Aim of the coursework:
The assessment has the following Learning Outcomes to be met:
- Understand concepts, tools and techniques of management accounting in different contexts.
- Evaluate, assess and apply traditional and contemporary costing systems in practice.
- Develop analytical and critical judgements to evaluate relevant and irrelevant information and contribute in planning, organising and decision making in managing organisational resources.
- Critically evaluate scope of management accounting in organisational contexts and explore alternatives to make optimal use of production resources.
- Candidates are allowed to make reasonable assumptions, especially when advices or recommendations would be provided. All assumptions should be clarified. It is candidates’ liability to ensure that their assumptions do not contradict any information provided/instructed in the coursework task.
Life Symphony Enterprises (LSE)produces health and beauty products with manufacturing and distribution facilities all over the UK. The company currently employs 1,000 employees with an annual turnover of £30m. Sally Mason is the Group Management Accountant of the firm and her primary role includes supporting other staff working in variousdivisions in making decisions on cost management; divisional performance evaluation and operational priorities. This week, she has received several queries from various offices. You, as a promising intern, has been appointed to assist her in various investigations. In your interview for this position, you had demonstrated your knowledge in various management accounting issues, for instance, cost classifications, behavioural analysis, cost reporting under marginal and variable costing, traditional costing system, Activity-based costing systemand variance analysis. Sally is really looking forward to working with you and on your fifth day in the job, she has handed you email trails, notes and conversation with her colleagues. You have arranged all materials in order and found the following:
- On 10thFebruary, 2020 John Beecroft from the group’s Hull Division sent her an email asking for some clarification on cost calculation. The division estimates overhead costs as £12 per machine hour. John observed that in the last few months, the estimatedoverheadcostscould not predict the product cost well. John sent the following 8 occurrences as evidence:
|Machine hours||Actual Overhead costs (£)|
Sally’s note suggests that counting overheads as a variable cost probably cause the inaccurate estimates though she put several interrogative signs (???) suggestingfurther investigation.
Write an email/ note on behalf of Sally to John explaining the possible causes of distorted overhead cost per machine hour by exhibiting an application of any management accounting technique that may provide a better result.(10 marks)
- Sally has just forwarded an urgent email from the production manager- Marina Stantonof York Division for you to reply. Marina prepared a draft Profit and Loss account for twoyears- 2019 and 2020 ending on 31st December for the internal purposes; however, the net profit figures widely vary with the one prepared for external auditor. Marina is looking for any possible explanations of the profit differences. She also does not understand why profit figures fall in 2020 in the profit statement prepared for internal purposes than the external ones when the number of sales units are expected to be higher than those of 2019.
You are unable toaccess both statements (internal and external) Marina prepared since your access privilege is restricted. Sally and Marine are both attending a regional meeting in which the performance of York division will be discussed and you cannot reach anyone of them by phone. You have managed to reach out Marina’s secretary who has sent you some figures based on which Marina was working on.
2019 (in units) 2020 (in units)
Units produced 5,000 7,000
Opening inventory 1,500 ?
Closing inventory 500 1,000
Costs: (£) (£)
Direct material 40/ unit 42/ unit
Direct labour 30/ unit 33/ unit
Variable manufacturing o/h 10/ unit 12/ unit
Variable selling& admin o/h 5/ unit 6/ unit
Fixed manufacturing o/h 220,000 per year
Selling and administrative o/h 100,000 per year
The group’s policy is to make 60% contribution margin ratio and it uses FIFO inventory system across its divisions.
Compose a reply to Marina addressing her queries. You should engage appropriate management accounting tool, technique and/or concept to reach your conclusion and explain the techniques to Marina briefly. The detailed analysis with the two profit and loss statements (internal and external) can be sent to Sally and Marina as attachments to your reply so that they can verify your calculation and include them in Marina’s presentation in the regional meeting. (20 marks)
- Among the papers Sally handed you earlier, you have found some estimated data on a newmanufacturing divisionat Newcastle which is at the final approval stage from EU cosmetic legislation to commence production. The Senior Management Team of the group is currently looking for a suitable accountant for the pre-opening assignments and Sally has been assigned to set upthe costing systemfor the time being.Sally has collated the following information based on her experience with other similar division in the group.
