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BBAP2103 MANAGEMENT ACCOUNTING 950221015409

OUM BUSINESS SCHOOL

JANUARY / 2018

BBAP2103

MANAGEMENT ACCOUNTING

MATRICULATION NO : 950221015409001
IDENTITY CARD NO. : 950221-01-5409
TELEPHONE NO. : 017-2635623
E-MAIL : kokjui01@oum.edu.my
LEARNING CENTRE : MELAKA LEARNINGCENTER

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BBAP2103 MANAGEMENT ACCOUNTING 950221015409

CONTENTS

Title Pages
1.0 Introduction of Management Accounting 3
2.0 Methodology 4-6
3.0 Question 1 7
4.0 Question 2 8-13
8.0 Summary 14
9.0 References 15

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BBAP2103 MANAGEMENT ACCOUNTING 950221015409

1.0 Introduction of Management Accounting


In Management Accounting, the manager use the rules of accounting to in order
to know the condition of company before making decision within the organization.
According to the Institute of Management Accountants (IMA), Management
accounting can be defined as a profession which involves partnering in decision
making , performance of management system, devising planning and provide an
assisting financial report in formulation and implementation of organization’s
strategy.
The management accounting includes of margin analysis, constraint analysis,
capital budgeting, forecasting and product costing. Margin analysis show the amount
of profit or cash flow by the sales to assist manager to fix the price point. Constraint
analysis of production and sales to determine and calculate the impact of these
constraint on revenue, profit and cash flow. Capital budgeting in every proposal,
decision on product service need and manage the finance of company.

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BBAP2103 MANAGEMENT ACCOUNTING 950221015409

2.0 Methodology
i. Prime Cost = Raw Materials + Direct Labor
Prime cost means all the direct cost to the production of product.

ii. Manufacturing Overhead = All the indirect factory related cost when manufacture a
product. For example, electricity used for factory equipment, depreciation on factory
equipment and building and etc.

iii. Conversion Cost = Direct Labor + Manufacturing Overhead

iv. Product Cost = Direct Labor + Direct Materials + Manufacturing Overhead

v. Period Cost = Such as selling expenses, advertisement expenses, commission,


depreciation expenses, office rent, executive and administrative salaries and benefit
and etc.

vi. Absorption Costing Formula


Year 1 Year 2
Direct Raw Materials
Direct Labor
Variable Manufacturing Cost
Fixed Manufacturing Cost

vii. Marginal Costing Formula


Year 1 Year 2
Direct Raw Materials
Direct Labor
Variable Manufacturing Cost

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BBAP2103 MANAGEMENT ACCOUNTING 950221015409

vii. Income Statement by using absorption costing

Sedap Maju Sdn. Bhd


Income Statement - Absorption Costing For the Year Ended of …
RM RM
Sales (sales units x selling price)
(Less): Cost of goods sold :
Beginning inventory
+ Cost of goods manufactured ( product unit x
product cost per unit )

Cost of goods available for sale


- Ending inventory (product on hand x product
cost per unit)

Gross Profit
(Less): Sales and administrative expenses:
Fixed
Variable

Net Income

viii. Income Statement by using marginal costing

Sedap Maju Sdn. Bhd


Income Statement - Absorption Costing For the Year Ended of …
RM RM
Sales (sales units x selling price)
(Less): Cost of goods sold :
Beginning inventory
+ Cost of goods manufactured (product unit x
product cost per unit)

Cost of goods available for sale


- Ending inventory (product on hand x product

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BBAP2103 MANAGEMENT ACCOUNTING 950221015409

cost per unit)

Gross Profit
(Less): Sales and administrative expenses:
Fixed
Variable

Net Income

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BBAP2103 MANAGEMENT ACCOUNTING 950221015409

3.0 Question 1
i) a. Total Prime Cost
= Direct material + Wages of direct labor + Fringe benefit for direct labor
= RM 1,050,000 + RM 242,000 + RM 47,500
= RM 1,339,500
b. Total Manufacturing Overhead Cost
= Wages of indirect labor + Salary of production supervisor + Depreciation of factory
building + Fringe benefit for indirect labor + Fringe benefit for production supervisor
+ Total overtime premium paid + Cost of idle time for production employee
= RM 70,000 + RM 22,500 + RM 57,500 + RM 15,000 + RM 4,500 + RM 27,500 +
RM 20,000
= RM 217,000
c. Total Conversion Cost
= Direct labor + Manufacturing overhead
= RM 242,500 + RM 217,000
= RM 459,500
d. Total Product Cost
= Total direct labor + Total direct material + Total manufacturing overhead
= RM 242,500 + RM1,050,000 + RM 217,000
= RM 1,509,500
e. Total Period Cost
= Advertising expense + Finished goods inventory + Administrative cost + Rental of
office space for sales personnel + Sales Commission + Promotion cost
= RM 49,500 + RM 230,000 + RM 75,000 + RM 7,500 + RM 2,500 + RM 5,000
=RM 369,500

ii. Different cost for different purposes means the organization needs different
information and thus a different of cost. Organization must able to determine variable
cost which is relevant to the decision.

