Decision Making In Management Accounting

Machinery Account

1st January 2000 $ 52000

Dr                                                                                                                                                    Cr

Date/year details Cost in $ Date/year Details Cost in $  
1st January 2000 Cash account 52000

 

 31st December 2000

Depreciation charge $5200  
      31st December 2000 Balance carried down 46800  
31st December 2000   $ 52000 31st December 2000   $ 52000  
             

 

Computing Depreciation

1)      Machinery

Depreciation charge = (Cost of the machine less residual value)/ useful life

$52000/10= $5200 per year

Balance carried down = machinery cost less depreciation charge for the year

= (52000-5200) = $46800

2)      Computer

$49000/7= $ 7000 p.a

 The Computer lasted for only six month to 30th June 2000 the depreciation charge will therefore be half of $ 7000. This is $3500.

3)      Truck

Depreciation Charge= $(27000-3000)/8= $3000

Cash Account

Dr                                                                                                                                                    Cr

Date/ year Details Cost in $ Date/year Details Cost in $
30th June 2000 Computer  account 31000 1st January 2000 Machinery account 52000
31st December 2000 Balance carried down 21000      
31st December 2000   $52000 31st December 2000   $ 52000
           
           
           

 

Depreciation Account

Dr                                                                                                                                                   Cr

Date/ year Details Cost in $ Date/year Details Cost in $

 

 31st December 2000

Machinery  account $5200 31st December 2000 Balance carried down $5200
31st December 2000   $5200 31st December 2000   $5200
31st December 2006 Truck account $3000 31st December 2006 Balancing figure $3000
31st December 2006   $3000 31st December 2006   $3000
31st December 2007 Computer Account $3500 31st December 2007 Balancing figure $3500
           

 

Computer Account

Dr                                                                                                                                                   Cr

Date/ year Details Cost in $ Date/year Details Cost in $
1st January 2007 Balance brought down 49000 30th June 2007 Cash account 31000
      31st December 2007 Depreciation charge to 30th June $3500
      31st December 2007 Balance carried down $14500
31st December 2007   $  49,000     $ 49,000

 

Truck account

Dr                                                                                                                                                   Cr

Date/ year Details Cost in $ Date/year Details Cost in $
1st January 2006 Cash Account 27000 31st December 2006 Truck residual value $ 3000
      31st December 2006 Truck account $3000
      31st December 2006 Balance carried down 21000
31st December 2006   $ 27000     $ 27000

       Source: Robertson, 2009

 

Question 2 a

PPE average age can be computed as total PPE average value divided by depreciation charge.

Barnaby Ltd                                                                        

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PPE average age = 3,360,000/1,420,000= (2.366) an average age of about 2years and 4month

Barnaby Ltd Asset turnover ratio= Sales / Average Total assets

=10,300,000/4,480,000= 2.3 times

 

Barnaby ltd asset useful life = Total average assets/ Depreciation expenses

= 4,480,000/420,000 = 10.7 years

Jane Ltd

Barnaby ltd Average age of PPE assets = Average Total PPE assets/ Depreciation Charge (Expense)

= 2,000,000/130/000= 15.3 years

 

Asset Turnover ratio= Sales / Average Total assets

=12,600,000/3,750,000= 3.36 times

 

Computing Jane’s ltd asset average useful life = Total average assets/ Depreciation expenses

= 3,750,000/ 130,000 = 28.8 years

 

 

Question 2 b

Since Jane’s asset turnover ratio (3.36 years) is higher compared to Barnaby ltd which has an asset turn over ratio of about 2.3 years. This gives it a better chance of using the assets to generate sales.  

Basing on the computed results, it remains evident that Jane ltd depreciates its assets over a longer period of time 28.8 years as per the calculation compared to 10.7 years. This causes the depreciation expense to be lower and ultimately boosting profits to a higher compared to Barnaby limited.   

 

Question 3

The management accounting has a role of dealing with issues of internal rather than the external, cost measures and income issues of accounting. Therefore contemporary accounting issues targets the internal firm issues that are costs and income issues of financial accounting. Information systems has rapidity altered the nature and practice of management accounting with this the internal financial health of the firm is well assessed giving a true picture of business performance (Kajipet, 2000). For instance it deals with the estimation of forthcoming costs; assess cost effectiveness of management policies and procedures. Hence, there are many issues that affect contemporary accounting:

Information Systems

The revolution of the computer age has immensely transitioned the nature of accounting and management as a whole. Modernized organizations have gained pace and have embraced computerization as a mechanism to be cost effectiveness. There through linking financial information of the organization that is financial accounting facets, internal data, consumer information, stakeholder’s data and supplies in one system. This improved how viewing of data by anyone who is aware of the system. Integration of computing is hence eradicating management accounting (Kimmel, 2010).

Lean Production

Through being cost effective and being able to cut down costs in organizations various firms for instance Toyota has engulfed just-in-time production. Through this deliveries of materials that are to be used are made on the same day of production. Moreover assembled products are also shipped to the consumer simultaneously (Chadwick, L. (1998).

Total Quality issues in accounting

Most integrated systems have continually linked financial and management operations among other issues of quality management in accounting over internal and external ideas of any given organization. The quality management concept has measureable issues addressed in trying to eliminate the distinction between these kinds of streams (Lucey, 2003). However, developing of a streamlined accounting system does not necessarily build specified areas of expertise, but rather work closely with both financial and management accounting concepts in financing  projects while evaluating internal practices (Chadwick, 1998).

