BE211/4 – Introduction to Managerial Accounting

BE211/4 – Introduction to Managerial Accounting
TMA – Second Semester 2016 - 2017
Cut-Off Date: Week 11 (as decided by the Deanship)

About TMA:
The TMA covers the management accounting concepts and practices in the businesses. It is marked out of 100 and is worth 20% of the overall assessment component. It is intended to assess students’ understanding of some of the learning points within chapters 16, 20, 22 and 24. This TMA requires you to apply the course concepts. The TMA is intended to:
 Assess students’ understanding of key learning points within chapters 16, 20, 22 and 24.
 Increase the students’ knowledge about the reality of the cost and management accounting as a profession.
 Develop students’ communication skills, such as essay writing, analysis and presentation of material.
 Develop the ability to understand and interact with the nature of the managerial accounting tools in reality.

The TMA:
The TMA requires you to:
1- Review various study chapters of ’Financial & Managerial Accounting’ Book and apply some of the concepts within it.
2- Conduct a simple information search using the internet.
3- Present your findings in not more than 1,200 words (800 words for Part A and 400 words for Part B). The word count excludes headings, references, title page, and diagrams.
4- You should use a Microsoft Office Word and Times New Roman Font of 12 points.
5- You should read and follow the instructions below carefully. Each part of the process will carry marks for the assignment.

Criteria for Grade Distribution

Criteria Content Referencing Structure and Presentation of ideas Total marks
Part A Part B
Management Accounting for Wisdom Electronics Budgeting for Cramer Company
Marks 60 40 (5) (5) 100





Part A
Management Accounting for Wisdom Electronics

Wisdom Electronics is one of the leading electronic products manufacturing companies in Gulf region. The company has been doing well in its sales and achieving growth. Their Sales always exceeded the targets fixed and costs had always been under control. This resulted in maximum profit for the company in the region. The founder of the company, Mr. Ahmed, has been wondering whether there could be some changes in internal processes possible in the company. To get an answer this question, the founder had several meetings with the staff members working for the company. In such meetings, the staff recommended for a major restructure in the organization which could include changes in structure, policies, procedures and processes.

The finance department of the company recommended that the company is in need of management accounting systems which would help in a greater extent to achieve this objective. The founder of the company had to ask finance people about the role of management accountant and management accounting in an organization. The finance department staff had to work on the role of management accounting and its relevance for the successful implementation of certain strategies and present a report to the founder.

(1) Cost Statements of Wisdom Electronics

Wisdom Electronics is manufacturing three different products say A, B and C. The cost details of these three products for the month of March 2017 are as follows:

Products
Information A ($) B ($) C ($)
Beginning work in process inventory 42,400 81,000 4,400
Direct Materials used 28,400 70,400 6,600
Direct Labour 21,600 41,400 2,800
Manufacturing Overheads 21,000 21,000 1,600
Ending work in process inventory 20,400 51,800 5,000

(2) Estimations for Products A, B and C

Wisdom Electronics has estimated the sales and cost details for the month of April 2017 as given below:

Information/Products A B C
Sales price per unit $ 60 $ 180 $ 200
Variable Cost per unit $ 30 $ 60 $ 140
Total Fixed Cost ($) $ 162,500

Wisdom Electronics expects to sell A, B and C in the ratio of 3: 2: 1 sales mix ratio.






(3) What if analysis for Wisdom Electronics

The summary of cost and selling price details of Products A, B and C is given again below:

Information/Products A B C
Sales Units 1500 1000 500
Sales price per unit $ 60 $ 180 $ 200
Variable Cost per unit $ 30 $ 60 $ 140
Total Fixed Cost ($) $ 162,500

Wisdom Electronics has been using what if analysis (sensitivity analysis) to predict changes that might arise in sales and cost estimations. The following what if scenario have been estimated by the finance department.

What if scenario?

(1) Selling price is expected to increase as $ 90, $ 200 and $ 240 for Products A, B and C respectively and variable cost per unit does not change (as given above in the table)

(2) Variable Cost per unit is expected to change as $ 50, $ 80 and $ 150 for A, B and C respectively and the selling price expected to be same (as given above in the table)


Required

(1) The founder of Wisdom Electronics is looking for implementing management accounting systems in his organization. CIMA (UK) defines management accounting as “sourcing, analysis, communication and use of decision-relevant financial and non-financial information to generate and preserve value for organizations”

In the above context, explain the concept of management accounting and explain how management accounting helps organizations to generate and preserve value for organizations. (Hint: some analytical and broader views on management accounting required) (20 marks)


(2) Based on cost details given in Table (1), determine the cost of goods manufactured for Products A, B and C for the month of March 2017 (9 marks)


(3) Based cost and selling price estimation data (given in 2), find the following:

(i) BEP in units for each of the products and prove your answer (11 marks)

(ii) Estimate the sales (units) & (in money value) required to earn a target profit of $ 227,500 (5 marks)


(4) Evaluate what if scenarios (given above in 3) by finding operating income (profit) earned on each scenario separately (2 scenarios) and comment on the results (15 marks)

PART B

Budgeting for Cramer Company

(1) Cramer Company prepared the budgeted income statement for the first quarter 2017 as below:

Information Amount
Sales Revenue 120,000
Less: Cost of Goods sold 50,000
Gross Profit 70,000
Selling & Administration Expenses 15,000
Operating income 55,000
Income Tax expense (30% of operating income) 16,500
Net Income 38,500

Cramer wants to estimate the net income for the subsequent three quarters (second quarter, third quarter and fourth quarter). Following information is available for estimations:

(a) Sales is expected to increase 20% in second quarter & 25% in third quarter and 30% in fourth quarter

(b) Cost of goods sold is expected to be 70% of respective quarter’s Sales value (in $)

(c) Selling & Administration expenses are expected to be $ 15,000 for first quarter. For subsequent quarters, it is going to be $ 15,000 + 12% of sales revenue ($) of respective quarter)

(d) Income tax is 30% of operating income. The tax rate will remain the same for the whole year.

(Note: all percentage to be calculated on 1st quarter amount. It is assumed that base value for estimating values for second, third and fourth quarter is the first quarter amount


(2) Estimations concerning Product M of Cramer Company

Cramer manufactures various products and one of its products is M. The estimates concerning its sales, selling price and inventory are as given below:

Information April May June July
Sales (Units) 1,500 1,750 2,000 2,000
Selling price per unit ($) $ 175 $ 175 $ 200 $ 200
Beginning Inventory 200 units
Closing Inventory 10% of next month’s sales






(3) Cramer is operating nationally and internationally. The operating income and total assets of these divisions (domestic and international) are furnished below:

Information Domestic ($) International ($)
Operating income ($) 7,500 12,500
Average Total Assets ($) 22,500 50,000


Required

(1) Estimate the operating income of Cramer Company for the next three quarters (i.e. second, third and fourth quarters of 2017) based on the information given above. (12 marks)


(2) Prepare Sales and Production Budget for Cramer Company for Product M for Second quarter (April, May and June) (8 marks)


(3) Determine Return on Investment (ROI) for both the divisions and comment on their performance (10 marks)


(4) Define Decentralization and explain how decentralization will help Cramer Company to achieve its objectives? (10 marks)








END OF TMA QUESTIONS