Question 1 a)

How management accounting information is useful for Gaya (manager)

1.Helping Forecast the Future:

Forecasting aids decision-making and answering questions, such as: Should the
company invest in more equipment? Should it diversify into different markets? Should
it buy another company? Management accounting helps in answering these critical
questions and forecasting the future trends in business.

2.Helping in Make-or-buy Decisions:

Is it cheaper to procure materials or a product from a third party or manufacture them

in-house? Cost and production availability are the deciding factors in this choice.
Through management accounting, insights will be developed which will enable
decision-making at both operational and strategic levels.

3. Forecasting Cash Flows:

Predicting cash flows and the impact of cash flow on the business is essential. How
much cost will the company incur in the future? Where will its revenues come from and
will the revenues increase or decrease in the future? Management accounting involves
designing of budgets and trend charts, and managers use this information to decide how
to allocate money and resources to generate the projected revenue growth.

4. Helping Understand Performance Variances:

 Business performance discrepancies are variances between what was predicted and
what is actually achieved. Management accounting uses analytical techniques to help
the management build on positive variances and manage the negative ones.

5. Analyzing the Rate of Return:

Before embarking on a project that requires heavy investments, the company would
need to analyze the expected rate of return (ROR). If given two or more investment
opportunities, how should the company choose the most profitable one? In how many
years would the company break even on a project? What are the cash flows likely to
be? These are all vital questions that can be answered through management accounting.

Question 1 b)
Giant is a merchandising company. Giant company use a fixed cost because that does not vary
with sales level. The total costs is not affected by the changes in any activity. Examples of fixed
costs in Giant company are company rental, depreciation expense of company building or salary
supervisors. Even Giant company that even if do not produce any goods, but still have to pay these
costs. The total numbers of goods or product that sales does not influenced the fixed costs.

Example : Relationship between fixed cost and activity

The linear function for fixed cost is

Y=a

Where,

Y = total fixed cost, and

a = total fixed cost

giant company also use non-manufacturing costs because costs such as the cost of traded goods
for a commercial firm, marketing costs and administrative costs. The cost of traded goods is the
cost of obtaining the goods for resale. Marketing costs can be divided into sales and administrative
costs while administrative cost of running the operation of an organization.

Giant company also use Period Costs are all costs not included in product costs. Period costs are
not directly tied to the production process. Overhead or sales, general, and
administrative (SG&A) costs are considered period costs. SG&A includes costs of the corporate
office, selling, marketing, and the overall administration of company business.
Period costs are not assigned to one particular product or the cost of inventory like product costs.
Therefore, period costs are listed as an expense in the accounting period in which they occurred.

Other examples of period costs include marketing expenses, rent (not directly tied to a
production facility), office depreciation, and indirect labor. Also, interest expense on a company's
debt would be classified as a period cost.

Cost at gemilang spa are mixed cost. Mixed cost refers to costs that contain component of fixed
cost and variable cost. In the other word, in particular situation, the cost item show cost behavior
that contain features of fixed cost and variable cost. Cost that contain fixed and variable features
is called mixed cost. The greater the use of activity, the greater the cost incurred. Example if many
customer come for spa service so many raw material (oil and spa product ) and direct labour cost
increase.

This figure show the relationship between mixed cost and activity
The equation for mixed cost is :

Y=a+
bx
Where
Y = total cost
b = variable cost per unit
a = fixed cost
x = total activity or units
Gemilang spa also used non- manufacturing cost ( period cost). Non-manufacturing costs are
necessary to carry on general business operations but are not part of the physical manufacturing
process. These costs are represented during a period of time and are not calculated into the cost
of good sold. Non-manufacturing costs consist of selling expenses, including marketing and
commission expenses and sales salaries and administration expenses, such as office salaries,
depreciation and supplies. The purpose of addressing these costs differently is based on the fact
that they are accounted for differently when structuring the income statement and balance sheet.

2 A)
Marginal costing and absorption costing are both known as traditional costing systems. All
production costs are known as product cost regardless of variable or fixed costs. In absorption
costing method, product cost consists of direct materials, direct labour, variable overhead and fixed
manufacturing overhead. Meanwhile, marginal costing method known as variable costing or direct
costing as it only consider variable costing manufacturing overhead as period cost. Thus, these
calculation framework leads to difference in product cost per unit obtaining using absorption
costing and marginal costing. So under marginal costing, fixed manufacturing overhead consider
as period cost. Thus, product cost become smaller compared to the product cost that uses the
method of absorption costing.

