inclassmgmt accounting examples (1)

8/18/2019 InclassMgmt Accounting Examples (1)

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#$amp"e 1*

Practica" #$amp"e + te a"'e + Financia" Management Acc'nting

(a) The Financial Accountant has prepared a basic Income Statement for the year.

- -

Revenue 3!

Le%%" #ost of Sales

$aterials 1%!

Salaries &!

'esin *penses +! +,!

-ross rofit (+/) 0!

Le%%" *penses

Administration *penses +!

'istribution *penses 1! 3!

et rofit (1/) 3!

2ased on the information shon above! it ould appear that the enterprise is operatin

successfully and is profitable. There are no arnin sins that problems miht e*ist and

that action is needed to safeuard future success. In simple terms this information is too

broad to be of eneral use to manaement.

(b) The manaement accountant has done some further analysis of the financial records for the

year and by analysin costs to each of the three services provided! can produce a cost

statement as follos"4

A B C ./.AL

- - - -

$aterials ,!5 3!& 0!% 1%!

Salaries 1!% +!% 3! &!

'esin 6verhead % 0 7 +!

0!5 0!5 1!, +,!

Administration

overhead

& 5 % +!

'istribution overhead 3 , 3 1!

Total #ost &!5 5! 11!+ +&!

If this additional information is compared to the sales revenue for each

product the folloin 6peratin Statement can be produced"

A B C ./.AL

- - - -

Sales 1!+, 1!5 5!70 3!

Total #ost &!5 5! 11!+ +&!

rofit8(9oss) +!,, +!5 (+!+,) 3!

Pr+it (0) 2!0 260 Loss 10

+


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2ased on the further analysis conducted in (b)! a very different picture emeres. The overall

profitability is still 1/ hoever: Service # appears to be losin money due to the hih

level of cost it incurs. This loss is bein disuised by the other to services hich ould

appear to be far more profitable than at first thouht.

A number of courses of action miht be considered"

(a) Investiate each cost for # to establish hy they are so hih

(b) Stop providin service #

(c) Increase #;s fee8chare out rate to recover the additional cost

(d) rovide # as a loss leader (6ffer # to encourae customers to consider usin service

A or 2).

The $anaement Accountant provides the additional information and suested solutions

to assist in plannin! control and decision ma


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#$amp"e 2

A S/. Cec"i%t (Suitable for use in Analysin a #ase Study)

Ptentia" Interna" Strengt% Ptentia" Interna" eane%%e%

$any product lines> 6bsolete! narro product lines>

2road mar Risin manufacturin costs>

$anufacturin competence> 'ecline in R?' innovations>

-ood mar oor materials manaement systems>

R?' s 9oss of customer ood ill>

Information system competencies> Inade@uate information systems>

=uman resource competencies> Inade@uate human resources>

2rand name reputation> 9oss of brand name capital>

ortfolio manaement s -roth ithout direction>

#ost or differentiation advantae> 2ad portfolio manaement> e4venture manaement e*pertise> 9oss of corporate direction>

Appropriate manaement style> Infihtin amon division>

Appropriate oranisational structure> 9oss of corporate control>

Appropriate control systems> oor oranisational structure and control>

Ability to manae strateic chane> =ih conflict and politics>

ell4developed corporate stratey> oor financial manaement>

-ood financial manaement> 6thers>

6thers>

Ptentia" #n4irnmenta" /pprt'nitie% Ptentia" #n4irnmenta" .reat%

*pand core business(es)> Attac

*ploit ne mar Increases in domestic competition>

iden product rane> Increase in forein competition>

*tend cost or differentiation advantae> #hane in consumer tastes>

'iversify into ne roth businesses> Fall in barriers to entry>

*pand into forein mar Rise in ne or substitute products>

Apply R?' s Increase in industry rivalry>

nter ne related businesses> e forms of industry competition>

Bertically interate forard> otential for ta

Bertically interate bac *istence of corporate raiders>nlare corporate portfolio> Increase in reional competition>

6vercome barriers to entry> #hanes in demoraphic factors>

Reduce rivalry amon competitors> #hanes in economic factors>

$a 'onturn in economy>

Apply brand name capital in ne areas> Risin labour costs>

See< last mar Sloer mar

6thers> 6thers>

=avin done this analysis! you ill have enerated both an analysis of the company;s

environment and a list of opportunities and threats. The above table also lists some common

environmental opportunities and threats that you miht loo< for! but the list you enerate ill bespecific to your company.

