Management Accounting Planning States Organisation

Question: Discuss about the Management Accounting for Planning States Organisation. Answer: 1.a In the books of Russell Company Budgeted Income Statement For the year ended 30th June 2016 Particulars Amount ($) Particulars Amount ($) Direct materials 2,00,000 Sales 8,00,000 Plant wages 1,40,000 Closing inventories 1,80,000 Gross Profit 6,40,000 9,80,000 9,80,000 Expenses: By Gross Profit B/d 6,40,000 Insurance Factory 4,000 Maintenance Expense 28,000 Accounts Receivables 1,00,000 Accounts Payable 40,000 Depreciation factory 24,000 Office Salaries 80,000 Selling Expenses 60,000 Net Profit c/d 5,04,000 7,40,000 7,40,000 1.b In the books of Russell Company Budgeted Income Statement For the year ended 30th June 2016 Liabilities Amount ($) Amount ($) Assets Amount ($) Amount ($) Capital Stock 4,00,000 Current Assets Add: Net Profit 5,04,000 9,04,000 Cash 56,000 Bonds Payable 1,60,000 Fixed Assets Equipments 2,40,000 Utilities 16000 Buildings 4,00,000 Retained Earnings 3,52,000 10,64,000 10,64,000 1.c The uses of computer-based budget in sensitivity analysis are as follows; Sensitivity analysis helps in assuming the base of the budget for business man in determining the output affected by variations Sensitivity analysis is one of the statistical tool which helps in understanding the output and parameters of output Sensitivity analysis helps in finding the optimal levels of raw materials prices number of employees etc (Guenther et al. 2015). 1.d The choice of responsibility affects the managers in decision-making level. Planning states that budget estimates help the managers in estimating the cost for measuring the performance and control of the organisation. Managers at cost centres have certain amount of control over the cost, which is associated with the business; however, the managers hardly have any control on the revenues (Drury 2013). Cost centres are the most widely used mode of responsibility centres for managers. 2.a Lamp Division 800 X $22 / hour 17600 Per Month Flash Light Division 450 X $22 / hour 9900 Per Month 2.b Lamp Division 700 X $22 / hour 15400 Per Month Flash Light Division 400 X $22 / hour 8800 Per Month 2.c Fixed costs $240,000 / 20000 practical capacity hours = $ 12 / hour Budgeted costs: Lamp Division (800 X $12 / hour) + (800 X $10 / hour) = 17600 Per Month Budgeted Cost: Flashlight Division (450 X $12 / hour) + (450 X $10 / hour) = 9900 Per Month 2.d Allocated costs for June: Lamp Division (800 X $12 / hour) + (700 X $10/hour) 16600 Per Month Allocated costs for June: Flashlight Division (450 X $12 / hour) + (400 X $10 / hour) 9400 Per Month 2.e From the above stated cost allocation it is noteworthy to denote that the procedure of Duel rate of cost allocation method is the most suitable mode cost allocation. 3.a Product Board Feet Sales value Percent Joint Cost Allocated 2 x 4's 60,00,000 18,00,000 45.0 X 2,80,000 1,26,000 2 x 6's 30,00,000 12,00,000 30.0 X 2,80,000 84,000 4 x 4's 20,00,000 9,00,000 22.5 X 2,80,000 63,000 Slabs 10,00,000 1,00,000 2.5 X 2,80,000 7,000 Totals 40,00,000 100.00% 2,80,000 Fraction of Production in Inventory Allocated Value of inventory 500,000 / 6,000,000 X 1,26,000 10,500 250,000 / 3,000,000 X 84,000 7,000 100,000 / 2,000,000 X 63,000 3,150 50,000 / 1,000,000 X 7,000 350 21,000 3.b Silver company has faced the issue of reporting in accounting systems leading to error in reporting. Silver company should make the use accounting principles to retrospectively comply with the accounting policies. Retrospective purpose of accounting principles will result the silver company to adopt the general accounting principles from the one, which it has been using before (Horngren et al. 2012). When changes are necessary it is up to the management of silver company to reflect the newly adopted accounting principles in the financial reporting process. This will enable the company to report the cumulative effect of the current year income statement. It is evident from the learnings that there is a problems associated with the purchasing method adopted by the company as the company has started purchasing ore from different parts of the world which requires considerable amount of cost (Hoskin et al. 2014). With difficult method of extraction the cost raw material increases emphatically which emphatically shots up the cost of finished product. Therefore, silver company should purchase ore from a specified mines rather than going for different parts of the world. 4. Companies often have different form of subsidiaries, which require them to transfer goods and service back and forth. Cost based transfer pricing is defined as the method of transferring products from one of the subsidiary to another subsidiary (Chen et al. 2015). It creates an impact on the behaviour of the subsidiaries, which might have the implications for the company as a whole. There are numbers of ways through which an organisation can avoid making suboptimal decision-making and these are as follows; A company can make subsidiary transfer of its products to another subsidiaries at cost where as the subsidiaries add their cost to the product (Lin et al. 2013). This represents that the final subsidiary that sells the completed goods to the third party will recognise the entire profit, which is associated with the product. For example, Whistle Electric is the compact batteries producers for varieties of mobile applications. The company was bought up by Razor electric in order to assure supply of batteries for all electric lawn mowers. The management of Whistle Electric did not have any option to drive down the cost. Therefore, the company decides to sell of its business since it has lost 80% of its staff. The company transferred the management to Razor Ltd since its all profits has been vanished. Reference list Chen, C.H., Ycesan, E., Dai, L. and Chen, H.C., 2012. Optimal budget allocation for discrete-event simulation experiments.IIE Transactions,42(1), pp.60-70. Deegan, C., 2013.Financial accounting theory. McGraw-Hill Education Australia. DRURY, C.M., 2013.Management and cost accounting. Springer. Guenther, E., Jasch, C., Schmidt, M., Wagner, B. and Ilg, P., 2015. Material Flow Cost Accountinglooking back and ahead.Journal of Cleaner Production,108, pp.1249-1254. Hiromoto, T. and Hiki, F., 2015. Cost Accounting.Theory and Practice 3th Edition, CHUOKEIZAI-SHA HOLDINGS. Horngren, C., Harrison, W., Oliver, S., Best, P., Fraser, D. and Tan, R., 2012.Financial Accounting. Pearson Higher Education AU. Hoskin, R.E., Fizzell, M.R. and Cherry, D.C., 2014.Financial accounting: a user perspective. Wiley Global Education. Lin, J., Teng, S., He, D., Pujowidianto, N.A., Li, J., Zhang, S., Lee, L.H., Chew, E.P. and Chen, C.H., 2013. Optimal Computing Budget Allocation Framework. InStochastic Simulation Optimization for Discrete Event Systems: Perturbation Analysis, Ordinal Optimization, and Beyond(pp. 175-202).