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management accounting
Management Accounting For Business Decisions 1st Edition Will Seal - Solutions
5 Prepare an analysis showing whether a special order should be accepted
4 Prepare a make or buy analysis
3 Prepare an analysis showing whether a product line or other organizational segment should be dropped or retained
2 Prepare an analysis showing whether to keep or replace old equipment
1 Distinguish between relevant and irrelevant costs in decisions
A nursing home, which is linked to a large hospital, has been examining its budgetary control procedures, with particular reference to overhead costs. The level of activity in the facility is measured by the number of patients treated in the budget period. For the current year, the budget stands at
Linpet Ltd is to be incorporated on 1 June. The opening balance sheet of the business will then be as follows: Assets Cash at bank Share capital 1 ordinary shares 60,000 60,000 During June, the business intends to make payments of 40,000 for a leasehold property, 10,000 for equipment and 6,000 for
Newtake Records Ltd owns a chain of 14 shops selling compact discs. At the beginning of June the business had an overdraft of 35,000 and the bank had asked for this to be eliminated by the end of November. As a result, the directors have recently decided to review their plans for the next six
Prolog Ltd is a small wholesaler of personal computers. It has in recent months been selling 50 machines a month at a price of 2,000 each. These machines cost 1,600 each. A new model has just been launched and this is expected to offer greatly enhanced performance. Its selling price and cost will
Brown and Jeffreys, a West Midlands business, makes one standard product for use in the motor trade. The product, known as the Fuel Miser, for which the business holds the patent, when fitted to the fuel system of production model cars has the effect of reducing petrol consumption. Part of the
Pilot Ltd makes a standard product, which is budgeted to sell at 5.00 a unit. It is made by taking a budgeted 0.5 kg of material, budgeted to cost 3.00 a kilogram, and working on it by hand by an employee, paid a budgeted 5.00 an hour, for a budgeted 15 minutes. Monthly fixed overheads are budgeted
Antonio plc makes product X, the standard costs of which are: Sales revenue Direct labour (2 hours) Direct materials (1 kg) Fixed overheads Standard profit 31 (11) (10) (3) 7 The budgeted output for March was 1,000 units of product X; the actual output was 1,100 units, which was sold for 34,950.
You have recently overheard the following remarks: (a) When calculating variances, we in effect ignore differences of volume of output, between original budget and actual, by flexing the budget. If there were a volume difference, it is water under the bridge by the time that the variances come to
Bradley-Allen Ltd makes one standard product. Its budgeted operating statement for May is as follows: Sales (volume and revenue): 800 units 64,000 Direct materials: 12,000 Type B 16,000 Direct labour: Skilled 4,000 Unskilled 10,000 Overheads (All fixed) 12,000 54,000 Budgeted operating profit
Mowbray Ltd makes and sells one product, the standard costs of which are as follows: Direct materials (3 kg at 2.50/kg) Direct labour (15 minutes at 9.00/hr) Fixed overheads Selling price Standard profit margin The monthly production and sales are planned to be 1,200 units. The actual results for
Varne Chemprocessors is a business that specialises in plastics. It uses a standard costing system to monitor and report its purchases and usage of materials. During the most recent month, accounting period six, the purchase and usage of chemical UK194 were as follows: Purchases/usage: Total price:
Brive plc has the following standards for its only product: Selling price: Direct labour: 110/unit 2 hours at 5.25/hour Direct material: 3 kg at 14.00/kg Fixed overheads: 27.00, based on a budgeted output of 800 units/month During May, there was an actual output of 850 units and the operating
Identify, discuss and apply the four main investment appraisal methods found in practice.AppendixLO1
Explain the methods used to review and control capital expenditure projects.AppendixLO1
Research indicates that the IRR method is a more popular method of investment appraisal than the NPV method. Why might this be?AppendixLO1
The directors of Mylo Ltd are currently considering two mutually exclusive investment projects. Both projects are concerned with the purchase of new plant. The following data are available for each project: Project 1 2 000 000 Cost (immediate outlay) 100 60 Expected annual net profit (loss): Year 1
C. George (Controls) Ltd manufactures a thermostat that can be used in a range of kitchen appliances. The manufacturing process is, at present, semi-automated. The equipment used costs 540,000, and has a written-down (balance sheet) value of 300,000. Demand for the product has been fairly stable,
The accountant of your business has recently been taken ill through overwork. In his absence his assistant has prepared some calculations of the profitability of a project, which are to be discussed soon at the board meeting of your business. His workings, which are set out below, include some
Arkwright Mills plc is considering expanding its production of a new yarn, code name X15. The plant is expected to cost 1m and have a life of five years and a nil residual value. It will be bought, paid for and ready for operation on 31 December Year 0. 500,000 has already been spent on development
