Management Accounting5einformation for creating and managing value (Assignments )

April 17 ,2012May 8 ,2012

th th

Class: 27

No. Name Scores

Chapter 1

Part 1Key Terms

management accounting customer value shareholder value financial accounting business(or competitive) strategy strategy implementation competitive advantage cost leadership product differentiation control systems
Chapter 2

costing system budgeting system performance measurement system cost management system cost driver variable cost fixed cost cost object direct cost indirect cost controllable cost uncontrollable cost value chain research and development costs design costs supply costs product cost marketing cost distribution costs customer services costs manufacturing costs non-manufacturing costs

/ direct materials/indirect materials / direct labor/indirect labor manufacturing overhead Chapter 9 strategic planning annual budget operating budgets financial budgets rolling budget sales forecasting sales budget cost budgets production budget purchases budget cash budget capital expenditure budget budgeted balance sheet budgeted income statement budget manual budget committee participative budgeting top- down budgeting bottom-up budgeting employee empowerment participative budgeting budgetary slack budget difficulty zero-base budget flexible budget static budget Chapter 10 & Chapter 11

standard cost analysis of historical data engineering method perfection standards practical standards flexible budget report formula flexible budget

Part 2Questions The meaning of the Management Accounting.

direct material price variance direct material quantity variance direct labor rate variance direct labor efficiency variance variable overhead spending variance variable overhead efficiency variance fixed overhead budget variance fixed overhead volume variance cost variance report statistical control chart management by exception standard costing system activity-based costing activity-based budgeting

The processes and techniques that focus on the effective use of organizational resources, to support managers in their tasks of enhancing both customer value and shareholder value.
The meaning of the Value chain.

A set of linked processes or activities that begins with acquiring resources and ends with providing (and supporting) products and services that customers value.
Whats the purposes of budgeting

Planning .The most obvious purpose of a budget is to express a plan of action in financial terms. Facilitating communication and coordination. For a business to plan operations effectively there must be good communication and coordination between all managers Allocating resources. The budgeting provides a forum for evaluating alternative uses of those limited resources. controlling profit and operations. The budget can serve as a benchmark to allow a comparison against actual financial result at all levels of a business. Evaluating performance and providing incentives. comparing actual results with budgeted results also helps managers to evaluate the performance of individuals, departments, division or the entire company.
Explain the shortcomings and advantages of the standards costing system.

Shortcomings: Variances are too aggregated and concentrate on the consequences rather than the causes of problems. Variances reports are produced too late to be useful. Standard costing systems tend to focus too heavily on cost minimization. Standard costing systems take a departmental perspective rather than a process perspective.

Standard costing systems place too much emphasis on the cost and efficiency of direct labour. Overhead variances, in particular, give limited information for cost control. Variance analysis does not explicitly encourage continuous improvement. Standard costs become outdated quickly because of shorter product life cycles. Standard costing systems are not defined broadly enough to capture the full costs of materials. Advantages: Standard costs provide a good basis for cost comparisons. Calculation of standard costs and cost variances enables managers to use management by exception in order to concentrate on significant variances only. Variances can provide a convenient basis for performance evaluation and determining bonuses for employees. Participation in the setting of standards, assigning responsibility for certain variances and the use of variances for performance evaluation can have a motivational effect on employees. The use of standard costs in product costing results in more stable product costs compared to actual product costs. DMPV = (PQAP) (PQSP)=PQ(AP SP) DMQV = (AQSP) (SPSQ)=SP(AQ SQ)

Part 3Formulas Show the formula of the standard cost variances for cost control.

DLRV = (AHAR) (AHSR)=AH(AR SR) DLEV = (AHSR) (SHSR)=SR(AH - SH) VOSV = actual variable overhead (AH SVR) VOEV = (AH SVR) - (SH SVR)=SVR(AH SH) FOBV =actual fixed overhead budget fixed overhead FOVV = budgeted fixed overhead applied fixed overhead
Prepare the journal entries using standard costs for product costing. The entries of the Raw Materials Purchases and Issues: The entries of the Direct labor Payment and Allocated: The entries of the Manufacturing Overhead Occurs and Allocated The entries of the disposition of all variances by directly to cost of goods sold expenses.

