Week one

Chapter 1-Questions and exercises: 1, 4, 6, 9, 10, 15, Ex E12, E13, E18, E21

Chapter 2- Questions and exercises and problems: 1,2,6,11,14,15; E2-37, E 2-38, E2.39, P 2.54, E2-58,

Chapter one

1. What is managerial accounting? Managerial accounting is the process of gathering, summarising,

and reporting financial and non-financial information used internally by managers to make
decisions.
4. Should a managerial accounting system provide both financial and nonfinancial information? Explain.

Yes, a managerial accounting system should ideally provide both financial and nonfinancial information
to help managers make informed decisions. While financial information such as budgets, costs,
revenues, and profits are crucial for assessing the financial health of a company, nonfinancial
information can also be valuable in providing a more comprehensive view of performance and aiding
decision-making.

Nonfinancial information can include metrics related to customer satisfaction, employee engagement,
product quality, market share, and other key performance indicators that may not be captured in
traditional financial reports. By incorporating both financial and nonfinancial information into the
managerial accounting system, managers can gain a more holistic understanding of the factors
influencing the organization's performance and make better-informed decisions to achieve strategic
objectives.

In today's complex business environment, where factors such as sustainability, innovation, and customer
relationships play an increasingly important role in driving long-term success, the integration of both
financial and nonfinancial information in managerial accounting systems can provide a more balanced
perspective for decision-making and performance evaluation.

https://www.quora.com/Should-a-managerial-accounting-system-provide-both-financial-and-
nonfinancial-information

9. Explain the meaning of customer value. How is focusing on customer value changing managerial
accounting?

10. What is the value chain? Why is it important? A value chain refers to the full lifecycle of a product or
process, including material sourcing, production, consumption and disposal/recycling processes.”

15. What is ethical behaviour? Is it possible to teach ethical behaviour in a managerial accounting
course?

Exercises

Exercise 1-12 The Managerial Process

Each of the following scenarios requires the use of accounting information to carry out one or more
managerial accounting objectives.

Laboratory Manager: An HMO approached me recently and offered us its entire range of blood tests. It
provided a price list revealing the amount it is willing to pay for each test. In many cases, the prices are
below what we normally charge. I need to know the costs of the individual tests to assess the feasibility
of accepting its offer and perhaps suggest price adjustments on some of the tests.

1
Operating Manager: This report indicates that we have 30% more defects than originally targeted. An
investigation into the cause has revealed the problem. We were using a lower-quality material than
expected, and the waste has been higher than normal. By switching to the quality level originally
specified, we can reduce the defects to the planned level.

Divisional Manager: Our market share has increased because of higher-quality products. Current
projections indicate that we should sell 25% more units than last year. I want a projection of the effect
that this increase in sales will have on profits. I also want to know our expected cash receipts and cash
expenditures on a month-by-month basis. I have a feeling that some short-term borrowing may be
necessary.

Plant Manager: Foreign competitors are producing goods with lower costs and delivering them more
rapidly than we can to customers in our markets. We need to decrease the cycle time and increase the
efficiency of our manufacturing process. There are two proposals that should help us accomplish these
goals, both of which involve investing in computer-aided manufacturing. I need to know the future cash
flows associated with each system and the effect each system has on unit costs and cycle time.

Manager: At the last board meeting, we established an objective of earning a 25% return on sales. I
need to know how many units of our product we need to sell to meet this objective. Once I have the
estimated sales in units, we need to outline a promotional campaign that will take us where we want to
be. However, in order to compute the targeted sales in units, I need to know the expected unit price and
a lot of cost information.

Manager: Perhaps the Harrison Medical Clinic should not offer a full range of medical services. Some
services seem to be having a difficult time showing any kind of profit. I am particularly concerned about
the mental health service. It has not shown a profit since the clinic opened. I want to know what costs
can be avoided if I drop the service. I also want some assessment of the impact on the other services we
offer. Some of our patients may choose this clinic because we offer a full range of services.

Required:

Select the managerial accounting objective(s) that are applicable for each scenario: planning, controlling
(including performance evaluation), or decision making.

Exercise 1-13 Differences between Managerial Accounting and Financial Accounting

Objective 3

Adriana Alvarado has decided to purchase a personal computer. She has narrowed the choices to two:
Drantex and Confiar. Both brands have the same processing speed, 6.4 gigabytes of hard-disk capacity,
two USB ports, and a DVDRW drive, and each comes with the same basic software support package.
Both come from mail-order companies with good reputations. The selling price for each is identical.
After some review, Adriana discovers that the cost of operating and maintaining Drantex over a 3-year
period is estimated to be $300. For Confiar, the operating and maintenance cost is $600. The sales agent
for Drantex emphasized the lower operating and maintenance costs. The agent for Confiar, however,
emphasized the service reputation of the product and the faster delivery time (Confiar can be purchased
and delivered 1 week sooner than Drantex). Based on all the information, Adriana has decided to buy
Confiar.

