Question

Can someone solve all the points for me?

Question 1: A manufacturer is reviewing last year's budget for its most expensive product, which is mostly hand-made using 2 different raw materials (A and B) and has prepared the following information: Budget Price Actual Units Total Units Total 110,000.00 167.50 18,425,000 125,000 20,000,000 Sales Variable Cost Material A Material B 2.00 Kgs 1.75 Kgs 8.45 25.00 1,859,000 4,812,500 210,000 220.000 2,100,000 5.500.000 Labour Var. Overh. Fixed Cost 2.50 Hours 2.50 Hours 15.00 12.50 4,125,000 3,437,500 1,500,000 275,000 275,000 4,400,000 3,712,500 1,600,000 Additionally, you have information that the sale price of the product was £160 per unit. Required: a) Calculate the flexed budget for last year. (5 marks) b) Calculate a statement using marginal cost principles that reconciles the budgeted profit with the actual profit, showing variances in as much detail as possible. (12 marks) c) Identify and briefly describe the different steps in the Decision-Making/Planning process of a commercial organisation and the key role of management accounting in the final three steps. (8 marks) (Total marks: 25)

Answer 1

Ans 1. (a)
FLEXIBLE BUDGET FOR LAST YEAR
PARTICULARS			Units 1,10,000 (Budget)		Units 1,25,000 (Actual)
			Amount (in £)		Amount (in £)
Variable Expenses
Material A			18,59,000		21,00,000
Material B			48,12,500		55,00,000
Labour			41,25,000		44,00,000
Prime Cost (A)			107,96,500		120,00,000
Factory Overheads
Variable Overheads			34,37,500		37,12,500
Fixed Overheads			15,00,000		16,00,000
Cost of Production (B)			157,34,000		173,12,500
Profit (C-B)			26,91,000		26,87,500
Sales ( C)			184,25,000		200,00,000
Ans 1. (b)
Particulars			Actual		Flexed		Variance			Reasons
Sales			200,00,000		184,25,000		15,75,000		Favourable	The actual sales volume is more than the Budgeted Sales, so this is a positive scenario hence it is referred to as favourable
Less: Variable Cost			157,12,500		142,34,000		14,78,500		Unfavourable	The Variable cost in actual is more than the budgeted cost. So we are paying more cost than what we expected to pay, so it is an unfavourable situation for the company
Contribution			42,87,500		41,91,000		96,500		Favourable	The Contribution in actual is more than the budgeted cost. So we are saving more amount than what we expected to save, so it is a favourable situation for the company
Less: Fixed Cost			16,00,000		15,00,000		1,00,000		Unfavourable	The Fixed cost in actual is more than the budgeted cost. So we are paying more cost than what we expected to pay, so it is an unfavourable situation for the company
Profit			26,87,500		26,91,000		-3,500		Unfavourable	The Profit in actual is less than the budgeted Profit. So we are at loss despite the fact that the unit sold is more than the expected sales, so it is an unfavourable situation for the company

Ans 1. C)

STEPS IN DECISION-MAKING PROCESS

1. Identify the Problem

The first step is defining the problem, or in some cases identifying the opportunity. The symptoms of the problem must not be confused with the real problem. So this step requires careful attention, investigation and time.

After successful identification, we can move onto diagnosis. This involves understanding the problem, and seeing how it affects the long term and short term objectives of the firm.

2. Identifying Alternatives

Once you have an in-depth understanding of the problem or the opportunity, it is now time to identify some alternative courses of actions and their possible consequences.

The problem is that there are generally too many options and alternatives. The management cannot waste resources and money. So it must only consider strategic factors when identifying probable alternatives.

3. Analyzing the Alternatives

Now the next logical step will be analyzing all the possible alternatives for their pros and cons. There are tangible and intangible factors to consider when weighing the choices.

Tangible factors include profit, the rate of return, time value etc. And then there are intangible factors like reputation, employee morale, PR etc.

After evaluating the feasibility and acceptability of all alternatives, the manager must make his choice. A valued second opinion is always welcome as it gives a fresh perspective.

4. Choosing the Best Alternative

After you have identified the alternatives available to you, it is now time to make the decision. It is important that the manager understands the risk factor of all their choices and the impact it will have on the firm. Certain times he can even decide to choose some combination of two or more alternatives if he feels it is in the best interest of the firm.

5. Communication and Action

Once we choose the best alternative, we must initiate the implementation. Firstly, the managers must communicate the decision to all those involved with its implementation. And the manager must ensure that his team have fully accepted and embraced the choice and are completely behind it.

ROLE OF MANAGEMENT ACCOUNTING IN 3 FINAL STEPS OF DECISION-MAKING PROCESS:

1. Managerial accounting information is used by company management to determine what should be sold and how to sell it. For example, a small business owner may be unsure of where he should focus his marketing efforts. To evaluate this decision, an accounting manager could examine the costs that differ between advertising alternatives for each product, ignoring common costs. This process is known as relevant cost analysis and is a technique that is taught in basic managerial accounting courses. The same process can be used to determine whether to add product lines or discontinue operations.
2. Once the company has determined what products to sell, the business needs to determine to whom they should sell the products. By using activity-based costing techniques, small business management can determine the activities required to produce and service a product line. Embedded in this information is the cost of customers. Deciding which customers are more or less profitable allows the business owner to focus advertising toward the consumers who are the most profitable.
3. The primary use of managerial accounting information is to provide information used in manufacturing. For example, a small business owner may be considering whether to make or buy a component needed to manufacture the company's primary product. By completing a make or buy analysis, she can determine which choice is more profitable. While this technique is certainly useful, small business owners should only use these analyses as a factor in the decision. There could be other non-financial metrics that are important to consider that would not be part of the analysis.
4. Managerial accounting information provides a data-driven look at how to grow a small business. Budgeting, financial statement projections and balanced scorecards are just a few examples of how managerial accounting information is used to provide information to help management guide the future of a company. By focusing on this data, managers can make decisions that aim for continuous improvement and are justifiable based on intelligent analysis of the company data, as opposed to gut feelings.