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management accounting

Questions and Answers of Management Accounting

Shown below is an extract from next year's plans for a business manufacturing three products, A, B and C, in three production departments. A B Production 4,000 units 3,000 units Direct material cost
Read the following statement: "In a job costing system, it is necessary to divide up the business into departments. Fixed costs (or overheads) will be collected for each department. Where a par-
Many businesses charge overheads to jobs on a departmental basis. Required: (a) What is the advantage that is claimed for charging overheads to jobs on a departmental basis, and why is it claimed?
Describe the nature of the modern product costing and pricing environment.AppendixLO1
Discuss the principles and practicalities of activity-based costing.AppendixLO1
Explain how new developments such as total life-cycle costing and target costing can be used to manage product costs.AppendixLO1
Explain the theoretical underpinning of pricing decisions and discuss the issues involved in reaching a pricing decision in real-world situations.AppendixLO1
What is meant by elasticity of demand? How does knowledge of the elasticity of demand affect pricing decisions?AppendixLO1
According to economic theory, at what point is profit maximised? Why is it at this point?AppendixLO1
Woodner Ltd provides a standard service. It is able to provide a maximum of 100 units of this service each week. Experience shows that at a price of 100, no units of the service would be sold. For
It appears from research evidence that a cost-plus approach influences pricing decisions in practice. What is meant by cost-plus pricing and what are the problems of using this approach?AppendixLO1
Kaplan plc makes a range of suitcases of various sizes and shapes. There are 10 different models of suitcase produced by the business. In order to keep inventories (stock) of finished suitcases to a
Comment critically on the following statements that you have overheard: (a) 'To maximise profit you need to sell your output at the highest price.' (b) 'Elasticity of demand deals with the extent to
Comment critically on the following statements that you have overheard: (a) 'Direct labour hours are the most appropriate basis to use to charge overheads to jobs in the modern manufacturing
The GB Company manufactures a variety of electric motors. The business is currently operat- ing at about 70 per cent of capacity and is earning a satisfactory return on investment. International
Sillycon Ltd is a business engaged in the development of new products in the electronics industry. Subtotals on the spreadsheet of planned overheads reveal: Electronics department Testing department
A business manufactures refrigerators for domestic use. There are three models: Lo, Mid and Hi. The models, their quality and their price are aimed at different markets. Product costs are computed on
■ Identify the purpose of a business and discuss the ways in which a business may be organised and managed.
■ Discuss the issues to be considered when setting the long-term direction of a business.
■ Explain the role of management accounting within a business and describe the key qualities that management accounting information should possess.
■ Explain the changes that have occurred over time in both the role of the management accountant and the type of information provided by management accounting systems.
1.2 Management accounting has been described as ‘the eyes and ears of management’. What do you think this expression means?
1.2 Jones Dairy Ltd (Jones) operates a ‘doorstep’ fresh milk delivery service. Two brothers carry on the business that they inherited from their father in the early 1970s. They are the
■ Identify and quantify the costs and benefits that are relevant to a particular decision.
■ Use relevant costs and benefits to make decisions.
■ Set out relevant costs and benefits analysis in a logical form so that the conclusion may be communicated to managers.
2.1 To be relevant to a particular decision, a cost must have three attributes. What are they?
2.2 Distinguish between a sunk cost and an opportunity cost.
2.3 Define the word ‘cost’ in the context of management accounting.
2.4 What is meant by the expression ‘committed cost’? How do committed costs arise?
2.2 The local authority of a small town maintains a theatre and arts centre for the use of a local repertory company, other visiting groups and exhibitions. Management decisions are taken by a
2.3 Andrews and Co. Ltd has been invited to tender for a contract. It is to produce 10,000 metres of an electrical cable in which the business specialises. The estimating department of the business
2.7 Rob Otics Ltd, a small business that specialises in manufacturing electronic-control equipment, has just received an enquiry from a potential customer for eight identical robotic units. These
3.2 What is meant by the BEP for an activity? How is the BEP calculated? Why is it useful to know the BEP?
3.4 If there is a scarce resource that is restricting sales, how will the business maximise its profit? Explain the logic of the approach that you have identified for maximising profit.3.1 Motormusic
3.8 Intermediate Products Ltd produces four types of water pump. Two of these (A and B) are sold by the business. The other two (C and D) are incorporated, as components, into other products of the
■ Deduce the full (absorption) cost of a cost unit in a single-product and a multi-product environment.