Required:

2
1. What is the total product purchased by Adriana?

2. CONCEPTUAL CONNECTION: How does the strategic positioning differ for the two companies?

3. CONCEPTUAL CONNECTION: When asked why she decided to buy Confiar, Adriana responded, “I
think that Confiar offers more value than Drantex.” What are the possible sources of this greater
value? What implications does this have for the managerial accounting information system?

4. CONCEPTUAL CONNECTION: Suppose that Adriana’s decision was prompted mostly by the desire to
receive the computer quickly. Informed that it was losing sales because of the longer time to
produce and deliver its products, the management of the company producing Drantex decided to
improve delivery performance by improving its internal processes. These improvements decreased
the number of defective units and the time required to produce its product. Consequently, delivery
time and costs both decreased, and the company was able to lower its prices on Drantex. Explain
how these actions translate into strengthening the competitive position of the Drantex PC relative to
the Confiar PC. Also discuss the implications for the managerial accounting information system.

Exercise 1-18 Ethical Issues

Objective 5

The following statements have appeared in online news site editorials:

Business students come from all segments of society. If they have not been taught ethics by their
families and by their elementary and secondary schools, a business school can have little effect.

Sacrificing self-interest for the collective good won’t happen unless a majority of Americans also accept
this premise.

Competent executives manage people and resources for the good of society. Monetary benefits and
titles are simply the by-products of doing a good job.

Unethical firms and individuals, like high rollers in Las Vegas, are eventually wiped out financially.

Unethical behaviour within firms usually is highly visible and, therefore, quickly detected and eventually
corrected.

Required:

CONCEPTUAL CONNECTION Assess and comment on each of the statements.

Exercise 1-21 Environmental, Social, and Governance Reports

Using the Internet, locate the Environmental, Social, and Governance (ESG) report for a company.

Required:

3
1. CONCEPTUAL CONNECTION: Briefly describe how the company uses any one of the three elements
—environmental, social, or governance—of its ESG report to discuss an ethical issue(s) of
importance to the company.
2. Briefly describe one example of how the company uses data analytics within its ESG report.

Chapter 2

Questions- 1,2,6,11,14,15; Exercise-2-37, E 2-38, E2.39, P 2.54, E2-58

1. Explain the difference between cost and expense.

2. What is the difference between accumulating costs and assigning costs?
6. How is the practice of data analytics used within management accounting? Provide an example.

11. How does a period cost differ from a product cost?

14. What is the difference between cost of goods manufactured and cost of goods sold?

15. What is the difference between the income statement for a manufacturing firm and the income
statement for a service firm?

Exercise 2-37 Products versus Services, Cost Assignment

Objective 1

Holmes Company produces wooden playhouses. When a customer orders a playhouse, it is delivered in
pieces with detailed instructions on how to put it together. Some customers prefer that Holmes put the
playhouse together. Therefore, these customers purchase the playhouse, as well as pay an additional fee
for Holmes to install the playhouse. Holmes then pulls two workers off the production line and sends
them to construct the playhouse on site.

Required:

1. What two products does Holmes sell? Classify each one as a product or a service.
2. CONCEPTUAL CONNECTION Do you think Holmes assigns costs individually to each product or
service? Why or why not?
3. CONCEPTUAL CONNECTION Describe the opportunity cost of the installation process.

Exercise 2-38 Assigning Costs to a Cost Object, Direct and Indirect Costs )(Objective 1)

Hummer Company uses manufacturing cells to produce its products (a cell is a manufacturing unit
dedicated to the production of subassemblies or products). One manufacturing cell produces small
motors for lawn mowers. Suppose that the motor manufacturing cell is the cost object. Assume that all
or a portion of the following costs must be assigned to the cell.

a. Salary of cell supervisor

4
b. Power to heat and cool the plant in which the cell is located
c. Materials used to produce the motors
d. Maintenance for the cell’s equipment (provided by the maintenance department)
e. Labor used to produce motors
f. Cafeteria that services the plant’s employees
g. Depreciation on the plant
h. Depreciation on equipment used to produce the motors
i. Ordering costs for materials used in production
j. Engineering support (provided by the engineering department)
k. Cost of maintaining the plant and grounds
l. Cost of the plant’s personnel office
m. Property tax on the plant and land

Required:

Classify each of the costs as a direct cost or an indirect cost to the motor manufacturing cell.

5
 Exercise 2-39 Total and Unit Product Cost (Objective 2)

Martinez Manufacturing Inc. showed the following costs for last month:

Direct materials $7,000

Direct labour 3,000
Manufacturing overhead 2,000
Selling expenses 8,000

Last month, 4,000 units were produced and sold.

