Managerial Accounting: Subject Outline

22746 Managerial Accounting
Subject Outline
UTS: Business
Spring 2010; city
Credit points: 6cp
Result type: Grade and marks
Subject coordinator
Dr David Brown
Associate Professor, School of Accounting
Room C311A
Telephone (02) 9514 3773
EmailDavid.Brown@uts.edu.au
Teaching staff
Paul Thambar
School of Accounting
Room C311
Telephone (02) 9514 7860
Emailpaul.thambar@uts.edu.au
Subject description
Management accounting information systems are one of the main decision-support systems in
organisations. This subject equips students with the skills and knowledge to design and use effective
management accounting information for planning and controlling organisational activities. Topics
include absorption costing, cost behaviour and cost-volume-profit analysis, budgetary planning and
control, differential costs, activity-based costing, and standard costing and variance analysis.
Subject objectives
On successful completion of this subject students should be able to:
1. understand the role of management accounting in organisations

2. understand basic cost concepts and techniques
3. understand how management accounting assists in planning and controlling business activities
and how it provides decision support
4. understand the fundamentals of product costing and to prepare costing schedules
5. prepare budgeted profit and loss and cash flow statements
6. analyse production operations by using standard product costing for the analysis of cost
variances
7. understand profit planning techniques using cost-volume-profit concepts and their application
to support various decision contexts
8. understand the design of performance measurement systems to conform to and advance
organisation goals.
19 Jul 2010 © University of Technology Sydney Page 1 of 6

Contribution to course aims and graduate attributes
Management accounting information systems are one of the main decision support systems in
organisations. This subject equips students with the skills and knowledge to design and use effective
management accounting information in planning and controlling organisational activities. Topics
include traditional product costing, activity-based costing, cost behaviour and cost-volume profit
analysis, budgetary planning and control, differential costing and capital budgeting, standard costing
and variance analysis and performance measurement systems.
Teaching and learning strategies
The subject will be taught using a combination of lectures and workshops. Students are also required
apply the knowledge they have acquired in the course to study a particular application of
management accounting systems in their organisation contexts and present their findings both to the
class and in a formal report.
Content
Role of management accounting in organisations

Cost concepts and product costing systems
Conventional overhead cost allocation+
Activity-based costing
Budgeting
Standard cost for control
Cost-volume-profit analysis
Accounting information for decision making
Capital expenditure decisions
Accounting information for managing performance.
Program
Week Dates Description Notes
1 2 Aug Introduction to management accounting Reference: L-S, T, H

Chapter 1–2
2 9 Aug Cost volume profit analysis and cost behaviour Reference: L-S, T, H
Chapter 3 and 18
3 16 Aug Product costing Reference: L-S, T, H

Chapter 4
4 23 Aug Cost allocation — Plant-wide and Departmental Reference: L-S, T, H

methods of allocation of overhead costs Chapter 7
5 30 Aug Activity-based costing and activity-based Reference: L-S, T, H

management Chapter 8

6 6 Sept Budgeting: master, operating and cash budgets Reference: L-S, T, H
Chapter 9
7 13 Sept Standard costing 1- Material and Labour variances Reference: L-S, T, H

Chapter 10
8 20 Sept Mid-semester exam week No classes
9 27 Sept Mid-semester break No classes
10 4 Oct Standard Costing 2 - Manufacturing and General Reference: L-S, T, H

Overhead Chapter 11
11 11 Oct Pricing decisions and Relevant costing Reference: L-S, T, H

Chapter 19 and 20
10 18 Oct Performance evaluation — financial performance Reference: L-S, T, H

measures Chapter 13
Kaplan and Atkinson
Chapter 9 and 10
11 25 Oct Contemporary performance evaluation methods Reference: L-S, T, H

Chapter 14
Kaplan and Atkinson
Chapter 8
12 1 Nov Revision
Assessment
Students will be expected to obtain an overall pass in all three components of the assessment for this
subject.
Assessment item 1: Mid-Semester Examination
Objective(s): 2-8
Weighting: 30%
Task: Exam
Assessment item 2: Final Examination
Objective(s): 1, 4, 6, 7, 8
Weighting: 60%
Task: Exam
Further

Further Students will be required to achieve a pass in both the overall marks for the
information: continuous assessments and the final examination to satisfy the requirements
of the subject.
Assessment item 3: Homework
Objective(s): 1-8
Weighting: 10%
Task: Homework will be completed in arrears of 1 week (ie: homework for Lecture 1
will be due in class in Lecture 2).Students will be expected to complete solutions
to Workshop questions and provide a typed copy for collection and marking.
Handwritten solutions will not be accepted. Homework for Lectures 10 and
11 will be case studies which will be done and presented in groups (students are
encouraged to form into groups of 4 early in order to be ready to complete these
case studies). Late submissions will not be accepted - if students miss a class for
valid reasons, it is expected that homework will be submitted by email in the due
week.
Examination material or equipment
All examinations will be close-book examinations.
Required texts
Langfield-Smith, K, Thorne, H, and Hilton, RW, 2009, Management Accounting — Information for
Managing and Creating Value, 5e, McGraw-Hill
Indicative references
Hopwood, A.G., (1976), Accounting and Human Behaviour, Prentice-Hall. Pp. 57-68
(657.019HOPW)
Kaplan, R. S. and Atkinson, A. A., (1998), Advanced Management Accounting, Upper Saddle
River, N. J., Prentice-Hall International.
Kaplan, R. S., and Norton, D. P., (1992), The Balanced Scorecard - Measures that Drive
Performance, Harvard Business Review, pp. 71-79
Kaplan, R.S. and Norton, D.P, (1996), Using the Balanced Scorecard as a Strategic
Management System, Harvard Business Press, pp. 75-85.
Macintosh, N.B., (1985), The Social Software of Accounting and Information Systems, Chapters
2 & 3 Wiley, (658.40388MACI)
Other resources
Articles for relevant topics will be posted on UTS online and students will be expected to read,
analyse and be prepared to discuss key points in class.
Academic liaison officer
Wing Bui, School of Finance and Economics, telephone: 9514 7717