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BBAP2103 MANAGEMENT ACCOUNTING 950221015409

4.0 Question 2
i)
Calculation of Product Cost Per Unit For The First Two Years by
a. Absorption Costing
Year 1 (RM) Year 2 (RM)
Direct Raw Materials 15 15
Direct Labor 5 5
Variable Manufacturing Cost 12 12
Fixed Manufacturing Cost 10 10
42 42

Fixed Manufacturing Cost = Fixed manufacturing overhead ÷ Production in unit


= RM 400,000 ÷ 40,000
= RM 10
b. Marginal Costing
Year 1 (RM) Year 2 (RM)
Direct Raw Materials 15 15
Direct Labor 5 5
Variable Manufacturing Cost 12 12
32 32

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BBAP2103 MANAGEMENT ACCOUNTING 950221015409

ii. Income Statement for First Two Years of Operation by


a) Absorption Costing

Sedap Maju Sdn. Bhd


Income Statement - Absorption Costing For the Year Ended of Year 1
RM RM
Sales (40,000 units x RM 50) 2,000,000
(Less): Cost of goods sold :
Beginning inventory 0
+ Cost of goods manufactured (40,000 x RM 42) 1,680,000

Cost of goods available for sale 1,680,000


- Ending inventory (0 x RM 42) 0 1,680,000

Gross Profit 320,000


(Less): Sales and administrative expenses:
Fixed 37,500
Variable (40,000 x RM 1) 40,000 77,500

Net Income 242,500

Sedap Maju Sdn. Bhd

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BBAP2103 MANAGEMENT ACCOUNTING 950221015409

Income Statement - Absorption Costing For the Year Ended of Year 2


RM RM
Sales (30,000 units x RM 50) 1,500,000
(Less): Cost of goods sold :
Beginning inventory 0
+ Cost of goods manufactured (40,000 x RM 42) 1,680,000

Cost of goods available for sale 1,680,000


- Ending inventory (10,000 x RM 42) 420,000 1,260,000

Gross Profit 240,000


(Less): Sales and administrative expenses:
Fixed 37,500
Variable (40,000 x RM 1) 40,000 77,500

Net Income 162,500

The cost of goods sold can also be calculated directly by multiplying the sales units
with the product cost per unit (40, 000 x RM 42 = RM 1,680,000)/(30,000 x RM 42 =
RM 1,260,000). The net income for the absorption costing for Year 1 is RM 242,500
and RM 162, 500 for Year 2. The different is cause by the existence of 10,000 units
valued at RM 420,000 in ending inventory.

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BBAP2103 MANAGEMENT ACCOUNTING 950221015409

b) Marginal Costing

Sedap Maju Sdn. Bhd


Income Statement - Marginal Costing For the Year Ended of Year 1
RM RM
Sales (40,000 units x RM 50 ) 2,000,000
(Less): Variable Cost :
Cost of goods sold :
Beginning inventory 0
+ Cost of goods manufactured (40,000 x RM 32) 1,280.000

Cost of goods available for sale 1,280,000


- Ending inventory 0

1,280,000
+ Variable sales and administrative cost
40,000 1,320,000
(40, 000 x RM 1 )

(Less): Contribution Margin 680,000


Fixed Cost :
Manufacturing Overhead 400,000
Sales and administrative expenses 37,500 437,500

Net Income 242,500

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BBAP2103 MANAGEMENT ACCOUNTING 950221015409

Sedap Maju Sdn. Bhd


Income Statement - Marginal Costing For the Year Ended of Year 2
RM RM
Sales (30,000 units x RM 50 ) 1,500,000
(Less): Variable Cost :
Cost of goods sold :
Beginning inventory 0
+ Cost of goods manufactured (40,000 x RM 32) 1,280.000

Cost of goods available for sale 1,280,000


- Ending inventory (10,000 x RM 32) 320,000

960,000
+ Variable sales and administrative cost
40,000 1,000,000
(40, 000 x RM 1 )

(Less): Contribution Margin 500,000


Fixed Cost :
Manufacturing Overhead 400,000
Sales and administrative expenses 37,500 437,500

Net Income 62,500

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BBAP2103 MANAGEMENT ACCOUNTING 950221015409

iii.
The net operating income under the absorption costing of year 1 is RM 242,500
and RM 162,500 in year 2. The different of net operating income is due to the ending
inventory in year 2. All the production cost and sales and administrative cost is the
same as the number of production unit is the same in this two years.
The net operating income under the marginal costing of year 1 is RM 242,500
and RM 62,500 in year 2. The different of net operating income is because of the
ending inventory in year 2. All the fixed cost are the same for two years.

iv. Both net income between absorption costing income and marginal costing will
Increase

v. The total operating income under absorption and marginal costing is depend on the
final inventory on hand in the end of year.

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BBAP2103 MANAGEMENT ACCOUNTING 950221015409

8.0 Summary
In conclusion, this assignment enable student to learn the way to calculate prime
cost, manufacturing overhead cost, conversion cost, total product cost and total period
cost. In fact, student may differentiate the related cost to each part of accounting.
Then, student able to understand and calculate the product cost per unit by using
absorption costing and marginal costing. Besides, student also able to prepare the
income statements for the operation by using absorption costing and marginal costing.

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BBAP2103 MANAGEMENT ACCOUNTING 950221015409

9.0 References
https://www.accountingtools.com/articles/what-is-a-period-cost.html
https://www.accountingtools.com/search?q=prime%20cost
https://www.accountingtools.com/search?q=manufacturing%20overhead

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