- This division will produce different beauty products and costs will be allocated to jobs. Like the other existing divisions of the group, the Newcastle division will have five departments- two manufacturing (Processing and Sealing) and three service departments (maintenance, recreation and Estate). Recreation department’s overhead costs will be apportioned equally between manufacturing departments. Other service departments’ costs will be apportioned in the following manner:
- For the year to 30th April, the departments’ (cost centre) expenses and other relevant information Sally estimated are as follows:
|Total costs (£)||Proc||Seal||Main||Can||Estate|
|Indirect wages||200,000 (approx.)||Living wages 20/21 for above 25 years+ 20% premium||Living wages 20/21 for above 25 years||Living wages 20/21 for above 25 years|
|Factory supervisor’s salary||75,000|
|Indirect labour hours||10,000||4,000||6,750|
|Direct material cost||1,500,000||11,500 kgs||3,500 kgs|
|Floor space (in sq metre)||7,000||5,000||1,000||800||1,200|
|Direct labour hours||3,000,000||120,000||30,000|
Sally is hoping you would prepare a report with a detailed explanation of the available costing system you are planning to use and exhibiting the calculation of manufacturing overhead absorption rate and how that rate will be used to calculate product cost. In your report, you may also include your suggestion for a better costing system and the requirements to implement it in the new division. You are allowed to make up some imaginary information as example to clarify the proposed system. Also, any research findings would be helpful to convince the board of directors.
- In addition to the above, Sally is asking you to calculate the cost of first order- (J001) to be manufactured in order to conduct testing and get certificates from the compliance authority. The following information has been collected from the operation manager who is working on this pre-opening project.
|Direct material||100 kgs||30 kgs|
|Direct labour||300 hours||150 hours|
|Machine hours||120 hours||200 hours|
How do the different costing systems you suggested in your report influence cost calculation of J001? Explain their differences as well.
- Do you believe that the costing system would be entirely different from the above if Newcastle division would produce single, homogeneous product that would flow through a continuous production process? How much would be per unit cost then? You are allowed to make reasonable assumptions and figures to clarify how the new system might work. (Hints: Assume that instead of several health and beauty products, if the division only produces hand sanitizers in 100 ml cosmetic bottles, what would be the costing system? How would you calculate cost per product when the annual manufacturing costs provided in the 3(b) will be incurred for producing 200,000bottles?Presentation and clarification of tentative cost calculation are key here.) (45 marks)
- Sally is reviewing last month’s performance of Leeds division due to large variances flagged up in the system. Sally has asked you to analyse the variances and identify possible causes. You should make reasonable assumptions to apply appropriate management accounting tools or techniques to investigate the issues and identify responsible individuals/ departments who should be held responsible. In addition, you should suggest different ways managers could improve the division’s performance by providing evidence from existing research.
The division produces premium day cream and the standard cost of 100 ml cream in cosmetic tubesis provided below:
|Cost category||Standard quantity||Standard cost per 100 ml|
|Direct materials: Material A Material B||0.5 kg 0.25 litres||£25 £15|
|Direct labour||2 hours||£40|
|Variable manufacturing overhead||30 minutes||£25|
- The company targets to sell 48,000 cosmetic tubes per year at a price of £180 per tube.
- Fixed manufacturing overheads are applied on the basis of direct labour hours. The budgeted fixed overhead of the division including common costs is £1,800,000 annually at a planned activity level of 96,000 direct labour hours per year.
|Quantity||Total revenue/ costs (£)|
|Production and sales||4,200 tubes||747,600|
|Direct material purchased: Material A Material B||2,200 kg 1,125 litres||121,000 66,375|
|Direct material used: Material A Material B||2,000 kg 1,050 litres|
|Direct labour||8,800 hours||180,400|
|Variable manufacturing overhead||2,050 hours||106,600|
|Fixed manufacturing overhead||180,000|
- The actual data retrieved at the end of the month is as follows