The sample diagram to show the product cost using absorption and marginal costing as follows:
Therefore, as can be seen in diagram above, abruption costing consider direct materials, direct
labour and all variables and fixed overhead as product costs. Products already sold will become
cost of goods sold and while unsold products will be reported as inventory in balance sheet.

Furthermore, by using marginal costing, product cost consists of direct materials , direct labour
and variable manufacturing overhead. It is clearly that fixed manufacturing overhead does not play
role as product cost but consider as period cost and captured as expenses along with sales and
administrative expenses, regardless product is sold or unsold. These explain the obvious difference
between absorption costing and marginal costing which clearly explain how fixed manufacturing
overhead cost is being treated which eventually affects the calculation of the product cost per unit.
2 b (i)
Product cost per unit Marginal costing medhod:
Marginal costing RM

Direct materials 12
Direct labor 8
Variable manufacturing overhead 2
TOTAL 22

2 b (ii)
Product cost per unit absorption costing medhod:
Absorption costing RM

Direct materials 12
Direct labor 8
Variable manufacturing overhead 2
Fixed manufacturing overhead 2.45
TOTAL 24.45

**Calculation of fixed manufacturing overhead per unit:

Fixed manufacturing = RM 39200
Overhead cost per unit 16000 units

= RM 2.45
2 (c)
Beejaq Sdn. Bhd. Income statement – Marginal Costing for the year ended 31 July 2018
Beejaq Sdn. Bhd.
Income statement – Marginal Costing for the year ended 31 July
2018
RM RM
Sales (16000 units x RM 40) 640000
(-) Variable costs:
Cost of goods sold:
Beginning inventory 0
+ cost of goods
manufaxctuered 352000
(16000 units x RM22)
Cost of goods available for 352000
sale
Ending inventory (0 units x (0)
RM 22)
352000
+ Variable sales and 48000
administrative costs (16000
units x RM3)
400000
Contribution margin 240000
(-) Fixed costs:
Manufacturing overhead 39200
Sales and administrative 15000 54200
expenses
Net income 185800
2(d)

Beejaq Sdn. Bhd. Income statement – Absorption costing for the year ended 31 July 2018
Beejaq Sdn. Bhd.
Income statement – Absorption costing for the year ended 31 July
2018
RM RM
Sales (16000 units x RM 40) 640000
(less) Cost of goods sold:
Beginning inventory 0
+ cost of goods manufactured
(16000 units x RM24.45) 391200
Cost of goods available for 391200
sale
Ending inventory (0 units x (0)
RM 24.45) 391200
Gross profit 248800
(less): sales and
administrative expenses:
Fixed 15000
Variable (16000 units x RM 48000 63000
3)
Net income 185800

Since , the beginning and ending inventory is nil, the operating income will be same using
absorption costing and marginal costing. Thus , number of production and sales units play
important roles in determining net income as follow :

Production units > sales units = absorption costing income more than marginal costing net
income
Production units = sales units = absorption costing net income equals to marginal income
Production units < sales units = absorption costing net income less than marginal costing net
income
Changes in sales units
Production (Unit)
Beginning inventory 0
Current production 16000
Sales 20000

Beejaq Sdn. Bhd.

Income statement – Absorption costing for the year ended 31 July
2018
RM RM
Sales (20000 units x RM 40) 800000
(less) Cost of goods sold:
Beginning inventory 0
+ cost of goods manufactured
(20000 units x RM24.45) 489000
Cost of goods available for 489000
sale
Ending inventory (0 units x (0)
RM 24.45) 489000
Gross profit 311000
(less): sales and
administrative expenses:
Fixed 15000
Variable (20000 units x RM 60000 75000
3)
Net income 236000
 Beejaq Sdn. Bhd.
Income statement – Marginal Costing for the year ended 31 July
2018
RM RM
Sales (20000 units x RM 40) 800000
(-) Variable costs:
Cost of goods sold:
Beginning inventory 0
+ cost of goods
manufaxctuered 440000
(20000 units x RM22)
Cost of goods available for 440000
sale
Ending inventory (0 units x (0)
RM 22)
440000
+ Variable sales and 60000
administrative costs (20000
units x RM3)
500000
Contribution margin 300000
(-) Fixed costs:
Manufacturing overhead 39200
Sales and administrative 15000 54200
expenses
Net income 245000

Based on net income above , sales units increase (20000) than production units (16000) , so net
income in marginal costing RM 245000 increase compare to net income in absorption costing
RM 236000. Hence by increasing the sales units than production units, operating income of
marginal costing will be higher than absorption costing method.