Raw material inventory: PQ SP Direct material price variance: PQ (AP-SP) Accounts payable: PQ AP To record the purchase of raw material and an unfavorable price variance Work in process inventory: SQ SP Direct material quantity variance: SP (AQ-SQ) Raw material inventory: AQ SP To record the use of direct material in production and an unfavorable quantity variance

 Work in process: SH SR Direct labour rate variance: AH(AR-SR) Direct labour efficiency variance: SR(AH-SH) Wages payable: AHAR To record the usage of direct labour and the direct labour variances. Manufacturing overhead Indirect materials inventory Electricity payable Wages payable Prepaid rent Prepaid insurance Accumulated depreciation Work in process inventory Variable overhead spending variance Variable overhead efficiency variance Fixed overhead budget variance Manufacturing overhead Fixed overhead volume variance To record the application of manufacturing overhead to work in process inventory and the manufacturing overhead variances Cost of goods sold Direct labour efficiency variance Fixed overhead volume variance Direct labour rate variance Direct material price variance Direct material quantity variance Variable overhead spending variance Variable overhead efficiency variance Fixed overhead budget variance To record the closing of the direct market and direct labour variances to cost of goods sold.
Part 4Translating or Writing If you had " Management Accounting A (ACC281) scores below 80, please put each chapter summary translation into Chinese at Page26, Page60, Page462, Page10, Page11if scores above 80 writing the English on the back of this papers . Part 5: Problems 1. Manufacturing cost schedulesPage 73P2.39 The following date refers to Primrose Manufacturing Ltd for the current year: Sales revenue $2 105 000 Raw material inventory, 1 January 89 000 Purchase of raw material 731 000 Raw material inventory, 31 December 59 000 Direct labour cost incurred 474 000 Selling and administrative expenses 269 000 Indirect labour cost incurred 150 000

Council rates 90 000 Depreciation on factory building 125 000 Income tax expense 25 000 Indirect material used 45 000 Depreciation on factory equipment 60 000 Insurance on factory and equipment 40 000 Electricity for factory 70 000 Work in process inventory, 1 January 0 Work in process inventory, 31 December 40 000 Finished goods inventory, 1 January 35 000 Finished goods inventory, 31 December 40 000 Required: Prepare Primrose manufacturings: 1. Schedule of cost of goods manufactured. 2. Schedule of cost of goods sold. 3. Income statement 2. Prepare the operation budget.P470Appendix Jacobite Cleaners Pty Ltd produces two cleaning products and sells them to industrial cleaning business. The budget estimates for the coming year are as follows: (1)Finished goods:
Sales Volume (units) Selling Price Required inventory end of years(units) 1 000 12 750 Required inventory end of years (liters) 30 000 5 000 3 000 5 000 Balance inventory at beginning of year (units) 2000$45 =$90 000 275020 =$55 000 Balance beginning of year (liters)

Products

Miracle Foamy

120 000 385 000

$ 85 50

(2)Direct material
Material Cost per liters Direct materials per unit of finished product (litres)
Miracle Foamy

A B C D

$ 1.50 1.00 3.00 2.50

6 4 2 6

3 1 2 0

20 000 4 250 5 500 8 000

(3)Direct labour
Process Blending Packaging Batch size (units) Direct labour hours per unit Direct labour hours per batch of finished product Miracle Foamy 3.0 1.2 0.3 3.3 33 0.1 0.2 1.4 35 0.04 $25 Cost per direct labour hour

Required:

 Prepare sales budget. Prepare production budget. Prepare material budget. Prepare direct material purchase budget. Prepare direct labour budget. Prepare manufacturing overhead budget. Calculate the predetermined overhead rate. Calculate budgeted cost per unit. Prepare the cost of goods sold budget. Prepare budgeted income statement. 3. Variances: direct material & direct labour P532P10.38 During January. Tasman Ltd produced 7 800 valve units, and the accounting records indicated the following: Direct material purchased 25 000 kg @ $ 2.60 per kg Direct material used 23 100 kg Direct labor 40 100 hs @ $ 18 per hour The valve has the following standard prime costs: Direct material 3 kg @ $ 2.50 per kg $ 7.50 Direct labour hours: 5 hs @ $ 17 per hour $85.00 Standard prime cost per unit $92.50 Required: 1. Calculate the following variances, indicating whether each variance is favorable or unfavorable: (1) Direct material price variance. (2) Direct material quantity variance. (3) Direct labor rate variance. (4) Direct labor efficiency variance. 2. Prepare journal entries to: (1) Record the purchase of direct material on credit. (2) Add direct material and direct labor cost to work in process inventory. (3) Record the direct material and direct labor variances. (4) Close these variances to cost of goods sold. 4. Variances: Manufacturing OverheadP580E11.35 Able Control Company is a manufacturer of electrical switches and uses a standard costing system. The standard manufacturing overhead costs per switch are based on direct labor hours and are as follows: Variable overhead (5 hs @ $ 8 per hour) $40 Fixed overhead (5 hs @ $12 per hour) 60 Total overhead $ 100

Based on capacity of 300 000 direct labour hours per month.