Katie Schlenker, School of Leisure Sport and Tourism, telephone: 9514 5303

Katie Schlenker, School of Leisure Sport and Tourism, telephone: 9514 5303
Dr Paul Wang, School of Marketing, telephone: 9514 3692
Dr Brian Farrell, School of Accounting, telephone: 9514 5226
Dr Neil Barnwell, School of Management, telephone: 9514 3612
Any arrangements should be negotiated within the first six weeks of semester.
Support
Student Services Unit/Counselling: Student Services provides a range of free and confidential
professional services to support different aspects of your life and learning at UTS
( www.ssu.uts.edu.au). These services include counselling for personal and learning problems or
issues. If you are experiencing difficulties with your overall study program, for whatever reason,
phone 9514 1177 (City) or 9514 5342 (Kuring-gai).
Students with Disabilities or Ongoing Medical Conditions: If you are a student who has a
disability or ongoing medical condition that requires support services (www.ssu.uts.edu.au/sneeds)
you are encouraged to contact the Disability Support Officers or Special Needs Service (9514 1177)
for a confidential interview. Supporting documentation regarding your disability or ongoing medical
condition is required if you wish to apply for assessment adjustments, including alternative
assessment conditions. Each Faculty has appointed Academic Liaison Officers (ALOs) who are
responsible for approving assessment adjustments. Meeting with the Disability Support Officers or
Special Needs Service before seeking assessment adjustments from your ALO is required.
Improve your academic and English language skills: Marks for all assessment tasks such as
assignments and examinations are given not only for WHAT you write but also for HOW you write. If
you would like the opportunity to improve your academic and English language skills, make an
appointment with the ELSSA Centre.
ELSSA Centre: The ELSSA Centre provides academic and professional language assistance, in
collaboration with faculties. Students who need to develop their written and/or spoken English should
make use of the free services offered by the ELSSA Centre, including vacation courses and individual
appointments (www.elssa.uts.edu.au).
Careers Service: The UTS Careers Service aims to actively support the career development needs of
all UTS students (www.ssu.uts.edu.au/careers).
Statement on plagiarism
Plagiarism is a broad term referring to the practice of appropriating someone else's ideas or work and
presenting them as your own without acknowledgment. Plagiarism is literary or intellectual theft! It
can take a number of forms, including:
copying the work of another student, whether that student is in the same class, from an earlier
year of the same course, or from another tertiary institution altogether
copying any section, no matter how brief, from a book, journal, article or other written source,
without duly acknowledging it as a quotation
copying any map, diagram or table of figures without duly acknowledging the source
paraphrasing or otherwise using the ideas of another author without duly acknowledging the
source
Whatever the form, plagiarism is unacceptable both academically and professionally. By plagiarising
you are both stealing the work of another person and cheating by representing it as your own. Any
instances of plagiarism can therefore be expected to draw severe penalties and may be
referred to the Faculty Student Conduct Committee.
Cheating means to defraud or swindle. Students who seek to gain an advantage by unfair means
such as copying another student's work, or in any other way misleading a lecturer about their

such as copying another student's work, or in any other way misleading a lecturer about their
knowledge or ability or the amount of work they have done, are guilty of cheating.
Students who condone plagiarism by allowing their work to be copied will also be subject to severe
disciplinary action.
Avoiding plagiarism is one of the main reasons why the Faculty of Business is insistent on the
thorough and appropriate referencing of all written work.

Subject Content – Detailed Tutorial Guide
Week: Date Tutorial Topics
Week 1 No tutorial, week 1!
Week 2 Introduction to Management Accounting

Self study questions: L-S.T.H. Chapter 1
 Questions 1.14, 1.15, 1.18, 1.19
 Exercises 1.28
L-S.T.H. Chapter 2
 Questions 2.3, 2.7, 2.8, 2.16
 Exercises 2.22, 2.24, 2.25
 Problem 2.28, 2.29
Home-work questions: Work-Shop Questions: 1-2
(reference – L-S.T.H. Chapter 1&2)
Week 3 Cost Volume Profit Analysis & Cost Behaviour

Self-study questions: L-S.T.H. Chapter 18
 Questions 18.1, 18.2, 18.6, 18.7, 18.17
 Exercises 18.28, 18.29, 18.33
 Problem 18.43
Home work questions: Work-Shop Questions: 3-4-5
(reference – L-S.T.H. Chapter 18)

Product Costing Systems
Week 4
Self-Study Questions:
Langfield-Smith et al Chapter 4
Questions 4.2, 4.5, 4.6, 4.7, 4.8
Exercises E4.26, E4.27, E4.29 (parts
1,2,3 only)
Problems P4.38
Homework Questions:
Workshop questions 6-7
Week 5 Cost Allocation – Using Predetermined Overhead Application Rates

 Questions 7.1, 7.2, 7.3, 7.5, 7.13, 7.15
 Exercises 7.26, 7.28
 Problem 7.43
Homework questions: Work-Shop Questions: 8-9
19 July 2010 University of Technology, Sydney Page 7 of 30

Week 6 Cost Allocation- Activity Based Costing & Activity Based Management
 Questions 8.1, 8.2, 8.5, 8.19, 8.23, 8.24
 Exercises 8.27, 8.38
 Problem 8.48
Week 7 Budgeting: Master, Operating and Cash Budgets

 Questions 9.1 to 9.22
 Exercises 9.26
Week 8&9 Standard costing 1&2
Homework Questions:
 Questions: 10.1,10.4, 10.6, 10.9, 10.12, 10.17, 11.1, 11.3, 11.12
 Exercise: 10.28, 11.27
 Problem: 10.38, 11.41
(reference – L-S.T.H Chapter 10 &11)
Week 10 Pricing Decisions and Relevant Costing