■ Compare and contrast the full costing and variable costing approaches.
4.1 What problem does the existence of work in progress cause in process costing?
4.3 Are direct cost and variable cost the same thing? Explain your answer.
4.4 Promptprint Ltd, a printing business, has received an enquiry from a potential customer for the quotation of a price for a job. The pricing policy of the business is based on the plans for the
4.5 Many businesses charge overheads to jobs on a cost centre basis.Required:(a) What is the advantage that is claimed for charging overheads to jobs on a cost centre basis and why is it claimed?(b)
4.6 Shown below is an extract from next year’s plans for a business manufacturing three products, A, B and C, in three product cost centres.The business operates a full absorption costing
4.7 Athena Ltd is an engineering business doing work for its customers to their particular requirements and specifications. It determines the full cost of each job taking a ‘job-costing’approach,
■ Describe the nature of the modern product costing and pricing environment.
■ Discuss the principles and practical aspects of activity-based costing.
■ Describe the methods that may be used to manage costs over the life cycle of a product.
■ Explain the role of value chain analysis and benchmarking in managing costs.
■ Explain the importance of total quality management in the modern environment and identify the main types of quality costs that may be incurred.
5.1 How does activity-based costing (ABC) differ from the traditional approach? What is the underlying difference between their philosophies?
5.2 The use of activity-based costing in helping to deduce full costs has been criticised. What has been the basis of this criticism?
5.3 What are the main categories of quality costs that a business may incur and why is it useful to categorise them?
5.2 Describe the main similarities and differences in approach between target costing and kaizen costing.
5.7 Moleskin Ltd manufactures a range of products used in the building industry. Manufacturing is undertaken using one of two processes: the Alpha Process and the Omega process. All of the products
5.8 A business manufactures refrigerators for domestic use. There are three models: Lo, Mid and Hi. The models, their quality and their price are aimed at different markets.Product costs are computed
6.7 Newtake Records Ltd owns a chain of 14 shops selling compact discs. At the beginning of June the business had an overdraft of £35,000 and the bank had asked for this to be eliminated by the end
6.8 Brown and Jeffreys, a West Midlands business, makes one standard product for use in the motor trade. The product, known as the Fuel Miser, for which the business holds the patent, when fitted to
7.5 Bradley-Allen Ltd makes one standard product. Its budgeted operating statement for May is as follows:The standard costs were as follows:Direct materials: Type A £50/kg Type B £20/m Direct
7.7 Brive plc has the following standards for its only product:Selling price: £110/unit Direct labour: 1 hour at £10.50/hour Direct material: 3 kg at £14.00/kg Fixed overheads: £27.00/unit, based
8.3 Newton Electronics Ltd has incurred expenditure of £5 million over the past three years researching and developing a miniature hearing aid. The hearing aid is now fully developed.The directors
8.5 The accountant of your business has recently been taken ill through overwork. In his absence his assistant has prepared some calculations of the profitability of a project, which are to be
8.8 Kernow Cleaning Services Ltd provides street-cleaning services for local councils in the far south west of England. The work is currently labour-intensive and few machines are used. However, the
9.7 Pisces pic produced the following statement of financial position (balance sheet) and income statement at the end of the third year of trading:An analysis of the underlying records reveals the
10.8 AB Ltd operates retail stores throughout the country. The business is divisionalised.Included in its business are Divisions A and B. A centralised and automated warehouse that replenishes
11.1 The chief executive officer of Sparkrite Ltd, a trading business, has just received summary sets of financial statements for last year and this year:The chief financial officer has expressed
11.2 Hercules Wholesalers Ltd has been particularly concerned with its liquidity position in recent months. The most recent income statement and statement of financial position of the business are as
11.4 Your superior, the general manager of Plastics Manufacturers Limited, has recently been talking to the chief buyer of Plastic Toys Limited, which manufactures a wide range of toys for young
11.5 Delphi plc has recently decided to enter the expanding market for digital radios. The business will manufacture the radios and sell them to small TV and hi-fi specialists, medium sized music
11.8 Goliath plc is a food wholesaler. The most recent financial statements of the business are as follows:Income statement for the year to 31 May£000 £000 Sales revenue 2,400.0 Cost of sales
11.3 International Electric plc at present offers its customers 30 days’ credit. Half of the customers, by value, pay on time. The other half take an average of 70 days to pay.The business is