Required:
1. Classify each of the costs as product cost or period cost.
*Product costs are those directly related to the production of a product or service intended for sale. Period costs are all other indirect costs that
are incurred in production. Overhead and sales and marketing expenses are common examples of period costs.

Product costs: direct materials, direct labour

Period costs: manufacturing overhead, selling expense
2. What is the total product cost for last month?
7000 + 3000 + 2000= $12,000
3. What is the unit product cost for last month?
$12,000/4000 = $3.00
Problem 2-54 Cost of Direct Materials, Cost of Goods Manufactured, Cost of Goods Sold (Objective 3)

Bisby Company manufactures fishing rods. At the beginning of July, the following information was
supplied by its accountant:

Raw materials inventory $40,000

Work-in-process inventory 21,000
Finished goods inventory 23,200

During July, the direct labour cost was $43,500, raw materials purchases were $64,000, and the total
overhead cost was $108,750. The inventories at the end of July were:

Raw materials inventory $19,800

Work-in-process inventory 32,500
Finished goods inventory 22,100

Required:

1. What is the cost of the direct materials used in production during July?
Opening raw materials + purchased materials during period of July – closing raw materials.

6
 ($40,000 + $64,000) - $19,800 =
= $104,000 - $19,800
= $84,200 raw materials used

2. What is the cost of goods manufactured for July?

Raw Materials Cost + Direct Labour + Overhead
$84,200 + 43,500 + 108,750
= $236,450
Then add Work in Progress inventory of $21,000 (236,450 + 21,000) = 257,459
Then subtract Work in Process Inventory of $32,500 (257,459 – 32,500) = 224,950
The cost of goods manufactured in July was $224,950.
3. What is the cost of goods sold for July?
Cost of goods manufactured + opening finished goods - closing finished goods
224,950 +23,200 -22,100 = 226,050
The cost for goods sold for July was $226,050.
Problem 2-58 Income Statement, Cost of Services Provided, Service Attributes

Objective 2 3

Berry Company is an architectural firm located in Detroit, Michigan. The company works with small and
medium-size construction businesses to prepare building plans according to the client’s contract. The
following data are provided for the previous year:

Number of designs completed and sold $700

Beginning inventory of direct materials 20,000
Beginning inventory of designs in process 60,000
Ending inventory of direct materials 10,000
Ending inventory of designs in process 100,000
Purchases, direct materials 40,000
$800,00
Direct labour 0
Manufacturing overhead 100,000
Administrative expense 150,000
Selling expense 60,000
Beginning inventory of finished designs 300,000
Ending inventory of finished designs 280,000

7
Required:

1. Calculate the cost of goods manufactured.

Cost of raw material used.
Add: Direct labor 800,000
Add manufacturing Overhead 100,000
= 950,000
Then add Work in Process 60,000
=1,010,000
Then minus

2. Calculate the cost of goods sold.

3. Assume that the average fee for a design is $2,100. Prepare an income statement for Berry.
4. CONCEPTUAL CONNECTION Refer to the cost of goods sold (calculated in Requirement 2). What is
the dominant cost? Briefly explain why this cost is the dominant one for Berry.

Management Accounting Week 1 22nd May, 2024

The Management Accounting exam will be in class, won’t be online so make sure you study well.

Definition of accounting: Accounting is the provision of information about aspects of the performance
(financial or non-financial) of an entity to a particular group of people with interest or stake.

Cost accounting is a technique or method for measuring the cost of a project, process or thing.

Management accounting the process of gathering, summarizing, and reporting financial and non-
financial information used internally by managers to make decisions.

Financial accounting is the process of preparing and reporting financial accounting information used by
decision makers outside of the entity.

Management accounting relates to internal reporting ONLY.

Internal and financial and non-financial accounting has no mandatory rules, emphasizes the future and
is multidisciplinary.

A value chain refers to the full lifecycle of a product or process, including material sourcing, production,
consumption and disposal/recycling processes.”

Additional costs can include investments in RnD, product development, manufacturing and production
cost

How to calculate Total Cost formula:

TC = F + V x Q

8
F= total fixed cost (can be car insurance for example)

V = variable cost per unit of activity (can be petrol, or $2.5 per km travelled)

Q = volume of activity of cost driver (if car travelled 17 km, then it would be 17 x 2.5)

*A cost driver is some impute or activity that causes change in total cost for a cost object. The same cost
object might have different cost drivers in different settings. Cost Object = Petrol, Cost Driver =
kilometres travelled.

Step wise= fixed cost

Piecewise = variable cost

FOR THE FINAL EXAM = NEED TO KNOW

- Two-point method

- High Low method

- Regression analysis

Average Cost = Total cost + Quantity of activity

FOR THE QUIZ

Manufacturing Cost = direct materials + direct labor + Manufacturing Overhead

Example:

Direct Materials + Direct Labor + Manufacturing Overhead

7000 + 3000 + 2000 = 12000

$12000/4000 = $3 per unit