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Topic: management accounting coursework

Assignment Brief

You are employed by a firm of management consultants and have been asked to work with a number of clients to address their management accounting requirements:

Client 1 General Engineers Ltd have asked you to write an information pack that will help to promote understanding across the organisation of the role of management accounting.  The information pack should address the following:

  1. An explanation of management accounting and an outline of the types of management accounting system and reports available to managers (P1, P2)
  • An outline of one pricing strategy from the following: cost-plus pricing, value pricing, teaser pricing, strategic pricing (P3)
  • An explanation of when management might apply marginal costing as a management technique and when it should be avoided (P3)
  • An outline of the advantages/disadvantages of budgeting (P4)
  • An explanation of the use of benchmarks and key performance indicators to respond to financial problems (P5)

Client 2South London Fabricators is a small manufacturing company.  One product it manufactures is a component for bicycles.  Information:

  1. There are three production departments (A, B, C) and one service department (X)
  2. Direct materials – £8
  3. Direct labour booked:
    1. A: 2 hours at £9 an hour
    1. B: ½ hour at £12 an hour
    1. C: ¼ hour at £ 16 an hour
  •  Production overheads for the month
Overhead£
Rent9 000
Computer maintenance12 000
Supervisors salary5 000
Depreciation on computers6 000
Service department salaries9 000
  • Additional information
 Production AProduction BProduction CService X
Area (sq metres)400200200100
Time spent maintaining computers (hours)60401010
Supervisor’s time spent in departments25%25%25%25%
Value of computers£30 000£20 000£8 000£2 000
  • It has been agreed that the service department spends its time equally between the three production departments.
  • It is the policy of the company to calculate an overhead rate per labour hour for departments A and C and an overhead rate per machine hour for department B. The number of hours in the month were:

A: 500 labour hours

B: 250 machine hours

C: 1 000 labour hours

The bicycle component uses 6 hours of machine time in production department B

Required:

  • Calculate production cost by determining overhead absorption rates using an overhead absorption table and draw up a production cost statement to calculate production cost of the component.
  • Calculate selling price by adding 70% to the production cost to cover overheads and profit.

(P3)

Client 3The Fulham Pottery manufactures one product. The following costs relate to 2018 when 20 000 units are made

Direct materials Direct Labour Indirect costs£400 000 £240 000 £300 000

Cost behaviour:

Direct material and direct labour costs are variable

Of the indirect costs £200 000 are fixed and the remainder are variable.

Required:

  1. Calculate the cost of one unit of the product using marginal costing
  • If each unit of the product sells for £50, and all 20 000 units of production are sold calculate the profit for the year using a marginal costing statement. Show the contribution per unit, total contribution and profit

(P3)

Client 4 West London College are planning to organise a conference for local business on the implications of Brexit, the UK’s decision to leave the EU. All attendees will be charged £50 to include refreshments, lunch, and an information pack.  The estimated costs of the conference is as follows:

Refreshments Speakers’ fees Lunch Insurance Information pack Hire of lecture theatre Advertising£ 10 per person £ 250 £ 15 per person £ 95 £ 5 per person £80 £75  

Required:

Calculate the break-even point in terms of number of people needed to attend the conference

Calculate the profit or loss if attendance was 15

Calculate the profit or loss if attendance was 30

  (P3)

Client 5Aardvark and Sons has provided you with information about its projected production, costs and revenues for the following year together with a proposition from a potential new customer:

Production

It is anticipated that 3 000 units will be manufactured

Costs

 £ 
 Direct labour3 000
 Direct materials6 000
 Factory Indirect Expenses9 000
 Production cost18 000
 Fixed Overheads3 000
 Total cost21 000

Total cost per unit: £21 000/3 000 units = £7 per unit

The Factory Indirect Expenses are 2/3rds fixed and 1/3rd variable

Revenue

Each unit will be sold for £12 generating £36 000 revenue (3 000 units x £12)  

Proposition

A potential customer approaches the company and offers to buy an additional 300 units but at half the normal selling price: £6.00. 

Required:

  1. Evaluate the proposition by drafting a statement that calculates the total profit if the order is not accepted and if the order is accepted. Check your workings by drawing up a marginal cost statement for one additional unit to determine the profit or loss if the order is accepted.   Advise management as to whether the order should be accepted or not giving you reasons why.  Base your decision on financial grounds only.