Newton Electronics Ltd has incurred expenditure of 5m over the past three years research- ing and developing a miniature hearing aid. The hearing aid is now fully developed, and the directors are considering which of three mutually exclusive options should be taken to exploit the potential of the
Simtex Ltd has invested 120,000 to date in developing a new type of shaving foam. The shaving foam is now ready for production and it has been estimated that the new product will sell 160,000 cans a year over the next four years. At the end of four years, the product will be discontinued and
Kernow Cleaning Services Ltd provides street-cleaning services for local councils in the far south west of England. The work is currently labour intensive and few machines are employed. However, the business has recently been considering the purchase of a fleet of street-cleaning vehicles at a
Discuss the nature and role of strategic management accounting.AppendixLO1
Explain how management accounting information can help a business gain a better understanding of its competitors and customers.AppendixLO1
Describe the techniques available for gaining competitive advantage through cost leadership.AppendixLO1
Explain how the Balanced Scorecard can help monitor and measure progress towards the achievement of strategic objectives.AppendixLO1
Discuss the role of shareholder value analysis and economic value added in strategic decision making.AppendixLO1
How does strategic management accounting differ from its more traditional counterpart?AppendixLO1
Both Customer A and Customer B buy 1,000 units of your business's service each year, paying the same price per unit. Why might your business regard Customer A as a desirable customer, but not Customer B?AppendixLO1
What is the principle on which shareholder value analysis is based?AppendixLO1
Aires plc was recently formed and issued 80 million 0.50 shares at par and loan capital of 24m. The business used the proceeds from the capital issues to purchase the remaining lease on some commercial properties that are rented out to small businesses. The lease will expire in four years' time and
You have recently heard someone making the following statement about competitor profitability analysis (CPA). CPA is an assessment of how profitable competitors are, that is carried out in an attempt to establish a benchmark by which one's own business's success can be measured. Usually most of the
Sharma plc makes one standard product for which it charges the same basic price of 20 a unit, though discounts are allowed to certain customers. The business is in the process of carrying out a profitability analysis of all of its customers during the financial year just ended.Information about
(a) The shareholder value approach to managing businesses is different to the stakeholder approach to managing businesses. In the latter case, the different stakeholders of the business (employees, customers, suppliers and so on) are considered as being of equal importance and so the interests of
Virgo pic is considering introducing a system of EVA and wants its managers to focus on the longer term rather than simply focus on the year-to-year EVA results. The business is seeking your advice as to how a management bonus system could be arranged so as to ensure the longer term is taken into
Leo plc is considering entering a new market. A new product has been developed at a cost of 5m and is now ready for production. The market is growing and estimates from the finance department concerning future sales revenue of the new product are as follows:Year Sales revenue £m 1 30 2 36 3 40 4
Pisces plc produced the following balance sheet and income statement at the end of the third year of trading: Balance sheet as at the end of the third year m m Non-current assets Goodwill Machinery and equipment Motor vans Marketable investments Current assets 40.0 80.0 18.6 9.0 147.6 Inventory
Aquarius plc has estimated the following free cash flows for its five-year planning period: Year Free cash flows 12345 m 35 38 45 49 53 How might it be possible to check the accuracy of these figures? What internal and external sources of information might be used to see whether the figures are
What problems might be encountered when a business attempts to incorporate non-financial measures into its management reports?AppendixLO1
Westcott Supplies Ltd has an operating division which produces a single product. In addition to the conventional RI and ROI measures, central management wishes to use other methods of measuring performance and productivity to help assess the division. Identify four possible measures (financial or
Jerry and Co. is a large computer consultancy firm which has a division specialising in robotics. Can you identify three non-financial measures that might be used to help assess the perform- ance of this division?AppendixLO1
A UK survey of decentralised businesses revealed that negotiated prices are the most popular form of transfer pricing method. Is this approach necessarily the best approach in theory? Why?AppendixLO1
In divisionalised organisations, complete autonomy of action is impossible when a substantial level of inter-divisional transfers take place. Required: (a) In this context, what is meant by 'divisionalised organisation' and 'autonomy of action'? (b) Is this autonomy good? Why? (c) Are there any
Measures are required to assess the performance of divisions and of divisional managers. Three financial measures are: contribution; controllable profit; and return on investment (ROI). Required: (a) For each of the above measures show: the way in which each measure is calculated; for what purpose
