Reference no: EM132489126

Unit 5 Management Accounting - Higher National Diploma in Business

Scenario
ABC Co. Ltd. specialises in manufacturing electronic products. The range comprises of 2 products, Personal Computers (‘PC') and Video Players (‘VP'). The company's products have the data shown below.

The company has adopted the OAR in term of direct labour hour. The total estimated fixed cost and direct hours during the year is $2.4m and 30,000 hours respectively.

The company is planned to manufacture a new product, I-Phone (‘IP') with estimated contribution of $600 per unit.

The manager wants to prepare the budgets for the coming January to March, assuming that the company will manufacture only IP to fulfill a confirmed special order for 3,000, 3,000 and 4,000 units for Jan, Feb and March respectively. The only variable cost is direct raw material. To produce one unit of IP, the standard usage of raw material is 2 units at standard price of $70 per unit of IP.

Noted: The Production Department is responsible for the planning, organising and control of the manufacturing process while the Procurement Department is responsible for the purchase of all raw materials.

1. You need to advise the manager the following issues:
• Explain the meaning of management accounting, various management accounting tools and role of management accountants (1.1, 1.2)
• Explain the classification of costs that would help the management decision-making (2.1)
• Calculate the unit costs of PC and VP based on absorption costing and marginal costing methods (2.2)
• There is a special order for 10,000 units of PC at $1050 per unit:
o which costing method should be used for the accept or reject decision (2.2);
o calculate the costs using the costing method recommended above (2.2);
• given that direct labour available is limited to 60,000 hours per month, advise the optimum production mix of PC and VP to maximise profit (2.3)
• calculate the break-even units of IP and if the manager is confident that a target profit of $1,200,000 is achievable, what would be the corresponding target units sold (2.1, 2.3)
• evaluate the proposal to spend an additional $600,000 to promote the IP so that selling price can be increased by $60 per unit to sell 6,300 units per month and discuss the corresponding pricing decisions (2.3)

Prepare a proposal to advise the manager who has no management accounting knowledge and background.

To achieve M1, you have to discuss other non-financial factors that may need to be taken into consideration when making the decisions in 2.2 and 2.3.

To achieve D1, you have to critically evaluate how management accounting systems and accounting reporting is integrated within organisational process.

To achieve D2, you have to produce a financial report that accurately apply and interpret data for a range of business activities.

2. Give your advice on the following issues:

Part A:
Analyse and evaluating ABC's financial performances by using the various management accounting technique, and make the possible recommendations in dealing with the financial problems and the price strategies in revising its price (3.2, 4.1, 4.2, M2)

Part B: Budgeting Process:
• the major functions of budgeting process (3.1)
• the advantages and disadvantages in operating a budgetary control system (3.1);

Part C: Budgetary Planning:
• whether fixed or flexible budgets should be prepared for the coming January to March (3.1)
• based on information provided in question, prepare the monthly budgets as follows: (3.1, M3)
o sales budget
o cash collection budget from sales (assuming 40% of current month sales being paid within the same month with the remaining 60% payable in the following month)
o production budget (assuming monthly production units equals to monthly sales units)
o raw material purchase budget (assuming the company purchases the exact quantity of raw material in each month to meet the monthly production requirement)
o cash payment budget for raw material purchases (assuming payment being made in the month following the month of purchase)
• prepare the monthly cash budget (assuming that the only other item is cash payment of $300,000 in January for the purchase of production equipment and that the projected cash and bank balance as at 1 January is $20,000) (3.1, M3)

Part D: Budgetary Control:
• if the actual purchase and usage of raw material amounted to $435,600 in January, calculate the raw material variance (4.1)
• it is found that the actual purchase price of raw material is $66 per unit and the actual purchase and usage quantity is 6,600 units to produce 3,000 units of IP in January. Compute the raw material price and usage variances to analyse the raw material variance in question (4.1)
• prepare a cost reconciliation statement reconciling budgeted and actual raw material costs for the month of January (4.1)
• it is discovered that raw material was purchased in January from a new supplier not on the company's approved vendor list. Report your findings to the manager in accordance with the responsibilities of the relevant departments and recommend possible corrective actions for the identified variances (4.1, 4.2, M3 and M4).

Part E: Compare ways in using management accounting tools
• In addition to the budgeting and variance analysis methods stated above, discuss other possible ways in using management tools to respond to financial problems. (4.3)

Prepare a proposal to advise the manager.

To achieve D3, you have to evaluate how the planning tools respond appropriately to solving the financial problems to lead the organization to sustainable success.

Attachment:- Management Accounting.rar