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Quality information is based on competitive advantage for an organization. For accounting information systems, quality of information given is imperative to success of any system in place. In our discussion we discuss important issues that remain important to any accounting system. Management or any organization in the contemporary world focuses on systemic issues (Kajipet, 2000). This is contrary to the previous years. For instance, accounting information system marks one of the most critical systems in organization, with increased change being done well utilized. Despite all these accounting changes taking place, organizations have to improve on an approach that puts such systems at forefront in generating accurate accounting and management information, these remains important considering both systems and human related factors to effectively manage their financial systems for improved decision making.

Case findings

Importance of data quality issues have to be addressed by organization leadership. It therefore remains evident that data quality is regarded a priority in any organization as revealed in the both Jane’s and Barnaby limited. For improved accounting information and decision making, there have to be well monitored data accuracy. This could prove important when information given is used in forecasting (Kajipet, 2000).     

 

Question 4

a.)

Mauro Manufacturing Ltd Schedule of cost of goods manufactured

For the year ended 31st December 2010

Direct Material:

Raw material inventory on 1st /01/ 2010   $43,000

                        Add: purchases of raw material              $206800

                        Raw material available for use                  $249,800

                        Less: raw materials as at December 31st   $(39600)

Raw material used                                                                 $ 210,200

Direct labor:                                                                                                $250,600

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                        Manufacturing Overhead:

Indirect material                         -

Indirect labor                           $35,410

                                      

Total manufacturing overhead                                                                     $ 35,410

Total manufacturing costs                                                                            $ 286,010                              

Add: Work-in-process inventory, January 1st                                                  $25,240

Subtotal                                                                                                             $311,250

Deduct: work-in-progress inventory, December 31                                          $(23,600)

Cost of goods manufactured                                                                            $ 287,650

 

4 b.

Mauro Manufacturing Ltd Income Statement for the Year Ended 31st December

Sales revenue                                                                 890,900

Less: Sales Returns                                                              -

          Sales Allowance                                                        -

           Sales discount                                                     (10,120)

Net sales                                                                        $880,780

Opening inventory                           $76,000

Add: Purchases                                $206,800

Less: Freight-in on raw m. purchase $ (5640)

Cost of goods available for sale       $ 277,160            

Less: Closing inventory                     $(83,200) 

Cost of goods sold                                                        $ (193,960)

Gross Profit                                                                   $686,820

Expenses:

Factory managers’ salary                $60,000

Factory rates and taxes                    $10100

Factory repairs                                 $4500

Factory power                                 $ 36,000

Office power expenses                   $ 8,600

Depreciation on Factory                 $ 18,090

Factory Insurance                           $ 5,400

Freight-in on raw m. purchase        $ 5640

Total expenses                                                               $(148,330)

Net profit                                                                       $ 538,490

 

 

4 c.)

Mauro Manufacturing Ltd Balance Sheet as at 31st December

Current assets                                                               $                            $

Finished goods Inventories                                           83,200       

Account receivable                                                        45,000

Cash                                                                               15,000

Total Assets                                                                                        $143,200

Current liabilities

Factory machinery depreciation                                            18,090

Net profit for the year ended                                                45,630

Equity and Capital (suspense account)                                 79,480

Total Capital, Equity and Liabilities                                               $143,200

                                                                                                                      Source: Drever, 2007

 

 

Question 5 b.

 

Sierra Star

Budget

January 1st 2010 to February 28th 2010

Category                                                                        Actual      Budget      Difference

                                                                                       January

Sales                                                                               $525,000   $157,500     $ 368,000

Direct materials purchases                                             $ 142,500   $ 151,200 $ (8700)

                                                                                       February

Sales                                                                               $600,000    $60,000           $540,000

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Direct material Purchases                                              $ 165,000   $ 151,200        $13,800

Manufacturing overhead                                               $ 90,000          -                 $90,000

Selling and Administrative Expenses                            $ 112,500        -                 $ 112,500

Direct Labor                                                                  $ 142,500        -                 $ 142,500

Workings

Computation Budget value                                         January                 February

Cash Sales (30%* 525,000/2) / 20 %*( 600,000/2)       $ 157,500                     $60,000

                                                                                       November                   December

Credit sales (30 %*300,000/2)/ (20%*450,000/2)         $ 45,000                       $ 45000

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Direct material purchases (40%*142,500) (60%*142,000) $ 57,000                 $ 151,200

 + (165,000*40%)

                                                                                       Source: Weygandt, 2009

Question 5. b

 

Cash budget

Sierra Star

Estimated statemet of cash receipt and disbusmnts

For two month ended January 31st  and February 28th

Months January February
Cash Sales $ 157,500 $ 60,000
Proceed Sales from investments - $ 5,000
Interest receivable $ 3, 000 -
Debtors $ 45, 000 $ 45,000
Total Receipts $ 205,500 $ 110,000
     
Disbursment Payments - $20,000
Cash purchases $ 57,000 $ 151,200
     
Creditors - -
Less: Total Payments $ 57000 $ 171,200
     
Net receipts/ Payments $ 148,500 $ (61,200)
Add : opening balance $ 60,000 $ 50,000
Closing Balance $ 202,500 $11,200

 

Total Recipts = (Cash sale + Proceed Sales from investments + Debtors + Interest receivable )

Total Payments = (Disbursment Payments + Cash purchases)

Closing Balance = (Total Receipts +  Net reciepts/ Payment)

 

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