Self study questions: L-S.T.H. Chapter 19, 20
 Questions:19.1to19.27; 20-1 to 20-16
 Problem: 19.42,19.44; 20.40, 20.45, 20.48
 Case: 19.58, 20.54
Homework Questions:
(reference – L-S.T.H Chapter 19 & 20)
Week 11 Performance Evaluation - Financial Performance Measures

 Questions 13.2 to 13.19
 Exercise 13.30, 13.31
 Problem 13.39
Kaplan & Atkinson Chapters 9 & 10
Homework case: Western Chemical Corporation: Divisional Performance
Measurement, Kaplan & Atkinson, pp. 544-550
(reference – L-S.T.H. Chapter 13 – Kaplan & Atkinson Chapter 9 & 10)

Performance Evaluation
Week 12 Kaplan & Atkinson Chapter 8
Homework case: Chadwick Inc. The Balanced Scorecard (based on the
information in the case study; identify 4 performance measures in each of the 4
perspectives discussed in the chapter), Kaplan & Atkinson, pp. 380-383
(reference – L-S.T.H. Chap.14 – Kaplan & Atkinson Chap. 8 – Kaplan & Norton 1992,96)

Direct Raw Materials INCOME
BALANCE
19 July 2010
Material Inventory STATEMENT
SHEET
Sales
Revenue
Direct
Labour Less
GENERAL INFORMATION
Work in Process Finished Cost of

Inventory Goods Goods Sold
Manufacturing
Equals
Accounting for Manufacturing Operations
Overhead
Gross
Profit
INVENTORIABLE
University of Technology, Sydney

COSTS Less
Selling and
Period Costs
Admin Expenses
Formulae:
Equals
In a manufacturing organisation the flow of costs in the accounting system may be represented as follows:
Prime Costs = Direct Materials + Direct Labour

Conversion Cost = Direct Labour + Factory Overhead Net
Manufacturing Cost = Direct material + Direct Labour + Factory Overhead Profit
Page 10 of 30
TRANSACTION JOURNAL ENTRY
1 Purchase of Raw Materials Debit Stores Control

Credit Accounts Payable
2 Issue of Direct Materials Debit Work in Process
Credit Stores Control
3 Issue of Indirect Materials Debit Factory Overhead Control
Credit Stores Control
4 Incurrence of Direct and Indirect Labour Debit Work in Process
costs. Debit Factory Overhead Control
Credit Accrued Payroll
5 Payment of Salaries and Wages to Debit Accrued Payroll
employees Credit Cash
Credit Taxation Withholdings
Credit Other Withholdings (Union Fees
etc)
6 Employer Related Payroll Costs Debit Factory Overhead Control
(i) Workers Compensation Credit Accrued WC Insurance
(ii) Payroll Tax Credit Accrued Payroll Tax
7 Actual Factory Overhead Incurred
(i) On Credit (deferred payment) Debit Factory Overhead Control
Credit Accounts Payable
(ii) Depreciation of factory plant
and equipment Debit Factory Overhead Control
Credit Accumulated Depreciation
(iii) Insurance Expired
Debit Factory Overhead Control
Credit Prepaid Insurance
8 Application of OVERHEAD to Debit Work in Process
production (using a predetermined Credit APPLIED Factory Overhead
overhead rate)
9 Completed Production Debit Finished Goods
Credit Work in Process
10 Recording SALES at :
(i) Cost Price Debit Cost of Goods Sold

Credit Finished Goods
(ii) Selling (Retail) Price Debit Accounts Receivable

Credit Sales Revenue
11 Accounting for UNDERAPPLIED Debit APPLIED Factory Overhead
Overhead (Actual overhead exceed Debit Cost of Goods Sold
Applied Overhead) Credit Factory Overhead Control
12 Accounting for OVERAPPLIED Debit APPLIED Factory Overhead
Overhead (Actual overhead is less than Credit Cost of Goods Sold
Applied Overhead) Credit Factory Overhead Control

Manufacturing Statement, Cost of Goods Sold and Income Statement
The above journal entries are summarised periodically in the following financial statements:
(i) Manufacturing Statement

(ii) Cost of Goods Sold Summary
(iii) Income Statement
These financial statements disclose in summary form Manufacturing, Trading and Profit Performance for a specified period
of time. The format to be used for the preparation of these statements is as follows:
MANUFACTURING STATEMENT
Direct Materials Used
Direct Labour Incurred
Applied Factory Overhead
---------------------
Current Cost of Manufacturing
Add: Work in Process at Start

---------------------
Total Manufacturing Costs Incurred
Less : Work in Process at End

---------------------
COST OF GOODS MANUFACTURED
COST OF GOODS SOLD STATEMENT

Opening Stock of Finished Goods
ADD: Cost of Goods Manufactured

---------------------
COST OF GOODS AVAILABLE FOR SALE
LESS: Closing Stock of Finished Goods

---------------------
UNADJUSTED Cost of Goods Sold
Add UNDER applied Overhead or

Deduct OVER applied Overhead
---------------------
COST OF GOODS SOLD
INCOME STATEMENT
Sales
Less Cost of Goods Sold

---------------------
Gross Profit
Less Operating Expenses

---------------------
Net Profit

Introduction to Managerial Accounting
Work-Shop Question 1 – Cost Terminology
Discuss the meaning of the following terms:
Direct costs Period costs Cost Behaviour Patterns

Indirect costs Variable costs Cost Estimation
Cost of goods sold Contribution margin Cost driver
Gross profit (margin) Fixed costs Cost management
Product costs Capacity costs Pre-paid expenses
Work-Shop Question 2 – Cost Concepts
A company revealed the following cost information:

Direct materials used $4,000
Direct labour 2,000
Indirect materials used 2,500
Indirect labour 1,500
Rent for factory 3,000
Depreciation on factory equipment 3,000
Marketing expenses 2,000
Administration expenses 1,200
Units produced 5,000 units
Required:
(a) Calculate unit prime costs.
(b) Calculate the total conversion costs.
(c) Calculate the manufacturing cost per unit.