The following information is available for the month of October: (1) 56 000 switches were produced, although 60 000 switches were budgeted. (2) 275 000 direct labour hours were worked (3) Variable overhead costs were $2 340 000 Included: Indirect materials $1 375 000 Electricity expenses $275 000 Other consumables $690 000

(4) Fixed overhead costs were $3 750 000 Included: Supervisors` salaries $950 000 Depreciation $2 000 000 Factory rent $500 000 Insurance $300 000 Required: 1. Calculate the following variances, indicating whether each variances is favorable or unfavorable: (1) Variable overhead spending variances. (2) Variable overhead efficiency variances. (3) Fixed overhead budget variances. (4) Fixed overhead volume variances. 2. Prepare journal entries to: (1) Record the incurrence of actual variable overhead and actual fixed overhead. (2) Add variable and fixed overhead to work in process inventory, and account for the overhead variances. (3) Close the variances to cost of goods sold. 3. Present the overhead variances calculated as a four-way, three-way and two-way overhead variances analysis

Answers:
1. Page 73P2.39 Primrose Manufacturing Ltd Schedule of Cost of Goods Manufactured for the year ended 31 December Direct material: Raw material inventory,1 January $89 000 Add Purchases of raw material 731 000 Raw material available for use 820 000 Deduct Raw material inventory,31 December (59 000) Raw material used 761 000 Direct labour 474 000 Manufacturing overhead: Indirect material 45 000 Indirect labour 150 000 Depreciation on factory building 125 000 Depreciation on factory equipment 60 000 Electricity for factory 70 000 Insurance on factory and equipment 40 000 Council rates 90 000 Total manufacturing overhead 580 000 Total manufacturing costs 1815 000 Work in process inventory,1 January 0 Deduct Work in process inventory, 31 December 40 000 Cost of goods manufactured $1775 000 Primrose Manufacturing Ltd

Schedule of Cost of Goods Sold for the year ended 31 December Finished goods inventory, 1 January $35 000 Add Cost of goods manufactured 1775 000 Cost of goods available for sale 1810 000 Deduct Finished goods inventory, 31 December 40 000 Cost of goods sold $1770 000 Primrose Manufacturing Ltd Income Statement for the year ended 31 December Sales revenue $2105 000 Less Cost of goods sold 1770 000 Gross profit 335 000 Selling and administrative expenses 269 000 Profit before taxes 66 000 Income tax expense 25 000 Net profit $ 41 000 2. P470 Sales Budget Product Sales volume Selling price per unit Budgeted sales revenue Miracle 120 000 $85.00 $10 200 000 Foamy 385 000 50.00 19 250 000 Total $29 450 000 Production Budgets Miracle Foamy Budgeted sales(units) 120 000 385 000 Plus Required ending finished goods inventory 1 000 12 750 Finished goods required 121 000 397 750 Less Beginning finished goods inventory 2 000 2 750 Required production (units) 119 000 395 000 Direct Material Budget Direct material used1 Direct In production(Litres) Total Direct material material used Material Miracle Foamy (Litres) cost per litres ($) A 714 000 1 185 000 1 899 000 $1.50 $2 848 500 B 476 000 395 000 871 000 1.00 871 000 C 28 000 790 000 1 028 000 3.00 3 084 000 D 714 000 --714 000 2.50 1 785 000 4 512 000 $8 588 500
1

Direct material used in production=direct material per unit of finished number of units produced; For example: Material A used in Miracle=6119 000=714 000 litres.