(P3)

Client 6The Last Company Ltd, is famous for its ‘Snowden’ range of hill walking boots.  The management of the company are considering the production for next year and have asked you to help with certain financial decisions. The following in formation is available:

Selling price (per pair) Raw materials (per pair) Direct labour (per pair) Fixed costs£30 £ 7.50 £ 5.50 £150,000.00 per year

The company is planning to manufacture 12 500 pairs of boots next year

  1. You are asked to calculate:
  • the marginal cost per pair
  •  the absorption cost per pair
  • the break-even pint (in pairs of boots)
  • the profit or loss if 12 500 pairs of boots or sold
  • A mail order company, Salesbypost Ltd, has approached The Last Company Ltd. With a view to selling the ‘Snowdon’ boot through its catalogue.  Salesbypost Ltd is prepared to guarantee to sell 2 500 pairs pairs of boots each year but, in view of the large quantity, offers a price of £20 per pair.  As The Last Company Ltd usually sells through specialist shops, it is not expected that ‘normal’ sales will be affected.  This ‘special order’ is within the capacity of the factory, and fixed costs will remain unchanged.  You are to advise the management as to whether this offer should be accepted.  The advise should be supported by appropriate financial statements. (M2)
  • A manufacturer in the Far East has offered to make the ‘Snowden’ boot under licence at a cost of £20 per pair up to 10 000 pairs, and then £15 per pair above this level. Quality is guaranteed and if this option is taken, The Last Company Ltd would cease manufacturing and would act as distributers; as a result, fixed costs would fall by £100 000 pa.

You are to advise the company, in financial terms, if this offer should be taken up.  Justify your answer with supporting financial statements.

Are there any other points other than financial, that The Last Company Ltd should consider before making its decision. Justify the points raised by you. (D2)

Client 7

Kings B&B is a bed and breakfast establishment that caters for individual travellers who want a good night’s sleep in a clean bed with a hearty breakfast. There are 10 single bedrooms available, and bed and breakfast is priced at £16 per person per night.  Kings B&B is open 7 night a week.  The following are typical costs:

      Heating & lighting Breakfast foods Cleaning staff- basic pay Cleaning staff- bonus Administration Laundry Catering staff Other overheadsWeekly Costs (for the whole place)   £20   £100   £10   £70 £80Costs Per Guest Night       £3   £1   £2

Required:

Present financial statements to 

  • Calculate the fixed costs per week and the contribution per guest per night.
  • Calculate the average number of guests per night it would take to break-even
  •  Calculate the weekly profit or loss if there were 42 guest nights in a week (i.e. an average of 6 guests on each of the 7 nights

(M3)

Client 8

The following information has been extracted from the records of Cairney Ltd for the year to 31st December 2016

Standard/Budgeted costs per unit:£
Direct materials16
Direct labour25
Variable overhead10
Fixed overhead32
Total budgeted cost per unit83

The following data are also relevant:

a) Budgeted sales were 195 units at a selling price of £110 per unit

b) Actual sales were 185 units.  Each unit was sold for £105 per unit

c) Actual number of units produced was 200 units

Actual costs:    

Actual costs:£
Direct materials2 550
Direct labour5 100
Variable overhead2 100
Fixed overhead6 600
Total actual costs16 350

Required:

            Calculate the:

  1. Budgeted sales
    1. Budgeted cost of sales
    1. Budgeted gross profit
    1. Sales volume profit variance
    1. Sales price variance
    1. Direct materials variance
    1. Direct labour variance
    1. Variable production overhead variance
    1. Fixed production overhead variance
  • Draw up a standard cost operating statement
  • Examine direct labour costs and direct material costs and its constituent variances and explain possible causes of these variances

(P3)

Client 9

Dickson Etehu is intending to set up in business and has asked you to draw up a Master Budget from the following projected activities. 

  1. January 1st.  He will put into the business £15 000 of his own money by opening up a business bank account.  He will also provide the business with a Motor Van he owns, valued at £4 000.
  2. In January, using the money from the business bank account, the following fixed assets are acquired: Premises £6 000, Fixtures and Fittings £3 000.
  3. All sales are on credit.  Sales will be: January £2 500, February £4 100, March £4 500, April £4 300, May £4 800, June £4 900.  The business allows customers two months credit (e.g. sales in January will result in money being received in March.
  4. All purchases are on credit.  The business will buy £1 500 worth of stock in January and pay for them in two months time.  Other purchases will be: February £2 100, March £2 000, April £2 000, May £2 400, June £2 500.  The business will pay for these (‘payments to creditors’) one month after purchase.
  5. At the end of the six month period it is estimated that unsold stock will be valued at £2 100.
  6. Overheads (expenses) are estimated to be £1 200 per month. These will be paid for in the month they are incurred.
  7. Dickson will take out £220 per month for his own use (‘Drawings’).
  8. It is estimated that depreciation on the Motor Van and the Fixtures and Fittings will be 20% a year.

From the information given above draw up

  1. Opening statement of affairs as at January 1st.
  2. Cash flow forecast for six months ended June 30th.
  3. A forecast trading and profit and loss account for the six months ended June 30th.
  4. A forecast balance sheet as at that date
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