Reference no: EM133877768

Management Accounting

Assignment task - You must write a management accounting Report of 3000 words (100%). This will be comprised of a series of calculations that demonstrate your knowledge and skills in calculating and analysing complex financial information for decision-making purposes.

You must demonstrate your ability to interpret the financial information calculated, to provide conclusions as to the current financial status of the business it relates to, and to make informed recommendations as to how the financial position of the business could be improved.

Learning outcome 1: Demonstrate a critical understanding of the role and importance of management accounting in organisations.

Learning outcome 2: Apply management accounting techniques for cost analysis, budgeting, and forecasting.

Learning outcome 3: Critically analyse and interpret financial information for managerial decision-making and communicate management accounting information effectively to stakeholders.

Learning outcome 4: Classify costs into the main categories of direct and indirect; variable and fixed.

Task 1 (400 Words)

To accommodate its expanding business, Metro Manufacturing relocated to a larger production facility a number of years ago. They rented their old facility to a different company and have been receiving rental money from them instead of selling it. The tenant's lease is about to expire, but Metro has chosen to reclaim the building and use it to produce a new product rather than renewing it. There will not be a change in depreciation expense because Metro will still depreciate the building using a straight-line method, just as they did in the past. The bulk of operations can be accommodated in the original facility, but they will need to rent a smaller structure to store raw material supplies. They have also made the decision to rent the equipment on a monthly basis rather than buy the apparatus required for production. Metro plans to hire additional personnel and a supervisor to oversee production as their current crew is not capable of handling the creation of the new product. If they get more money to pay the expenses, the current marketing department may manage the promotion of the new product. Metro has chosen to liquidate some short-term investments to pay start-up fees and give them working capital because their bank is reluctant to finance the start-up of operations due to this being a new endeavour. Metro are confident that investing in this new product will be profitable in the long run, even though they will not receive a return on their short-term investments.

Metro's management team has asked you to categorize the expenses related to the launch of this new product line and explain all costs in detail. You must sort each expense under the relevant heading in accordance with the chart below, using the cost information provided. Be aware that some expenses might fall under more than one category. A cost could, for instance, be both a period cost and a fixed cost.

In your written answer, you must duplicate the column headings and chart below.

Name of cost Variable Cost Fixed Cost Direct Materials Direct Labor Factory Overhead Period Cost Prime Cost Conversion Cost

Metro "New Product" Cost Information

Cost Amount
Depreciation on Building (annual) £ 15,000
Direct Labor Cost (per unit) £ 65
Direct Materials Cost (per unit) £ 70
Factory Utilities (per unit) £ 7
Indirect Materials (per unit) £ 3.5
Interest on Investments (annual) £ 2,800
Machinery Rental (monthly) £ 5,500
Marketing (annual) £ 40,000
Rent from Tenant (annual) £ 42,000
Shipping (per unit) £ 2.5
Storage Facility (monthly) £ 600
Supervisor Salary (annual) £ 40,000

Task 2 (1300 Words)

Over the past five years, Metro Manufacturing has experienced growth, and its founder and CEO, Arham Rahman, is growing increasingly concerned that his understanding of the company's cost structure is becoming hazy. He summons Kabita Roy , his CFO, for a meeting. Following the discussion, he requested that his CFO provide him all of the cost and revenue information. Hire best assignment help and experienced tutors now!

The following financial statistics, along with other pertinent details, is given for Metro:

Metro Manufacturing
Budgeted Income Statement
For the Year Ending December 31
Sales £ 42,000,000
Cost of goods sold:
Variable £ 15,300,000
Fixed £ 8,500,000
Gross Margin £ 13,250,000
Selling & Administrative
Commissions £ 4,510,000
Fixed Marketing Expenses £ 1,450,000
Fixed Administrative £ 5,500,000
Net Operating Income £ 2,400,000

Model 101 Model 201 Model 301
Normal Annual Sales Volume 18,000 20,000 13,000
Unit Selling Price £ 600 £ 700 £ 1,200
Variable expense per unit £ 280 £ 220 £ 500

Note:
The sales commission will now be 15%. In the past nine months, we have lost two of our best account managers. We appear to be lagging behind as we only pay 12% of gross sales.
To accommodate additional marketing materials, Metro Manufacturing increased the marketing budget by £700,000.
By the end of the quarter, Metro Manufacturing will need to replace two pieces of equipment, which will cost us over £1.3 million.
Metro Manufacturing falls short of the safety net of £2.5 million.

Answer the following questions based on the above information:
In terms of sales in pounds, what is Metro's overall break-even point?
Metro will have 10% higher fixed costs and 5% lower variable costs per unit for all three models if it spends £1.3 million on the new equipment. What will the new break-even point for Metro be?
Sales of the Model 301 should rise by 8% if Metro spends the extra £700,000 on fixed marketing costs. In these conditions, what are the break-even and margin of safety?

Arham Rahman (CEO) instructed Kabita Roy (CFO) to write a report outlining how these changes will impact Metro's total cost structure based on the facts provided above and the answers to his queries. Provide a recommendation for the adjustments that can be controlled while taking the unavoidable cost changes into account. Ensure your account for both the intended margin of safety and the company's break-even point.

Task 3 (1300 Words)

As his management team chatted and got ready for the monthly meeting, Arham Rahman, CEO of Metro Manufacturing, glanced around the conference room.

Arham said, "we have a lot to talk about today, and not all of it is positive. As you are aware, despite record-breaking sales the previous quarter, we suddenly encountered a cash crunch. We are unable to continuously borrow funds from the bank to maintain operations. I'm depending on each of you to come up with a plan to ensure that this doesn't happen again."

The newest member of the team, Natalia Kovac, raised her hand with a sheepish expression. "Maybe we could start identifying areas for improvement if we took a look at the Master Budget from last month."
Arham turned to face his CFO, Kabita. "Well, Kabita, you are an expert in that area, and Natalia's recommendation makes logical sense. Let us examine the Master Budget."

Looking at the desk, Kabita started to shuffle through his documents. "We don't really have a master budget per se, Arham. Although the organization has funding for various departments, I mainly rely on the managers to know what has to be done in their department".

Natalia held up her hand to talk. "I realize I'm new here, but at my last job, we had budgets for cash, finished goods, sales, and pretty much everything. Everyone had an excellent understanding of our financial situation, and everything appeared to be working fairly effectively".

The CFO, Kabita, glared at Natalia. Arham looked across at Kabita. "This employee seems to have a point, Kabita. Is there a reason why our budgeting differs from what she described?

"All right," Kabita started. "Arham, it's quite complicated.

Arham raised a hand to interrupt Kabita. "Look, I understand that our organization is complicated, but the truth is that I am unable to continue going to the bank each month to borrow money in order to pay the suppliers." We are a multi-million-dollar firm, for crying out loud. Today will be the end of this. Arham clarified, "You are going to collaborate with Kabita and everyone else in this organization to get us on board with creating and utilizing budgets to rectify this mess. Moreover, for the remainder of you, please treat Natalia as though I were the one asking for information when she approaches you. Understood!"

Each person gave a sign of approval.

"Meeting adjourned," Arham declared.

Identify the problems and budgets that Natalia and Kabita will need to make in order to address them, as well as the data required to create each budget. Prepare a report for Arham and the other members of the management team explaining your strategy for putting in place a budgetary control system. Ensure you outline how each system component will improve the company's overall financial health.

Note: Please reference your work according to the Harvard style