Cost Volume Profit Analysis and Cost Behaviour
Work-Shop Question 3 – Cost-Volume-Profit Analysis
An excerpt from the income statement of Global Park Ltd. follows:
Income Statement - Year Ended 30 June

Sales (400,000 units) $2,000,000
Operating Expenses
Cost of Goods Sold $950,000
Selling & Administrative Expenses 450,000
$1,400,000
Net Income before tax $ 600,000
Less Tax (40%) $ 240,000
Net Profit after tax $ 360,000
Estimated Fixed Costs and Fixed Expenses during the year were $440,000.
Manufacturing Capacity is 500,000 units per year.
Required:
(a) Calculate the Contribution Margin per unit and the Contribution Margin ratio.
(b) What is the breakeven point in Units for Global Park Ltd.?
(c) Given an annual sales volume of 420,000 units, calculate the selling price per unit, necessary
to achieve an after tax profit equal to $420,000.
(d) (Revert to original data). At a selling price of $5.50, calculate the number of units that need
to be sold in order to earn a net profit after tax equal to $500,000.
(e) The SELLING PRICE required to earn a net profit after tax equal to 10% of sales revenue
assuming 250,000 units are manufactured and sold.
(f) The number of units that need to be sold at a selling price of $8.00 per unit to earn a net
profit after tax equal to 15% of total costs.

Work-Shop Question 4 – Cost-Volume-Profit Analysis
Voice Manufacturing Pty Ltd manufactures and markets a single product. Cost and expense relationships have
been summarised as follows:
Variable Costs & Expense

Direct material $2.50
Direct Labour $2.00
Variable Overhead $1.50
Variable Expenses $2.00
Fixed Costs & Expenses

Factory Overhead $50,000
Selling Expenses $30,000
Administrative Expenses $20,000
Normal Manufacturing Capacity is 100,000 units per year.

The tax rate is 40 per cent.
For planning purposes, inventories are not considered. As such all units manufactured are presumed to
sold in the period
REQUIRED
(a) Given a Selling Price of $12.00 how many units need to be sold in order to break-even?
(b) Given an annual sales volume of 90,000 units, calculate the selling price necessary to achieve a net
profit before tax of $40,000
(c) Given a selling price of $12.50, how many units need to be sold in order to earn an after tax profit equal
to 10 per cent on sales revenue.
(d) At a selling price of $10.00, what will the after tax net profit amount to if the company sells 60,000
units.
(e) The company has been approached by an overseas company to purchase 12,000 units per year at a price
of $10.00 per unit. Given a total capacity utilisation of 80 per cent (including the overseas order), what
would be the minimum price that the company must charge on its sales to the domestic market in order
to achieve an after tax profit equal to 8 per cent on total sales revenue?

Work-Shop Question 5 – Cost-Behaviour
Mark & Jane Pty. Ltd. is a single product firm. The following profit summary has been extracted from the
accounts of the company.
Jan. Feb. Mar. Apr.

Sales (units) 1080 1140 1350 2000
Finished goods inventory at end of month (units) 1200 1000 l500 1600
--------------------------------------------------------------------
Total Revenue $ 43200 45600 54000 80000
--------------------------------------------------------------------
Total material $ 14724 6952 12230 13680
Total labour costs $ 20470 10085 17138 19075
Other production costs $ 18126 10823 15782 17145
Total expenses $ 5340 5520 6150 8100
--------------------------------------------------------------------
Other information:
• Total materials usage and total labour costs above; include both direct and indirect
components.
• Price levels have been constant throughout the above period.
• Total conversion costs were $39,505 during April.
• There was no work in process at the end of each month.
• There was no opening inventory of finished goods in January.
• Prime costs are equal to 60 per cent of variable costs.
• Total expenses are all selling expenses.
• The company uses the first-in-first-out method to value finished goods inventory.
Required:
From the above data use high-low analysis to calculate estimates for:
(i) Direct labour costs per unit,
(ii) Direct material costs per unit,
(iii) Variable overhead costs per unit,
(iv) Fixed overhead cost per month.

Product Costing
Work-Shop Question 6 – Product Costing
The management of Production Life Pty. Ltd. receives an Interim financial report on June 29th, 2003. The report
covered all activities for the financial year from July 1st, 2002. Inventories of Work-In-Process and finished
goods were $74,500 and $146,000 respectively as of July 1st, 2002. All Jobs on hand had been completed on the
29th June 2003, except for one large job; No. 276. The job cost sheet for this job indicated to date direct labour of
$12,000 and direct material of $10,000 had been used.
Records for the last day of the financial year showed that direct labour costs of $5,000, direct material costs of
$3,000 and factory overhead costs of $2,000 were incurred on that day. Job No. 276 was still incomplete.
Up to the close of business on the 29th June 2003, the work in process account had been charged with $500,000
of direct material. Factory overhead is applied at 150% of direct labour costs. Factory overhead of $850,000 had
been incurred up to the close of business on 29th June 2003.
Sales for the period were $3,300,000, representing a mark-up of 50% on factory cost. There were no sales
recorded on the last day of the period. Closing balance of finished goods was $34,000.
Required:
Incorporate records for the last day of the financial period and for the full financial period prepare:
(a) A cost of goods manufactured statement

(b) A cost of goods sold statement
(c) A Statement of Financial Performance

Work-Shop Question 7 – Product Costing
The Black Corporation operates a Job Cost System and provides you with the following details relating to
November 2003 operations.
Balance Brought Forward

Finished Goods $8,000
Job No. 38 $3,200
Job No. 39 4,800
Work In Process $9,000

Job No. 40 $6,500
Job No. 41 2,500
Transactions for the month of November:

Raw Material and stores purchased on credit $32,000
Raw Material and stores issued
Job No. 40 $ 1,500
Job No. 41 500
Job No. 42 21,000
Job No. 43 6,300
Indirect 700
Time sheet summary $17,000

