal method for cost allocation...................................................................................6
4.d Reason for preferring budgeted instead of actual costs allocation ......................................7
Q5 Activity based costing...........................................................................................................7
5.a Determining total cost of manufacturing of per unit and along with this per unit................7
Deluxe.........................................................................................................................................8
5.b Reason for high manufacturing overhead cost as 120 for standard door as compared to
deluxe as 80.................................................................................................................................8
5.c Cost driver.............................................................................................................................8
5.d Computation of manufacturing overhead per unit ...............................................................9
5.e Extraction of profitable segment...........................................................................................9
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Management and financial accounting is referred as a very important concept for every
organization. The present report is giving brief overview with preparation of income statement
and COGS statement. In the same series, it is justifying job order and allocation for service
department. It had also articulated about activity based costing.
Q1
1.a). Description and explanation of differences between Financial and management accounting
Financial and management accounting are different types of methods of recording and
interpreting business transactions of an organisation. Their differences are as follows:
FINANCIAL ACCOUNTING MANAGEMENT ACCOUNTING
It is a system of accounting that analyses the
preparation of financial statements of a
company in order to determine information for
parties that are interested.
It is an accounting process that provides
managers of an organisation with relevant
information that is required in order to create
plans and strategies (Szychta and Dobroszek,
2016).
The main objective is to provide financial
information to 3rd parties.
Its objective is to assist management with
decision making and planning.
It is a compulsory process of accounting and
has a specified format.
It is not compulsory and does not have a
specific format.
This consists of information that is in monetary
terms.
It consists of both monetary and non-monetary
information.
Assets and liabilities are accurately valued. Productivity analysis of the assets and
liabilities are done.
2.b). Description and explanation of major functions of management accounting
Management accounting has 4 major functions which are as follows: Planning: This involves planning of short and long term strategies that have to be put
into action and accomplished by an organisation. It helps managers by providing reports
that estimates various actions that will lead to achievement of desired goals.
1

 Organising: It is a process that organises a framework and assigns responsibilities to
employees of an organisation (Hiebl, 2014). This helps in providing required reports and
information that will regulate operations and adjust in case changes are required. Controlling: It is the monitoring, measuring, evaluating and correcting of actual results in
order to make sure that organisation's plans and objectives are being achieved. It helps
analysing and controlling expected and actual results.
 Decision making: This is a process which involves choosing from various alternatives,
regarding problems that have to be fixed and goals that have to be achieved (Shan, 2015).
3.c). Panopticism, control and discipline concept's relevance to management accounting
Panopticism is an experiment of power that deals with behaviour modification.
Management accounting uses it as a way of determining effects of decisions and evaluates them
even after discontinuation (Berry, Broadbent and Otley, 2016). This helps in finding new
methods to adopt. Control concept is helpful for maintaining performances of an organisation,
making management accounting easy. Discipline concept is required as proper principles can be
applied while assessing company's management.
Q2
Statement of cost of goods manufactured Details Amount
Direct materials used
Raw Material Inventory (1st July, 2016) 183000
Purchase of Raw Material 1200360
Less: Raw Material Inventory (30th June, 2017) 186000
Raw material used 1197360
less: Indirect material 52500
Used Direct material 1144860
Direct Labour 1284000
Manufacturing overhead
Indirect Labour 75000
Factory Rent 152820
Freight In 90000
2

Depreciation Expense - Factory Equipment 90000
Total manufacturing OH 407820
Cost of manufacturing 2836680
Add Work in Process (1st July, 2016) 60600
Less Work in Process (30th June, 2017) 57330
Manufactured cost of goods 2839950
Statement of profit and loss Details Amount
Sales 6751500
Cost of sales
Finished Goods (1st July, 2016) 264000
Cost of goods manufactured 2839550
Cost of goods for sale 3103550
Less: Finished Goods (30th June, 2017) 345000
Cost of goods sold 2758550
Gross profit 3992950
Operating expenses
Factory Rent 152820
Freight In 90000
Selling & Distribution Expenses 1200000
Administration Expenses 600000
Depreciation Expense - Factory Equipment 90000
Total operating expense 2132820
Income from operations 1860130
Add: depreciation 90000
Net income 1950130
Q3
Budgeted Department A Department B
Machine hours 4000
Direct manufacturing labour 8000
3

Manufacturing overheads 57500 62500
Indirect cost 18500 13750
Lease on equipment 16250 3750
Equipment overhead Department A Department B
Indirect cost 18500 13750
16250 3750
Lease on equipment 1.1384615385
3.666666666
7
Manufacturing Utilities Department A Department B
Indirect cost 18500 13750
1000 1250
Manufacturing Utilities 18.5 11
Machining overhead Department A
Indirect cost 18500
800
Per machine hour 23.125
Manufacturing labour Department B
Indirect cost 13750
300
Manufacturing labour
45.83333333
33
Department A 4000*23.125 92500
Department B 8000*45.833 3666.4
Total Manufacturing overhead 96166.4
4