You have recently taken a management post in a large divisionalised business. A substantial proportion of the business of your division is undertaken through inter-divisional transfers. Required: (a) What are the objectives of a system of transfer pricing? (b) Describe the use of, and problems
The following information applies to the planned operations of Division A of ABC Corporation for next year: Sales revenue (100,000 units at 12) Variable costs (100,000 units at 8) Fixed costs (including depreciation) Division A investment (at original cost) 1,200,000 800,000 250,000 500,000 The
The following information applies to the budgeted operations of the Goodman division of the Telling Company. Sales revenue (50,000 units at 8) 400,000 Variable costs (50,000 units at 6) 300,000 Contribution 100,000 Fixed costs 75,000 Divisional profit 25,000 Divisional investment 150,000 The
Glasnost plc is a large business organised on divisional lines. Two typical divisions are East and West. They are engaged in broadly similar activities and, therefore, central management compares their results in order to make judgements on managerial performance. Both divisions are regarded as
The University of Devonport consists of six faculties and an administration unit. Under the univer- sity's management philosophy, each faculty is treated, as far as is reasonable, as an independent entity. Each faculty is responsible for its own budget and financial decision making. A new course in
AB Ltd operates retail stores throughout the country. The business is divisionalised. Included in its business are Divisions A and B. A centralised and automated warehouse that replenishes inventories using computer-based systems supports the work of these divisions. For many years this
Tariq is the credit manager of Heltex plc. He is concerned that the pattern of monthly sales receipts shows that credit collection is poor compared with budget. Heltex's sales director believes that Tariq is to blame for this situation, but Tariq insists that he is not. Why might Tariq not be to
How might each of the following affect the level of inventories held by a business? an increase in the number of production bottlenecks experienced by the business; a rise in the level of interest rates; a decision to offer customers a narrower range of products in the future; a switch of suppliers
Hercules Wholesalers Ltd has been particularly concerned with its liquidity position in recent months. The most recent income statement and balance sheet of the business are as follows: Income statement for the year ended 31 December last year 000 000 Sales revenue 452 Less Cost of sales Opening
International Electric plc at present offers its customers 30 days' credit. Half the customers, by value, pay on time. The other half takes an average of 70 days to pay. The business is con- sidering offering a cash discount of 2 per cent to its customers for payment within 30 days. The credit
The managing director of Sparkrite Ltd, a trading business, has just received summary sets of financial statements for last year and this year: Sparkrite Ltd Income statement for years ended 30 September last year and this year Last year This year 000 000 000 000 Sales revenue 1,800 1,920 Less Cost
Your superior, the general manager of Plastics Manufacturers Limited, has recently been talk- ing to the chief buyer of Plastic Toys Limited, which manufactures a wide range of toys for young children. At present, Plastic Toys is considering changing its supplier of plastic granules and has offered
Mayo Computers Ltd has an annual turnover of 20m before taking into account bad debts of 0.1m. All sales made by the business are on credit, and, at present, credit terms are negotiable by the customer. On average, the settlement period for trade receivables is 60 days. Trade receivables are
Boswell Enterprises Ltd, an electrical wholesale business, is reviewing its trade credit policy. The business, which sells all of its goods on credit, has estimated that sales revenue for the forthcoming year will be 3m under the existing policy. Credit customers representing 30 per cent of trade
Delphi plc has recently decided to enter the expanding market for minidisc players. The business will manufacture the players and sell them to small TV and hi-fi specialists, medium-sized music stores and large retail chain stores. The new product will be launched next February. Predicted sales
Goliath plc is a retail business operating in Ireland. The most recent financial statements of the business are as follows: Income statement for the year to 31 May 000 000 Sales revenue 2,400.0 Less Cost of sales Opening inventories 550.0 Add Purchases 1,450.0 2,000.0 Less Closing inventories 560.0
1 Describe what managers do and why they need accounting information 2 Appreciate the key characteristics of management accounting information
3 Review the impact on business of organizational and technological change, managing for value, the sustainability agenda and corporate governance
4 Appreciate that management accounting principles can be useful irrespective of who applies them or where they are located in an organization
1 Understand the need for costing for external financial reporting
2 Identify each of the three basic cost elements involved in the manufacture of a product
3 Distinguish between product costs and period costs and give examples of each
4 Understand the basics of cost behaviour
5 Identify and give examples of variable costs and fixed costs
6 Define cost classifications used in making decisions: differential costs, opportunity costs and sunk costs
2–1 What are the three major elements of product costs in a manufacturing company?