Job No. 40 $ 1,000
Job No. 41 300
Job No. 42 11,000
Job No. 43 2,800
Indirect 1,900
Other factory overhead incurred $ 4,900

Factory overhead recovery rate - 50% of direct labour cost
Jobs charged out to customers $23,000

Job No. 38 $ 5,000
Job No. 39 4,500
Job No. 40 9,900
Job No. 41 3,600
Job No. 42 was finished during November, but was not delivered by November 30
Job No. 43 was in process at the end of November
Required:
(a) Prepare a Statement of Cost of Goods Manufactured

(b) A Statement of Cost of Goods Sold, and
(c) A Statement of Financial Performance for the month showing any under or over applied overhead

Cost Allocation, Using Predetermined Overhead rates
Work-Shop Question 8 - Cost Allocation
New Town Constructions Pty. Ltd. has two producing departments and two service departments. Monthly
budget estimates are as follows:
Producing Departments Service Departments
Machining Assembly Stores Office
Dept. overhead $ 82,000 $ 52,000 $12,000 $ 9,000

Direct material $ 92,000 $ 16,000
Indirect material $ 4,500 $ 1,700 $1,000
Number of employees 12 20 5 3
Direct labour hours 1,540 2,800
Indirect labour hours 360 400 800
Floor area (sq.m.) 1,000 1,600 2,400 600
Labour charge rates:

direct (per hour) $12.00 $10.50
indirect (per hour) $10.00 $9.00 $11.00
The company uses the step-method to re-allocate service department overheads and has decided to use number
of employees to re-allocate factory office overheads and to use the cost of materials issues to re-allocate the
stores department overheads.
In addition to the above budgeted department overhead costs the following plant-wide overhead costs are
expected each month:
Allocation Basis.
Insurance (buildings) $ 1,500 floor space.
Electricity $ 2,000 number of employees.
Transport/freight $ 3,600 prime cost.
Canteen subsidy $ 1,250 labour hours.
Overhead is applied on the basis of direct labour hours.
Required:
(a) Calculate the factory overhead applied for each producing department assuming an activity level of
1660 direct labour hours for the machining department and 3000 direct labour hours in the assembly
department.
(b) Calculate the overhead applied in (a) above if the company had allocated overhead on a plant-wide
basis.

Work-Shop Question 9 - Cost Allocation
Overton Industries Ply. Ltd. manufactures motor vehicle accessories. The company has three production
departments (machining, assembly and finishing departments) and two service departments (stores and
maintenance departments). The company has decided to use pre-determined overhead application rates
calculated on a departmental basis. Annual budget data and other information are as follows:
General Factory Overhead Basis of re-allocation.
electricity $85,000 number of machines

supervision 284,000 number of employees
equipment insurance 22,000 cost of machines
depreciation (building) 136,000 floor space
rent 240,000 floor space
transport/dispatch 175,000 prime costs
Other Budget Details. Machining Assembly Finishing Stores Maint.
direct labour $616000 $484000 $290000

indirect labour $110000 $ 66000 $ 40000 $120000 $250000
direct materials $820000 $260000 $138000
indirect materials $ 15000 $ 22000 $ 8000 $ 46000
other overhead $265000 $320000 $110000 $ 50000 $ 70000
direct labour hours 44000 38720 26280

direct machine hours 27500 14000 9000
Other Information.
number of machines 25 12 8 - 15
number of employees 32 25 21 6 10
floor space (sq.m.) 2000 3000 1400 5000 600
cost of machines $450,000 $125000 $100000 $280000
It has been decided that the appropriate basis for re-allocating the stores departments overhead costs is the
budgeted cost of materials used and to use wages paid to re-allocate the maintenance departments budgeted
overhead costs.
Required :
(a) Calculate a plant-wide predetermined overhead application rate based on direct labour cost.
(b) Calculate pre-determined departmental overhead application rates using the step-method for
re-allocating service department costs to production departments, (Allocate stores department first). Use
the following absorption bases for applying overhead to production units:
Machining: Machine hours.

Assembly: Direct labour hours.
Finishing: Direct labour cost.

Activity Based Costing (ABC) and Activity Based Management (ABM)
Work-Shop Question 10 – ABC
Millionaire National Bank had operated for years under the assumption that profitability can be increased by
increasing dollar volumes. Historically, Millionaire’s efforts had been directed towards increasing total dollars
of sales and total dollars of account balances. In recent years, however, Millionaire’s profits had been eroding.
Increased competition, particularly from savings and loan institutions, was the cause of the difficulties. As key
managers discussed the bank’s problems, it became apparent to them that they had no idea what their products
were costing. Upon reflection, they realised that they have often made decisions to offer a new product, which
promised to increase dollar balances without any consideration of what it cost to provide the service.
After some discussion, the bank decided to hire a consultant to compute the costs of three products: cheque
accounts, personal loans and the gold VISA card. The consultant identified the following activities, costs, and
activity drivers (annual data):
Activity Activity Activity Driver Activity

Cost Capacity
Providing ATM service $100,000 No. of transactions 200,000
Computer processing 1,000,000 No. of transactions 2,500,000
Issuing statements 800,000 No. of statements 500,000
Customer inquiries 360,000 Telephone minutes 600,000
The following annual information on the three products was also made available:
Cheque Personal VISA