3.b) Journal entries
Department A
Debit Credit
Direct material ac dr 32500
Direct labour ac 52500
Indirect labour ac 11000
Indirect material 7500
Equipment lease ac 16250
Manufacturing utility ac 1000
To cash ac 120750
Department B
Debit Credit
Direct material ac dr 13500
Direct labour ac 53500
Indirect labour ac 9000
Indirect material 4750
Equipment lease ac 3750
Manufacturing utility ac 1250
To cash ac 85750
3.d) Major costs objects for giving focus using job costing
With context of department A, machine hours had been budgeted in 4000 hours through
department A, but in this scenario its actual amount of hours is 400 which is directly impacting
its financials and with context of labour hours was forecasted as 8000 but actual is 300. This
scenario has given negative impact on Indirect labour and material which are giving negative
effect on its profit (Fisher and Krumwiede, 2015).
Q4
4.a) Direct method for allocation
Support Departments Production
5

Departments
Maintenance
Department
Personnel
Department A B
Budgeted costs 180000 30000 80000 120000
Budgeted maintenance-hours n/a 240 720 240
Number of employees 20 n/a 60 120
Maintenance department cost 180000 180000
Total machine hours 720+240 960 187.5 per hour
Personnel department cost 30000 30000
Total employees 60+120 180
166.666666666
7 per employee
Department A Department B
Maintenance 135000 45000
Personnel 10000 20000
Support Departments
Production
Departments
Maintenance
Department
Personnel
Department A B
Costs 180000 30000 80000 120000
Maintenance allocation -180000 135000 45000
Personnel allocation -30000 10000 20000
Total costs 0 0 225000 185000
6

4.b). Step down method for cost allocation
Maintenance cost 180000 180000
Machine hours 1200 150
Maintenance Personnel Department A Department B
36000 108000 36000
Personnel 66000
Employees 60+120 180
366.66666666
67
Department A Department B
Personnel 22000 44000
Final costa allocation Support Departments
Production
Departments
Maintenance
Department
Personnel
Department A B
Budgeted costs 180000 30000 80000 120000
Allocation of maintenance cost -180000 36000 108000 36000
Allocation of personnel cost -66000 22000 44000
Total cost 0 0 210000 200000
4.c). Reciprocal method for cost allocation
Maintenance
department
Administratio
n department
Machine
hours Total (%) Employees Total (%)
Maintenance n/a n/a 20 +1\9
Personnel 240 20.00% n/a n/a
7

Department A 720 60.00% 60 1/3%
Department B 240 20.00% 120 2/3%
Total 1200 100.00% 180 0
Total maintenance cost 288
30000+[20%*
(180000
+1/9)A]
30000+(20%*
180000.11)+(
20%*1/9A)
1A =
30000 +
36000.02 +
0.0222 A
0.778 66000.02
A
84832.930591
2596
Total administration cost 84833 rounded
Total maintenance cost 180000
9425.8888888
889
189425.88888
8889
189426 rounded
Service
department
Production
Departments
Maintenance
Department
Personnel
Department A B
Costs 180000 30000 80000 120000
Allocation of maintenance cost - 37885.177777 113655.53333 37885.177777
8

189425.88888
8889 7778 3333 7778
9425.8888888
889 -84833
28277.666666
6667
56555.333333
3333
0
-
16947.822222
2222 221933.2
214440.51111
1111
4.d). Reason for preferring budgeted instead of actual costs allocation
The most specific reason for rates which are budgeted are directly affected with context
of inefficiency with respect to department and manager is always capable for knowing cost in
advance as it creates flexibility for making choices and cost is allocated to other department
(Rieckhof, Bergmann and Guenther, 2015).
Q5
5.a). Determining total cost of manufacturing of per unit and along with profit per unit for each
product.
Standard
Particulars Amount Amount
Total revenue 190000000
Direct material 36000000
Direct labour 16000000
52000000
Contribution 138000000
Manufacturing oh 48000000
Profit 90000000
Units sold 400000
Profit'/units sold
Profit per unit 225
9

Contribution/No. Of units
produced
Manufacturing per unit 345
Deluxe
Particulars Amount Amount
Total revenue 34500000
Direct material 6000000
Direct labour 3000000
9000000
Contribution 25500000
Manufacturing oh 4000000
Profit 21500000
Units sold 50000
Profit'/units sold
Profit per unit 430
510
5.b). Reason for high manufacturing overhead cost as 120 for standard door as compared to
deluxe as 80.
It had been clearly viewed that sales unit of standard is 4000000 and deluxe is 50000.
The doors of deluxe had huge cost because of less sales but it could be interpreted that because
of less sales it is less manufacturing overhead cost per unit. Hence, the basis of support cost of
manufacturing is direct labour as it signifies with innovative equipment so there is less
requirement of direct labour for producing deluxe doors as compared to standard (Fisher and
Krumwiede, 2015).
10