,


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#$amp"e 3

r"5 C"a%% Man'+act'ring (CM) An I""'%tratin

A company has called you in as consultant on cost reduction. #urrently! the #hief *ecutive hasrefused to become involved in #$ because he considers it ill cost too much to implement.

From the folloin list of costs you have dran up! calculate the costs of production in total and

sho hat the total cost ill be under a #$ system. Then calculate the product cost under

each system to persuade the #hief *ecutive that his vie is mista


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S'gge%te5 S"'tin*

Dou should have to columns! hich summarise costs as follos"

C%t c"a%%i+icatin /rigina" C%t% - CM C%t% -

$aterials %! %!aes 3! 3!Idle Time %! 49osses from oor Trainin +!% 4Scrapped I 1! 4roduction 'elays +!% 4Inventory =oldin #osts 1! 4Additional Trainin and liaison 4 1%!

.ta" C%t A""catin 11, 97,

8nit C%t (1, 'nit%) 11 97

#$p"anatin an5 5i%c'%%in*

$aterials and aes ill remain the same for both methods (assumin that improved trainin of

the or


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#$amp"e !

&irect In5irect

=o miht the folloin costs be classified>

(a) rimary pac


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S"'tin

(a) 'irect material cost

(b) 'irect labour cost

(c) 'irect e*pense

(d) roduction overhead or indirect e*pense

(e) Administration overhead or indirect e*pense

(f) Sellin overhead or indirect e*pense

() 'istribution overhead or indirect labour cost

(h) Indirect labour cost or production overhead

(i) Indirect materials cost or production overhead

(G) Indirect e*pense or production overhead.

5


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#$amp"e 7

Space 9td is considerin the introduction of one ne product to its e*istin rane. The product

desin team has come up ith to options and has provided the folloin forecast information"

Pr5'ct 1 :'piter

Sales price C, per unit

Bariable cost C3+ per unit

Annual sales 1! units

Fi*ed costs (directly associated ith the product) C%! per annum

Pr5'ct 2 en'%

Sales price C+ per unit

Bariable cost C1% per unit

Annual sales 1! units

Fi*ed costs (directly associated ith the product) C3! per annum

Space 9td does not have the capacity to produce both products.

;e


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S"'tin

.'tria" Nte*

Anserin this @uestion re@uires


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e*pressed as a ratio. Some te*tboo


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(iv) Le4e" + %a"e% re


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#$amp"e 6

A manufacturer of liht fittins is preparin budets and has provided the folloin draft

fiures"

Sales Forecast (units)

anuary 0!

February &!%

$arch 5!%

April &!

$ay 0!%

The standard sellin price per unit is C%.

ach liht fittin uses +


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S"'tin*

art (a) 4 roduction budet (in units) for the first four months of the year.

an Feb $ar Apr

Sales 0! &!% 5!% &!#losin Stoc< &% 5% & 0%

6penin Stoc< (&%) (&%) (5%) (&)

roduction 0! &!0 5!3% 0!7%

art (b) 4 Ra material usae and purchases budets for the first three months of the year.

an Feb $ar Apr

roduction 0! &!0 5!3% 0!7%

+


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#$amp"e ?

.@# CAS@ B8&#. C/MPANY LIMI.#&

The monthly forecast of the income and e*penditure of #ash 2udet #ompany 9imited is iven

belo"4

-%

:'"> A'g Sept /ct N4 &ec

$aterials used , % 0 5 1 7

'epreciation of plant and

e@uipment 5 5 5 5 5 5

Factory e*penses 1 1 1 1 1 1

Rent and rates + + + + + +

#lerical aes and office

e*penses +5 +5 +5 +5 +5 +5Advertisin and stationery 1, 10 1 1+ + 1,

aes 3 , 3 3 , ,

Salesmen;s commission (une ,) 0 & 5 1 1+ 7

135 101 1%0 15 ++ +1

Sales income 1+ 1, 10 +, +5 +%

Ra material stoc


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(1+) (a) $aterials used in une ere C,!.