Accounts Loans
Units of product 30,000 5,000 10,000
ATM transactions 180,000 0 20,000
Computer transactions 2,000,000 200,000 300,000
Number of statements 300,000 50,000 150,000
Telephone minutes 350,000 90,000 160,000
In light of the new information, Steve Dollar, the bank president, wanted to know whether a decision made two
years ago to modify the bank’s cheque account product was sound or not. At that time the service charge was
eliminated on accounts that had an average annual balance greater than $1,000. Based on increases in the total
dollars in cheque accounts, Steve felt good about the new product. The cheque account product is described as
follows:
(1) Cheque account balances greater than $500 earn interest of 2% per year, and
(2) A service charge of $5 per month is charged for balances less than $1,000.
The bank earns 4% on cheque account balances. Fifty percent of the accounts are less than $500 and have an
average balance of $400 per account. Ten percent of the accounts are between $500 and $1,000 and average
$750 per account. Twenty five per cent of the accounts are between $1,000 and $2,767; the average balance is
$2,000. The remaining accounts carry a balance greater than $2,767. The average balance for these accounts is
$5,000. Research indicates that the $2,000 category was by far the greatest contributor to the increase in dollar
volume when the cheque account product was modified two years ago.
Required:
1. Calculate cost driver rates for each activity.
2. Using the rates computed in Requirement 1, calculate the cost of each product.
3. Evaluate the cheque account product. Are all accounts profitable? Compute the average annual
profitability per account for the four categories of accounts described in the problem. What
recommendations would you make to increase the profitability of the cheque account product?

Work-Shop Question 11 – ABC
Nexus Industries produces three products G, B and H. which pass through three departments. Activity based cost pools have
been established and a budget prepared for the following year, as shown below:
ABC Cost Pool Budget

Cost Pool $
Maintenance 58,500
Stock handling 151,000
Energy 55,550
Quality Control 18,249
283,299
Normal capacity production estimates for the coming year and the flow of production for each product through the three
producing departments are as follows:
Units Processed
Product Total Units Dept. 1 Dept. 2 Dept 3
G 1,750 Nil. 1,750 1,750
B 3,000 3,000 3,000 3,000
H 3,500 3,500 Nil. 3,500
Cost Driver Information
Energy consumption is driven by Kilowatt Hours and the consumption pattern is estimated as follows:
Dept. 1 Dept. 2 Dept. 3

Kilowatt Hours 105 165 260
Energy costs are first allocated to each department and then reallocated to products based on machine hours, which are
seen as the major causal factor.
Departmental machine hours applicable to each product are:

Machine Hours per unit
Product Dept. 1 Dept. 2 Dept. 3
G Nil. 1 1
B 1 2 2
H 1 Nil. 2
Stock handling cost pool is driven by distribution of parts. Numbers of parts per unit are:
Product Parts per unit
G 8
B 10
H 9
Inspections which are seen as the cost driver for Quality Control are carried out in Department 3 at the rate of one
inspection per 250 units.
Maintenance costs are directly related to machine set-ups, with departmental set-ups for each product estimated as
follows:
Departmental Set-ups
Product Dept. 1 Dept. 2 Dept. 3
G Nil. 1 7
B 2 1 12
H 2 Nil. 14
Required:
(a) Calculate to four decimal places, overhead application rates for each cost driver.
(b) Determine the overhead cost applicable to one unit of each product, G, B and H.
(c) Determine the overhead cost applicable to one unit of each product G, B and H, if a plant-wide overhead rate,
based on machine hours, had been used.

Budgeting: Master, Operating and Cash Budgets
Work-Shop Question 12 – Operating and Cash Budgets
1. The management accountant of Efficient Manufacturing Ltd. has estimated the following actual cost and
expense functions to prepare flexible budgets:
Materials $ 4,000 + $22.00 per unit produced
Labour $ 6,400 + $15.00 per unit produced
Other factory overhead $12,000 + $25.00 per unit produced
S & A Expenses $ 4,970 + $10.00 per unit sold
2. Eighty per cent of the variable cost of materials and labour are prime costs; the remainder is indirect costs.
Depreciation of production machinery is $2,000 per month and depreciation of office equipment is $1,000 per
month. The company tax rate is 33%. The selling price is $150.00. The Denominator Level of Activity is 400
units.
3. The following balances are available for the month of July 200X:
Opening Balance Closing Balance
Finished Goods 40 units 60 units
Material $3,255 $2,635
Wages payable $3,500 $4,250
Accounts Payable $21,554 CR
Accounts Receivable $60,000 DR
Cash at Bank $26,710 CR
Accounts payable and accounts receivable refer to amounts accrued during the month of June 200X
4. Sales collections are made as follows:
 40 per cent during the month of sale;
 58 per cent during the next month;
 2 per cent un-collectable (to be written off at the end of the month following the sale to the
provision for doubtful debts. Bad debt expenses are provided for in the month of sales as financial
expenses).
5. Purchases of material are paid for in the month in which they are incurred. Factory overheads and selling and
administration expenses are paid thirty per cent in the month in which they are incurred and seventy per cent in
the following month.
Required
Assume that during the month of July 200X the company will sell 350 units at the selling price of $150.00 per
unit. Prepare a budgeted income statement and a cash budget for the month of July 200X.

Work-Shop Question 13 – Operating Budget
The profit and loss account for Forte for the last financial year is given below:
Forte
Profit and Loss Statement
For Year ended 30 June 2004
Sales revenue 1,904,000
Cost of goods sold

Beginning inventory 345,000
Variable Fixed
Material 295,200 20,000
Labour 557,600 120,000
Overhead 98,400 312,000
951,200 452,000 1,403,200
Goods available for sales 1,748,200
Ending inventory 379,500 1,368,700
Gross profit 535,300
Selling & Administration expense 96,000 150,000 246,000
Net profit 289,300
Additional information on the profit and loss statement
 Sales revenue is based on sales of 8,000 units.