11.4 Identify the costs of holding(a) too little cash; and(b) too much cash.
11.3 What are the reasons for holding inventories? Are these reasons different from the reasons for holding cash?
10.7 The University of Devonport consists of six faculties and an administration unit. Under the university’s management philosophy, each faculty is treated, as far as is reasonable, as an
10.5 The following information applies to the budgeted operations of the Goodman division of the Telling Company:£Sales revenue (50,000 units at £8) 400,000 Variable cost (50,000 units at £6) (
10.4 The following information applies to the planned operations of Division A of ABC Corpora tion for next year:£Sales revenue (100,000 units at £12) 1,200,000 Variable cost (100,000 units at £8)
10.2 Measures are required to assess the performance of divisions and of divisional managers.Three financial measures are■ contribution;■ controllable profit; and■ return on investment
10.3 Jerry and Co. is a large computer consultancy business that has a division specialising in robotics. Can you identify three non-financial measures that might be used to help assess the
10.1 What problems might be encountered when a business attempts to incorporate nonfinancial measures into its management reports?
■ Explain the increasing importance of non-financial measures in managing a business and how they may be used for decision-making purposes.
■ Describe the problems of determining transfer prices between divisions, and outline the methods used in practice.
■ Identify the major methods of measuring the performance of operating divisions and divisional managers and assess the usefulness of such methods.
■ Discuss the potential advantages and disadvantages for a business of adopting a divisional structure.
9.8 The GB Company manufactures a variety of electric motors. The business is currently operating at about 70 per cent of capacity and is earning a satisfactory return on investment.International
9.6 Sillycon Ltd is a business engaged in the development of new products in the electronics industry. Subtotals on the spreadsheet of planned overheads reveal:Electronics department Testing
9.4 Virgo pic is considering introducing a system of EVA ® and wants its managers to focus on the longer term rather than simply focus on the year-to-year EVA ® results. The business is seeking
9.3 Sharma pic makes one standard product for which it charges the same basic price of £20 a unit, though discounts are allowed to certain customers. The business is in the process of carrying out a
9.1 Research evidence suggests that, in practice, a cost-plus approach influences many pricing decisions. What is meant by cost-plus pricing and what are the problems of using this approach?
9.4 According to economic theory, at what point is profit maximised? Why is it at this point?
9.3 What is meant by elasticity of demand? How does knowledge of the elasticity of demand affect pricing decisions?
9.2 What are the four main areas on which the balanced scorecard is based?
9.1 Both A Ltd and B Ltd buy 1,000 units of a business’s service each year, paying the same price per unit. Suggest possible reasons why the business may regard A Ltd as a more desirable customer
■ Explain the theoretical underpinning of pricing decisions and discuss the practical issues involved in determining an appropriate selling price for the output of a business.
■ Discuss the role of non-financial measures of performance in management accounting and describe how the balanced scorecard attempts to integrate both financial and non-financial measures.
■ Discuss the nature of strategic management accounting and describe its role in providing information about competitors and customers.
8.7 Chesterfield Wanderers is a professional football club that has enjoyed considerable success in both national and European competitions in recent years. As a result, the club has accumulated £10
8.4 Why are cash flows rather than profit flows used in the IRR, NPV and PP methods of investment appraisal?
8.2 The payback period method has been criticised for not taking the time value of money into account. Could this limitation be overcome? If so, would this method then be preferable to the NPV method?
■ Discuss the strengths and weaknesses of various techniques for dealing with risk in investment appraisal.■ Explain the methods used to monitor and control investment projects.
7.6 Mowbray Ltd makes and sells one product, the standard costs of which are as follows:£Direct materials (3 kg at £2.50/kg) (7.50)Direct labour (15 minutes at £9.00/hr) (2.25)Fixed overheads (
7.3 Pilot Ltd makes a standard product, which is budgeted to sell at £5.00 a unit. It is made by taking a budgeted 0.5 kg of material, budgeted to cost £3.00 a kilogram, and having it worked on by

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