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Characteristic of management accounting that makes it a key tool for decision making
(i) Provision of financial information: it provides information to different levels of management to help them review policies and make decisions
(ii) Emphasis on future activities: management accounting focuses on the future. It therefore uses past information (results and figures) to decisions affecting the future.
(iii) Provision of qualitative information: Management accounting focuses on qualitative information, and its premises are based on the quality of the underlying data required within an organisation
(iv) It focusses on costs: The management accounting department is responsible for cost control and reduction, determining the cost of products and services.
(v) Usage of special techniques: The use of special techniques like standard costing, marginal costing, budgetary control, ratio analysis, cash flow, responsibility accounting, etc, to make accounting much more helpful and relevant to the management
(vi) Does not involve standards or conventions: As there are no standards to stick to, management accounting stands out as being flexible. This flexibility is crucial in decision making.
(vi) Focus on internal users: Management accounting is all about making vital information available to managers.
francis1897 answered the question on November 14, 2022 at 09:12
- Everest Company manufactures a single product branded “solo”.
The following information relates to the month of March 2022 for an output level of 100,000 units:
...(Solved)
Everest Company manufactures a single product branded “solo”.
The following information relates to the month of March 2022 for an output level of 100,000 units:
Sh.
Direct materials 1,000,000
Direct labour costs 1,400,000
Indirect labour 300,000
Depreciation 150,000
Repairs and maintenance (50% fixed) 100,000
2,950,000
Unit selling price is sh.80
Target profit sh.50,000
Required:
(i) Formulate a predictor equation in the form of y = a + bx.
(ii) Estimating the cost of producing 95,000 units.
(iii) Compute the level of sale at which the company will recover all the costs.
Date posted: November 14, 2022. Answers (1)
- Using a suitable example in each case, explain the meaning of the following types of costs:
(i) Differential costs.
(ii) Out of pocket costs.
(iii) Sunk costs.(Solved)
Using a suitable example in each case, explain the meaning of the following types of costs:
(i) Differential costs.
(ii) Out of pocket costs.
(iii) Sunk costs.
Date posted: November 14, 2022. Answers (1)
- The following information relates to Erica Ltd:
1. The company had a cash balance of sh.540,000 at the beginning of the month of October 2021.
2. Creditors...(Solved)
The following information relates to Erica Ltd:
1. The company had a cash balance of sh.540,000 at the beginning of the month of October 2021.
2. Creditors give a credit period of one month.
3. Salaries are paid in the current month.
4. Fixed costs are paid one month in arrears and include a charge of sh.100,000 per month with respect to depreciation
5. Credit sales are settled as follows:
40% in the month of sale.
45% one month after the month of sale.
12% two months after the month of sale.
The balance represents bad debts
6. The actual sales, purchases, and expenses for the month of August 2021 and September 2021 were as follows:
Month Cash sales Credit sales Purchases Salaries Fixed overheads
Sh. Sh. Sh. Sh. Sh.
August - 1,480,000 1,104,000 180,000 600,000
September - 1,640,000 1,224,000 180,000 600,000
7. The budgeted sales, purchases, and expenses per month from October 2021 to December 2021 were as follows:
Month Cash sales Credit sales Purchases Salaries Fixed overheads
Sh. Sh. Sh. Sh. Sh.
October 400,000 1,600,000 1,200,000 190,000 600,000
November 440,000 1,800,000 1,380,000 190,000 620,000
December 500,000 1,000,000 1,750,000 200,000 640,000
Required:
A cash budget for the months of October 2021 to December 2021.
Date posted: November 14, 2022. Answers (1)
- Distinguish between the following terms as used in management accounting:
(i) “Avoidable costs” and “unavoidable costs”.
(ii) “Cost control” and “cost reduction”. (Solved)
Distinguish between the following terms as used in management accounting:
(i) “Avoidable costs” and “unavoidable costs”.
(ii) “Cost control” and “cost reduction”.
Date posted: November 14, 2022. Answers (1)
- RH Ltd. manufactures and sells a single product branded “Zed”. Currently it uses absorption costing to determine profits and inventory values. The budgeted production cost...(Solved)
RH Ltd. manufactures and sells a single product branded “Zed”. Currently it uses absorption costing to determine profits and inventory values. The budgeted production cost per unit is as follows:
sh.
Direct labour 3 hours at sh.6 per hour 18
Direct materials 4 kgs at sh.7 per kg 28
Fixed production overhead 20
66
Additional information:
1. Normal output volume is 16,000 units per year and the volume is used to establish the fixed overhead absorption rate for each year.
2. The costs relating to sales, distribution, and administration are as follows:
Variable 20% of sales value
Fixed Sh.180,000 per year
3. There were no units of finished goods inventory at 1 October 2021. Fixed overhead expenditure is spread evenly throughout the year
4. The selling price per unit is sh.140.
5. For the two six-monthly periods, the number of units to be produced and sold were budgeted as follows:
Six months ending31 March 2022 Six months ending 30 September 2022
Units Units
Production 8,500 7,000
Sales 7,000 8,000
6. RH Ltd. is considering whether to abandon absorption costing and used marginal costing instead for profit reporting and inventory valuation.