(b) Advertisin and stationery in une amounted to C1+!.

(c) aes in une amounted to C3!.

(d) Salesmen;s commission earned in une amounted to C,!.

(e) Sales income as C5! in both $ay and une.

(f) Ra material stoc


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S"'tin*

.@# CAS@ B8&#. C/MPANY LIMI.#&

-%

:'"> A'g Sept /ct N4 &ec - - - - - -

In+"

Sales receipts 4 #ash

4 #redit

0

,

&

,

5

0

1+

&

1,

5

1+%

1+

-overnment rant 4 4 4 4 0 4

Total inflo 1 11 1, 17 ++0 +,%

/'t+"

$aterials (ote 1) , % 0 & 7 5

Factory e*penses 1 1 1 1 1 1Rent and rates 0 4 4 0 4 4

#lerical aes and office

e*penses

+5 +5 +5 +5 +5 +5

Advertisin and stationery 1+ 1, 10 1 1+ +

aes 3 3& 33 3 3& ,

Salesmen;s commission , 0 & 5 1 1+

#apital e*penditure 4 4 4 35 4 4

#orporation ta* 4 4 4 0 4 4

Total outflo 13 1!,3% 1%, +0 15& 17

et movement 43 43% 41, 410 N37 N%%

6penin balance N,+ N1+ 4+3 43& 4%3 41,

#losin balance N1+ 4+3 43& 4%3 41, N,1

Nte 1* Pa>ment% t %'pp"ier% + materia"%

-%:'ne :'"> A'g Sept /ct N4 &ec

- - - - - - -

#losin stoc< 0 & 5 7 1 5 0

A55" Osae , , % 0 5 1 7

1 11 13 1% 15 15 1%

Le%%" 6penin

stoc< 0 0 & 5 7 1 5

urchases , % 0 & 7 5 &

1&


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Interpretatin*

The cash budet indicates that the company has some serious cash deficits beteen

Auust and ovember before returnin to a cash surplus in 'ecember.

The manaement should assess methods of copin ith this position e.. can short termfunds be obtained throuh a ban< overdraft. They should also consider postponin the

capital e*penditure from 6ctober to 'ecember. This ould sinificantly improve the

deficit position in 6ctober and return the company to a surplus in ovember! one month

earlier than planned.

15


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#$amp"e D

9ynchber 9td. has provided you ith the folloin budeted and actual data for the period

endin 3th April +P&.

The standard cost information at the beinnin of the period as based on an e*pected activity of

1! units

'irect $aterial " The specification per unit produced is 1+


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S"'tin*

Part (a)

Stan5ar5 C%t Car5 +r L>ncberg Lt5 -

Sales rice +

9ess"

$aterials (1+


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Part (5)

Pr+it ;ecnci"iatin Statement it ariance Ana">%i%

-

2udeted rofit per art (a) 10Sales rice Actual

*pected

+,

+

, * 1+ ,5 (F)

Bolume Actual

*pected

1+

1

+ * 10 3+ (F)

$aterials rice Actual

*pected

1,,

10

10 10(F)

Osae Actual

*pected

10


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#$amp"e 9

(a) The manaement accountant of -atlin 9td has produced a print4out shoin the variances

for production activity for $arch +P5. Onfortunately! he has Gust been ta


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S"'tin*

REPORT

.* 2oard of 'irectors! -atlin 9td

Frm* $anaement Accountant

S'bect* Interpretation of Bariance Report

&ate* **th April +P5

Further to your re@uest for information on the Reconciliation Report for $arch +P5. The profit

as C5! less than e*pected for month as a result of the folloin variances. In each case I

ill e*plain the meanin of the variance and suest a plausible reason as to hy it occurred. Ineach case (A) indicates an Adverse result and (F) indicates a favourable result.

ariance Am'nt - Meaning P%%ib"e Ca'%e

Sales Bolume +,+(A) rofits are loer as

a result of sellin

feer units of the

product.

$ar


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It should be noted that the causes indicated above are merely one plausible e*planation for the

variance calculated. In all cases further investiation and en@uiry should be underta


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#$amp"e 1

Acti4it> Ba%e5 C%ting .ra5itina" Ab%rptin C%ting

Aye 9td. manufactures to products! Ics and ye! usin the same e@uipment and similar

production processes. An e*tract of production data for eriod 1 is shon belo for each

product"

Pr5'ct Ic% Pr5'ct >e

Quantity roduced (units) %! &!