 The beginning and ending inventory were 2,000 and 2,200 units respectively
 The unit absorption cost was based on a normal capacity of 8,000 units of output
 Depreciation accounted for half of the fixed manufacturing overhead and a quarter of the fixed selling
and administration expenses
Information relevant for the preparation of next year's budget
 Forte has invested in new manufacturing equipment. This will increase the current depreciation expenses
in fixed manufacturing overhead to four times its current level. This is the only new investment in fixed
assets made by Forte.
 This new investment resulted in an increase in the efficiency of direct labour of 20 per cent and savings
in direct material of 5 per cent
 Forte will increase advertising expenditure by $50,000 in an effort to boost sales
 As a result of the improve quality of the product and services resulting from the new equipment and
because of increased advertisement, the sales volume is expected to increase by 25 per cent and the unit
selling price by 10 per cent
 All current spending is expected to increase at the rate of 4 per cent
 Ending inventory at 30 June 2005 will be 3,000 units. Use a denominated level of output of 10,000 for
the year 2005 to value ending inventory.
Required
Prepare a budgeted profit and loss statement for the year ended 30 June 2005. (Note: show all your
workings clearly)

Standard Costing
Work-Shop Question 14 – Standard Costing
Towers Pty. Ltd. use a standard cost system and a flexible budget for factory overhead. Normal volume
(denominator level) is 8400 standard direct labour hours per month. Standard cost details for the companies
single product are as follows:
Direct Material $ 12.30

Direct Labour $ 49.92
Factory Overhead $ 43.68
Total Standard Cost per Unit $105.90
 Factory overhead is applied on the basis of standard direct labour hours and raw materials
inventories are kept at standard cost.
 The standard cost of material is $4.92 per Kg.
 Direct labour is charged at the standard rate of $10.40 per hour.
For the month of June:

 6000 Kgs. of raw material were purchased at a cost of $30600.
 Issues of direct material were 5000 Kgs.
 Direct labour usage was 9600 DLH's at a cost of $10.64 per DLH.
 The factory overhead budget for June was $83460 for a budgeted 2000 unit production level.
 Factory overhead incurred was $81,276 of which $30,000 was considered to be fixed.
 Total factory overhead was over applied by $3900.
Required:
(i) Prepare a schedule of all relevant standard cost variances and give appropriate journal entries to
record direct materials, direct labour and factory overhead (use 4 variance method for overhead
analysis).
(ii) In the forthcoming budget period the company expects fixed overhead to change to $32500 per
month. Variable overhead is expected to be $6.20 per DLH. New production methods will reduce
standard labour times by 10% and labour rates are expected to increase by 10%. Material usage is
expected to increase by 5%. The normal production level (denominator level) will change to 1800
units per month.
Adjust the standard cost sheet to reflect fully these expected changes.

A standard cost system is in operation at the Newcastle plant of Lewis & Smith Fabrications Limited. A
summary of standard cost data and costs of operation during 2008 are as follows:
Standard Cost Data (per unit of product)

Direct material (3kg at $4.00/kg) $12.00
Direct Labour (1.5 hours at $9.00/DLH) $13.50
At a normal annual operating capacity of 84,000 machine hours, the plant should produce 140,000
units of product.
The Flexible Overhead Budget used was:
$252,000 + $3.10 (per machine hour)
Actual Cost Data

 During 2008 the plant operated at 77,700 machine hours and produced 119,500 units of product.
 480,000kg of direct material was purchased during the year (300,000kg at a price of $4.25/kg and
the remainder at $3.90/kg).
 Opening stocks of direct raw material were 8,000kg and closing stock was 125,000kg.
 The plant operated at 185,600 direct labour hours and the actual labour rate was $9.40 per direct
labour hour.
 Actual Overhead Costs incurred amounted to :
Fixed $247,000
Variable $248,200
Required:
(a) Prepare a report disclosing all standard cost variances for direct materials, direct labour and factory
overhead for 2008. (Calculate 4 variances for overhead).
(b) For January, 2009 a new machine is expected to be introduced to replace an older and less efficient
machine. As a result of the new machine the fixed overhead budget is expected to increase by $1,000
per month and direct labour times are expected to reduce by 10% with direct labour rates expected to
increase by 15%. No changes are expected to the material price. Due to a market upturn normal
operating levels (in units) will increase by 5% for the year.
Adjust the standard cost sheet to reflect fully these changes.

Stanton and Main Pty. Ltd. use a standard cost system in accounting for the manufacturing costs of its single
product. Standard cost data for one unit of product is as follows;
Direct materials, 16 kgs. @ $1.65 per Kg. $ 26.40

Direct labour, 1.8 hrs. @ $14.00 per hr. 25.20
Factory Overhead Applied 48.00
$ 99.60
The company purchased 5,000 Kgs of material during the month at a cost of $8,600. Any materials price
variance is recorded when materials are purchased and all inventories are carried at standard cost. There
were no opening stocks of raw materials at the beginning of the month. A physical check of inventory
showed 600 kgs of raw material stock on hand at the end of the month.
During the month employees worked a total worked a total 450 hours at a cost of $6,550. Factory overhead
is applied on the basis of direct labour hours. Factory overhead totalling $15,000 was incurred during the
month; $5,000 of this amount was classified as fixed overhead with the remaining amount treated as variable
overhead.
A total of $144,000 was budgeted for factory overhead for the year; the break up of this amount was 40%
fixed and 60% variable.
There were no opening or closing inventories of work in process during the month. Total overhead was
under applied by $2,520 during the month.
Required
(a) Prepare a schedule of standard cost variances for the month.
(b) In the forthcoming period a new machine will be introduced into the production line which will have
the following effects:
(i) Raw Materials cost will increase by 15 cents per kilogram and the quantity required
will reduce to 15 kilograms per unit of finished product.
(ii) Direct labour times will reduce by 20% and with the increased productivity, direct
labour workers will receive a 15% pay rise.
(iii) The variable overhead rate per hour will remain unchanged.
(iv) Total budgeted fixed overhead will increase by 25% and normal capacity will
increase by 33.333%
(v) Overhead will still be applied on the basis of direct labour hours.
Calculate the new standard cost per unit.

