Managerial Accounting Assignment -
This assignment will assess the following learning outcomes:
- Analyse costs in business organisations contexts.
- Apply cost estimation techniques in a range of business situations.
- Evaluate cost and revenue information and costing methods for managerial decision-making.
- Effectively communicate cost and revenue information in a decision making context.
ANSWER ALL QUESTIONS:
Question 1 -
GlaxoSmithKline - gsk
The exchange of information between production and finance departments is crucial when it comes to controlling costs and meeting production needs. Any information produced by accountants needs to be timely and readily understood by non-financial managers if cost reductions are to be realised.
In 2011, GlaxoSmithKline's finance team in Cape Town embarked on a mission to simplify and improve the flow of financial and operational information across the organisation. The key objective was to embed sound management accountancy principles within the Cape Town factory so that meaningful information could be shared and acted upon.
This initiative gave management accountants greater participation and involvement with the operational side of the business. In turn, that led to an increased ability within product departments to make more effective and timely decisions.
The initiative was particularly effective for the annual standard setting process. Leveraging clearer management information meant that the finance and production teams could identify a range of key products and trim costs by 9% to 15% year on year.
With a strong commitment to driving improvement, reducing cost and waste, and increasing the robustness of the manufacturing process while maintaining the highest quality in its production line, the company's management accountants now have more exposure within production departments. They directly influence the daily activities of the Cape Town factory and those cost reductions testify to the fact that having the right people with the right knowledge and attitude in place is crucial when it comes to achieving growth and sustainability.
Mark Petersen, Cost Accountant at GlaxoSmithKline, says: 'As an organisation and a CIMA Training Partner, our perspective is that CIMA has the right balance of professional knowledge and understanding when it comes to interpreting what the numbers mean and what you can do with them. Our job as management accountants is to assist In the interpretation of those numbers to non-financial users through simplification and easy to understand reporting within the factory and providing possible solutions as opposed to merely laying out the trends and analysis.
For me, a good management accountant takes the data presented to a simplistic level by putting forward ideas for possible remedial actions. Developing simplified management accounting visuals and placing them in the hallways of the factory has enabled daily interaction with the production department, where real-time reporting information is shared on the factory floor. The major advantages is knowing exactly what product to focus on at that given period.
Based on the article above, you are required to:
i. Set out the main types of purpose for which managerial accounting may be required in a business organisation.
ii. Explain how GlaxoSmithKline improved the performance of its management accounting system.
Question 2 -
Auckland Public Limited Company manufactures three products in two production departments, a machine shop and a Fitting section; it also has two service departments, a canteen and a machine maintenance section. Shown below are next year's budgeted production data and manufacturing costs for the company.
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Product X1
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Product X2
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Product X3
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Production
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8400 units
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13800 units
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3400 units
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Prime cost:
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Direct materials
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OMR22 per unit
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OMR28 per unit
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OMR34 per unit
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Direct labour:
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Machine shop
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OMR12 per unit
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OMR8 per unit
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OMR4 per unit
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Fitting section
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OMR24 per unit
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OMR6 per unit
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OMR42 per unit
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Machine hours per unit
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12 hours per unit
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6 hours per unit
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8 hours per unit
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Machine shop
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Fitting section
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Canteen
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Machine maintenance section
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Total
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Budgeted overheads (OMR):
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Allocated overheads
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55,320
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38,940
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33,200
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53,300
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180,760
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Rent, rates, heat and light
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34,000
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Depreciation and insurance of equipment
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50,000
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Additional data:
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Gross book value of equipment (OMR)
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300,000
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150,000
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60,000
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90,000
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Number of employees
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36
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28
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8
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8
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Floor space occupied (square metres)
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7,200
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2,800
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2,000
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1,600
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It has been estimated that approximately 70 per cent of the machine maintenance section's costs are incurred servicing the machine shop and the remainder incurred servicing the fitting section.
Required:
1. Calculate the following budgeted overhead absorption rates:
i. A machine hour rate for the machine shop
ii. A rate expressed as a percentage of direct wages for the fitting section.
All workings and assumptions should be clearly shown.
2. Calculate the budgeted manufacturing overhead cost per unit of product X1.
3. The production director of Auckland PLC has suggested that 'as the actual overheads incurred and units produced are usually different from the budgeted and as a consequence profits of each month end are distorted by over/under absorbed overheads, it would be more accurate to calculate the actual overhead cost per unit each month end by dividing the total number of all units actually produced during the month into the actual overheads incurred.'