'irect 9abour =ours per Onit 1 +

$achine =ours per Onit 3 1

roduction Set4ups in eriod 1 ,6rders handled in eriod 1% 0

/4erea5 C%t% I5enti+ie5 -

Relatin to $achine Activity ++!

Relatin to roduction Set4ups +!

Relatin to 6rder =andlin ,%!

;e


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roduct ye (&! units + hours) 1,!

Total 9abour =ours 17!

6verhead Absorption

Rate"

C+5%!

17!

H C1% per hour

6verhead Absorbed"

roduct Ics (1 hour C1%) C1% per unit

roduct ye (+ hours C1%) C3 per unit

(b) Acti4it> Ba%e5 C%ting Apprac

roduct Ics (%! units 3 hours) 1%!

roduct ye (&! units 1 hour) &!

++!

Osin A2#! overhead costs are KabsorbedL usin the concept of cost drivers"

#osts driven by machine hours C++! over ++! hrs H -1 = mc r

#osts driven by production set4ups C+! over % set4ups H -! = %et'p

#osts driven by order handlin C,%! over &% orders H -6 = r5er

6verheads are then distributed as follos"

Pr5'ct Ic% - Pr5'ct >e -

$achine costs (1%!hrs * C1) H 1%! (&!hrs * C1) H &!

Set4up costs (1 * C,) H ,! (, * C,) H 10!

6rder costs (1% * C0) H 7! (0 * C0) H 30!163, 122,

Onits produced %! &!

6verhead cost 8 unit -326 -1?!3

#$amp"e 11

C'%tmer Pr+itabi"it> Ana">%i%

S'n5 iGar5 Lt5, manufactures a variety of sound e@uipment and sells one particular item! a

compact spea


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'ata relatin to each of the customers are as follos"

@IFI E @IFI Y @IFI H /ter S'n5 Centre%

Sa"e% in 'nit% 1! %! 3! 0!

m tra4e""e5 1! % 1!+ &!%

#merg &e"i4 +

N /r5er% % 3 & 1

&i%c'nt% +/ 1%/ +/ 0/

Sa"e% Cmm 1/ 1/ 1/ 1/

P'b"icit> C+&! C,7! C,%! C%&!

;e


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S"'tin an5 &i%c'%%in*

S'n5 iGar5 Limite5

C'%tmer Acc'nt Pr+itabi"it> Statement

@IFI E @IFI Y @IFI H /ter .ta"

o of units sold 1! %! 3! 0! 2!,

- - - - -

Sales ,. +. 1+. +,. 96

Bariable prod cost (1+.) (0.) (30.) (&+.) (2DD)

#ontribution +5. 1,. 5,. 105. 6?2

'elivery cost (%.) (+.%) (0.) (3&.%) (71)

merency delivery 4 4 (1.) 4 (1)

6rder costs (1.) (.0) (1.,) (+.) (7)Trade 'iscount (5.) (3.) (+,.) (1,.,) (1!D!)

Sales commission (,.) (+.) (1+.) (+,.) (96)

ublicity costs (+&.) (,7.) (,%.) (%&.) (1?D)

Pr+it 12? 3?9 (7!) 331 1926

#8S / &/ &/ &/ &/ ?0

rofit8Sales / 3+/ +,/ (%/) 1,/ 20

Cmmentar>*

The #8S ratio for all outlets is a constant &/. =oever! the net profit to sales ratio varies from

3+/ for =I4FI P to a M%/ for =I4FI . There are several reasons for this rane in profitability.

=I4FI ! thouh a small customer compared to the others! has manaed to neotiate very

favourable terms (a +/ trade discount) and hih publicity e*penditure alloance. It also places

several small orders and is the only outlet in need of emerency deliveries.

#ustomer =I4FI P on the other hand! (Sound iJard;s larest customer) is prudent in the number of orders it places and publicity e*penses are relatively lo ma


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From the financial analysis above Sound iJard may decide to drop customer as it ma

inclassmgmt accounting examples (1)

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