Required:
(a) Statement of profit or loss for each of the six-month periods using:
(i) Marginal costing.
(ii) Absorption costing.
(b) A statement reconciling the profits as per the marginal costing and absorption costing in (a) above.
Date posted: November 14, 2022. Answers (1)
- Maridadi Ltd. Produces a product that passes through two distinct processes. The following information was obtained from the accounts of the company for the month...(Solved)
Maridadi Ltd. Produces a product that passes through two distinct processes. The following information was obtained from the accounts of the company for the month of July 2022.
Particulars Process A Process B
Sh. Sh.
Direct materials 78,000 59,400
Direct wages 60,000 90,000
Production overheads 60,000 90,000
At the beginning of the month of July 2022, 3,000 units of sh.30 each were introduced to process A. There were no stock of materials or work-in-progress.
The output of each process passes directly to the next process and finally to the finished goods stock account.
The following additional data was obtained:
Process Output Percentage of normal loss to input Scrap value of normal loss per unit
Sh.
Process A 2,850 5% 20
Process B 2,520 10% 40
Required:
(i) Process A account.
(ii) Process B account.
Date posted: November 14, 2022. Answers (1)
- Outline four limitations of process costing.(Solved)
Outline four limitations of process costing.
Date posted: November 14, 2022. Answers (1)
- Explain the following types of costs:
(i) Product cost.
(ii) Opportunity costs.
(iii) Conversion costs.(Solved)
Explain the following types of costs:
(i) Product cost.
(ii) Opportunity costs.
(iii) Conversion costs.
Date posted: November 14, 2022. Answers (1)
- Zaea Ltd. Produces two products namely; Z and R. The following information relates to the budget for the year ended 30 June 2022:
...(Solved)
Zaea Ltd. Produces two products namely; Z and R. The following information relates to the budget for the year ended 30 June 2022:
Product Z Product R
Sh. Sh.
Selling price per unit 6 12
Variable cost per unit 2 4
Contribution per unit 4 8
Fixed costs apportioned 100,000 200,000
Units sold (kgs) 70,000 30,000
Required:
(i) Calculate the break-even points for each product.
(ii) The break-even point of product Z to achieve a target profit of sh.60,000.
(iii) The margin of safety of product R.
(iv) The product to produce based on the break-even-point calculated in (b) (i) above.
Date posted: November 14, 2022. Answers (1)
- Highlight four causes of labour turnover in an organization.(Solved)
Highlight four causes of labour turnover in an organization.
Date posted: November 14, 2022. Answers (1)
- Jikaze Ltd. is currently operating at full capacity and it manufactures and sells brooms for local market.
Currently, the production volume is 100,000 brooms per annum...(Solved)
Jikaze Ltd. is currently operating at full capacity and it manufactures and sells brooms for local market.
Currently, the production volume is 100,000 brooms per annum with the following cost structure:
Sh. "000" Sh. "000"
Sales 20,000
Marginal costs: Labour 8,000
Material 5,000 (13,000)
Contribution 7,000
Fixed costs (3,000)
Net profit 4,000
Additional information:
1. Each broom is currently sold at sh.200
2. An opportunity has arisen to supply 30,000 brooms per annum at sh.180 each.
3. Acceptance of this special order will incur extra costs of sh.80,000 per annum for the hire of additional machinery.
4. Jikaze Ltd. will pay an overtime premium of 20% for the extra direct labour.
Required:
Advise Jikaze Ltd. on whether the offer should be accepted or rejected.
Date posted: November 14, 2022. Answers (1)
- Unik Ltd., a leading manufacturer of ceramic tiles is preparing its cost estimation for the master budget. A cost accountant has derived the following data...(Solved)
Unik Ltd., a leading manufacturer of ceramic tiles is preparing its cost estimation for the master budget. A cost accountant has derived the following data on a weekly output of standard size tiles from a factory.
Week output Total overheads
Units "000" Sh. "000"
1 20 60
2 2 25
3 4 26
4 23 66
5 18 49
6 14 48
7 10 35
8 8 18
9 13 40
10 8 33
Where:
∑X= 120 ∑Y= 400 ∑X2= 1,866 ∑Y2= 18,200 ∑XY= 5,704
Required:
(i) Using the least squares regression method, formulate a predictor equation in the form of y = a + bx.
(ii) In week II, the factory planned to produce 25,000 standard size tiles. Estimate the total cost of producing thus quantity.
Date posted: November 14, 2022. Answers (1)
- Explain three users of management accounting information(Solved)
Explain three users of management accounting information
Date posted: November 14, 2022. Answers (1)