Direct Material Purchases Budget A B C D

Direct material required for production 1 899 000 871 000 1028 000 714 000 (litres) Plus Ending inventory 30 000 5 000 3 000 5 000 Material needed 1 929 000 876 000 1 031 000 719 000 Less Beginning inventory 20 000 4 250 5 500 8 000 Materials to be purchased 1 909 000 871 750 1 025 500 711 000 Direct Labour Budget Direct labour Direct labour Direct lablour hours(DLH) cost@$25 Units produced hours per unit required per DLH Miracle 119 000 0.10 11 900 $297 500 Foamy 395 000 0.04 15 800 395 000 $692 500 predetermined overhead rate= = =$10.45 per unit Budgeted cost per unit Miracle Foamy Direct material Quantity Cost Unit cost Quantity Cost Unit cost A 6 $1.50 $9.00 3 $1.50 $4.50 B 4 1.00 4.00 1 1.00 1.00 C 2 3.00 6.00 2 3.00 6.00 D 6 2.50 15.00 Total material $34.00 $11.55 Direct labour 0.10 25.00 2.50 0.04 25.00 1.00 Manufacturing overhead 10.45 10.45 Budgeted production cost per unit $46.95 $22.95 Cost of Goods Sold Budget Finished goods as at beginning of year: Miracle: 2000@$45 $90 000 Foamy: 2750@$20 55 000 145 000 Material used in production $8 588 500 Direct labour used in production 692 500 Manufacturing overhead 5 368 593 Total manufacturing costs 14 649 593 $14 794 593 Less Finished goods as at end of year: Miracle: 1000@ $46.95 $46 950 Foamy: 12 750@$22.95 292 613 339 563 Cost of goods sold $14 455 030 Budget Income Statement

Sales $29 450 000 Less Cost of goods sold 14 455 030 Gross profit $14 994 970 Selling and administrative expenses 12 400 500 Net profit $2 594 470 3. P532P10.38 (1)Direct material price variance=PQ(AP-SP)=25 000($2.60-$2.50)=$2 500U Direct material quantity variance=SP(AQ-SQ)=$2.50(23 100-7 8003)=$750F Direct labor rate variance=AH(AR-SR)=40 100($18-$17)=$40 100U Direct labor efficiency variance=SR(AH-SH)=$17(40 100-78005)=$18 700U (2)Raw material inventory PQSP=2 500$2.50=$62 500 Direct material price variance PQ(AP-SP)= 2 500 Accounts Payable PQAP=$65 000 Work in process SQSP=58 500 Direct material quantity variance SP(AQ-SQ)=$750 Raw material inventory AQSP=$57 750 Work in process inventory SHSR=663 000 Direct labor rate variance AH(AR-SR)=40 100 Direct labor efficiency variance SR(AH-SH)=18 700 Wages payable AHAR=721 800 Cost of goods sold 60 550 Direct material quantity variance 750 Direct material price variance 2 500 Direct labor rate variance 40 100 Direct labor efficiency variance 18 700 4. P580E11.35 Variable overhead spending variance=$23 400-(AHSR) =$23 400-275 000$8 =$140 000U Variable overhead efficiency variance=(AH-SH)SVR=$8275 000-$4056 000 =$40 000F Fixed overhead budget variance=actual fixed overhead-budgeted fixed overhead =$3 750 000-$6060 000 =$150 000U Fixed overhead volume variance=budgeted fixed overhead-applied fixed overhead =$6060 000-56 000$60 =$240 000U Manufacturing overhead 6 090 000 Indirect materials 1 375 000 Electricity expense 275 000 Other consumables 690 000 Supervisors salaries 950 000

Depreciation 2 000 000 Factory rent 500 000 Insurance 300 000 To record actual manufacturing costs incurred Work in process 5 600 000 Variable overhead spending variance 140 000 Fixed overhead budget variance 150 000 Fixed overhead volume variance 240 000 Variable overhead efficiency variance 40 000 Manufacturing overhead 6 090 000 To record the application of manufacturing overhead to work In process inventory and the manufacturing overhead variances Cost of goods sold 490 000 Variable overhead efficiency variance 40 000 Variable overhead spending variance 140 000 Fixed overhead budget variance 150 000 Fixed overhead volume variance 240 000 To record the closing of the manufacturing overhead variances to cost of goods sold

Variable Fixed Variable Fixed Overhead overhead overhead overhead Spending budget efficiency volume Variance variance variance variance Four-way analysis $140 000U $150 000U $40 000F $240 000U

Combined spending variance Three-way analysis $290 000U

$40 000F

$240 000U

Two-way analysis

Combined budget variance $250 000U

$240 000U

Underapplied overhead $490 000U