Critically examine the production director's suggestion.
Question 3 -
You are provided with the following data from the books of the company Paragon Product Ltd., producing one product XXX, for the year 2016.
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Direct material cost per unit
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OMR24
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Direct labour cost per unit
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OMR27.20
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Variable manufacturing overhead per unit
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OMR2.80
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Total fixed manufacturing overhead per year
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OMR344,000
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Variable selling and administration expenses
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OMR6 per unit sold
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Fixed selling and administration expenses
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OMR196,000
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Number of units produced per year
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30,000 units
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Number of units sold per year
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24,000 units
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Opening stock of finished goods
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0
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Selling price
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OMR120
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You are required to:
1. Calculate the profit under marginal costing and absorption costing.
2. Explain the reason for any difference in net profit reported in the two statements and reconcile any such difference.
3. According to the information given, calculate the quantity of product XXX that Paragon Product Ltd. needs to sell to breakeven next year.
4. Based on the following expectations of Paragon Product Ltd. for the next year 2017:
-All the variable costs will increase by one third.
-Fixed costs will increase by 10%.
-The income tax rate of 40% will be unchanged
You are required to:
i. Calculate the selling price to be adopted in 2017 which would maintain the same contribution rate as 2016.
ii. Calculate the sales volume for a target net profit of OMR180,000 in 2017.
iii. Critically evaluate the use of 'Cost-Volume-Profit analysis in decision making.
Question 4 -
A furniture making business manufactures quality furniture to customers' orders. It has three production departments and two service departments. Budgeted overhead costs for the coming year are as follows:
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Total (OMR)
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Rent and rates
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25,600
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Machine insurance
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12,000
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Telephone charges
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6,400
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Depreciation
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36,000
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Production supervisor's salaries
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48,000
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Heating and lighting
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12,800
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140,800
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The three production departments - A, B and C and the two service departments - X and Y, are housed in the new premises, the details of which, together with other statistics and information, are given below.
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Departments
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A
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B
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C
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X
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Y
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Floor area occupied (sq. metres)
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6,000
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3,600
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1200
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1200
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800
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Machine value (OMR '000)
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48
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20
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16
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8
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4
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Direct labour hours budgeted
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6,400
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3,600
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2,000
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Labour rates per hour(OMR)
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7.60
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7.00
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6.80
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6
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6
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Allocation overheads:
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Specific to each department(OMR'000)
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5.6
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3.4
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2.4
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1.6
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1.2
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Service department X's cost apportioned
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50%
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25%
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25%
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Service Y's cost apportioned
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20%
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30%
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50%
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Required:
i. Prepare a statement showing the overhead cost budgeted for each department, showing the basis of apportionment used. Also calculate suitable overhead absorption rates.
ii. Why are budgeted overhead rates preferred to actual overhead rates?
iii. Give the reasons for the under or over-recovery of overheads at the end of the accounting period.
Question 5 -
XYZ Limited makes three main products, using broadly the same production methods and equipment for each. A conventional product costing system is used at present, although an Activity Based Costing System is being considered. Details of the three products for a typical period are:
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Hours per Unit
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Materials Per unit (OMR)
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Volumes
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Labour hours
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Machine hours
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Product X
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1
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3
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40
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1500
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Product Y
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3
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2
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24
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2500
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Product Z
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2
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6
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50
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14000
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Direct labour cost OMR6 per hour and production overheads are absorbed on a machine hour basis. The rate for the periods is OMR28 per machine hour.
Further analysis shows that the total of production overheads can be divided as follows:
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Costs relating to set ups
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35%
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Cost relating to machinery
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20%
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Costs relating to materials handling
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15%
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Costs relating to inspection
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30%
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Total production overhead
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100%
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The following activity volumes are associated with product line for the period as whole.
Total activities for the period:
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Number of Set
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Number of Movements of materials
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Number of inspections
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Product X
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150
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24
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300
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Product Y
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230
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42
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360
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Product Z
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960
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174
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1340
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1340
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240
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2000
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You are required:
1. Calculate the cost per unit for each product using conventional method.
2. Calculate the cost per unit for each product using ABC principles.
3. Comment on the reason for any differences in the costs in your answers to questions (1) and (2).