2–2 Distinguish between the following: (a) direct materials, (b) indirect materials, (c) direct labour, (d) indirect labour, and (e) manufacturing overhead.
2–3 Explain the difference between a product cost and a period cost.
2–4 Why are product costs sometimes called stock-related costs? Describe the flow of such costs in a manufacturing company from the point of incurrence until they finally become expenses on the profit and loss account.
2–5 What is meant by the term cost behaviour?
2–7 How do fixed costs create difficulties in costing units of product?
2–8 Why is manufacturing overhead considered an indirect cost of a unit of product?
2–9 Define the following terms: differential cost, opportunity cost, and sunk cost.
2–10 Only variable costs can be differential costs. Do you agree? Explain.
E2–1 The following are a number of cost terms introduced in the chapter:Choose the term or terms above that most appropriately describe the cost identified in each of the following situations. A cost term can be used more than once.1 Lake Company produces a bag that is very popular with college
E2–2 Time allowed: 10 minutes A product cost is also known as a stock-related cost. Classify the following costs as either product (stock-related) costs or period (non-stock-related)costs in a manufacturing company:1 Depreciation on salespersons’ cars 2 Rent on equipment used in the factory 3
E2–3 Time allowed: 10 minutes Below are a number of costs that are incurred in a variety of organizations:1 X-ray film used in the radiology lab at Queens Medical Centre in Nottingham 2 The costs of advertising a Madonna rock concert in London 3 Depreciation on the Planet Hollywood restaurant
E2–4 Time allowed: 20 minutes The following cost and stock data are taken from the accounting records of Mason Company for the year just completed:Required 1 Prepare a schedule of cost of goods manufactured in good form 2 Prepare the cost of goods sold section of Mason Company’s profit and loss
E2–5 Time allowed: 15 minutes Below are listed various costs that are found in organizations:1 Hamburger buns in a McDonald’s outlet 2 Advertising by a dental office 3 Apples processed and canned by Del Monte Corporation 4 Shipping canned apples from a Del Monte plant to customers 5 Insurance
P2–6 Cost identificationWollongong Group Ltd of New South Wales, Australia, acquired its factory building about ten years ago. For several years the company has rented out a small annex attached to the rear of the building. The company has received a rental income of £30,000 per year on this
P2–7 Supply missing production and cost data Time allowed: 30 minutes Supply the missing data in the following cases. Each case is independent of the others. Case 1 2 3 4 Direct materials 4,500 6,000 5,000 3,000 Direct labour ? 3,000 7,000 4,000 Manufacturing overhead 5,000 4,000 ? 9,000 Total
P2–8 Cost classification Time allowed: 20 minutes Various costs associated with the operation of a factory are given below:1 Electricity used in operating machines 2 Rent on a factory building 3 Cloth used in drapery production 4 Production superintendent’s salary 5 Cost of labourers assembling
P2–9 Cost identification Time allowed: 40 minutes The Dorilane Company specializes in producing a set of wooden patio furniture consisting of a table and four chairs. The set enjoys great popularity, and the company has ample orders to keep production going at its full capacity of 2,000 sets per
P2–10 Cost classification Time allowed: 25 minutes Listed below are a number of costs typically found in organizations:1 Property taxes, factory 2 Boxes used for packaging detergent 3 Salespersons’ commissions 4 Supervisor’s salary, factory 5 Depreciation, executive cars 6 Workers assembling
P2–11 Cost identification Time allowed: 20 minutes Tracy Beckham began dabbling in pottery several years ago as a hobby. Her work is quite creative, and it has been so popular with friends and others that she has decided to quit her job with an aerospace firm and manufacture pottery full time.
P2–12 Cost behaviour; manufacturing statement; unit costs Time allowed: 40 minutes Visic Company, a manufacturing firm, produces a single product. The following information has been taken from the company’s production, sales, and cost records for the just completed year.The finished goods stock
1 Explain how changes in activity affect contribution margin and profit
2 Compute the contribution margin ratio (CM ratio) and use it to compute changes in contribution margin and profit
3 Show the effects on contribution margin of changes in variable costs, fixed costs, selling price and volume
4 Compute the break-even point by both the equation method and the contribution margin method
5 Prepare a cost–volume–profit (CVP) graph and explain the significance of each of its components
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