Information for Tactical Decisions
Work-Shop Question 17 – Relevant Information Decision
Clearview Company’s engineering, manufacturing, and accounting departments have prepared a

report for management in response to the idea of manufacturing digital cameras. Below is some
analysis, which includes the estimate for an assembly run of 5,000 digital cameras. Additional
production employees would be hired to manufacture the sub-assembly. However, no additional
equipment, space or supervision would be needed.
The report states that total costs for 5,000 units are estimated at $957 000 or $191.40 a unit. The
current purchase price is $130.00 a unit, so the report recommends a continued purchase of the
product.
Components (outside purchases) $120,000
Assembly labour* $300,000
Factory overhead** $450,000
General and administrative overhead*** $87, 000
Total costs $957 000
*Assembly labour consists of hourly production workers.
**Manufacturing overhead is applied to products on a direct labour dollar basis. Variable overhead
costs vary closely with direct labour dollars.
Fixed overhead 50% of direct labour dollars
Variable overhead 100% of direct labour dollars
Manufacturing overhead rate 150% of direct labour dollars
***General and administrative overhead is applied at 10% of the total cost of material (or
components), assembly labour and manufacturing overhead.
Clearview Company has purchased 40,000 digital cameras annually from Zoolander Enterprises Ltd
The price has increased each year and reached $132.00 per unit last year. Because the purchase
price has increased significantly, Clearview management has asked that an estimate be made of the
cost to manufacture the digital camera in Clearview facilities. Clearview products consist of
stamping and moulding. The company has little experience with products requiring assembly.
Required:
1. Was the analysis prepared by Clearview Company’s engineering, manufacturing, and

accounting departments and their recommendation to continue purchasing the digital
cameras correct? Explain your answer and include any supporting calculations you consider
necessary.
2. Briefly discuss three guidelines that relate to this make or buy decision and why they are
important.

Work-Shop Question 18 – Relevant Information Decision
Harry Moss, administrator of David’s MDC Hospital, requests your assistance in preparing a cost
analysis for a proposed additional to the telemetry unit. The hospital presently has 10 telemetry
units in operation on a 40-bed floor. A telemetry unit monitors patients who had heart attacks or
have cardiac problems. This unit allows a patient to move about freely in that particular hospital
wing without being confined to a hospital bed. The present 10-unit telemetry monitoring system is
located in the nursing station that can accommodate the proposed 8 additional units without
renovation. Telemetry units represent a step down in the level of care from cardiac intensive care
rooms. Telemetry units not only offer patients more freedom but also offer a considerable cost
saving. Cardiac care rooms average $300 per day, while the telemetry unit charge is the regular
room charge of $120 plus an additional $80 to $120 daily.
Expected revenue. Hospital management is undecided whether to charge a $80 or $120 differential
a day for the proposed unit. Also, there is lack of consensus among the managers regarding the rate
of utilisation. The expected range is from 40 to 60 percent. A 10 percent allowance for bad debts
and insurance discount is estimated. Expected cost. Space for the unit will be obtained by
converting a wing of the hospital presently being used for medical-surgical patients; the regular
room rate is charged for this wing. The equipment’s total cost is expected to be $44,570; the life is
estimated to be only five years due to technological changes. Straight-line depreciation will be
used. The administrator indicates that you are to determine total cost for the five-year period for
each cost element and then divide by five years to obtain an average for the five-year period.
Service contract costs for routine maintenance and service call costs for overtime, labour, and parts
are expected to be $3,060 and $2,400 respectively in Year 2, with an increase of 10 percent per year
thereafter for inflation; no such costs are expected for Year 1 since the equipment will be under
warranty during this time. Costs of supplies will be $2,800 for the first year, with a 12 percent
annual increase thereafter due to inflation and aging of the equipment. One registered nurse earning
$25,000 annually, and two licensed practical nurses, each earning $17,000 annually, will staff the
eight-bed unit. Personnel cost the hospital industry has increased 8 percent annually in the last few
years. For simplicity, assume the service contract, service call, suppliers, and personnel costs are
fixed, unaffected by changes in volume.
Required:
(a.) Determine differential margin that will be received and the annual percentage return on
equipment using a:
(1) $80 charge per day and a 40 percent use rate
(b.) Advise management as to the alternative to choose explaining why you think this is the right
choice.
(c.) List two other factors that should be considered before installation of the unit explaining why
they are important.
(d.) Discuss three guidelines that help a management accountant to determine what the relevant
information is when he or she is confronted with an alternate choice decision. Explain why these
factors are important.

Decision Process and Pricing Decisions
Work-Shop Question 19 – Product Mix Decision & Special Order
Fashionable produces four products, shirt, skirt, trousers and jacket that it sells directly to retailers. The unit
selling price and costs are given below:
Shirt Skirt Trousers Jacket

Unit selling price $ 21.00 $ 35.00 $ 45.00 $ 75.00
Unit direct material 3.80 8.80 10.00 15.00

Unit direct labour @ $5 per labour hr 5.00 7.50 10.00 20.00
Unit variable overhead 1.50 2.25 3.00 6.00
Fixed overhead @ $30 per machine hr 2.50 5.00 7.50 12.50
Unit cost of sales 12.80 23.55 30.50 53.50
Gross profit margin 8.20 11.45 14.50 21.50
Unit variable S & A expenses 1.20 1.80 1.80 3.20

Unit fixed S & A expenses 2.10 3.50 4.50 7.50
Total unit S & A expenses 3.30 5.30 6.30 10.70
Net profit margin $ 4.90 $ 6.15 $ 8.20 $ 10.80
At the moment Fashionable produces 2,000 shirts; 600 skirts; 600 trousers and 200 jackets - this uses up all
the available machine hours. The maximum quantities of shirts, skirts, trousers and jackets that Fashion can
sell as well as the minimum quantities that it must sell because of contractual arrangements are given below:
Shirt Skirt Trousers Jacket

Maximum number of unit of sales 3,000 800 750 300
Minimum number of unit of sales 1,000 400 400 100
There is a limited supply of machine hours.
Required
(a) How many units of shirts, skirts, trousers and jackets should Fashionable produce to maximise profit?
What is the profit at the optimal product mix? Support your answers with appropriate calculation.
(b) If Fashionable receives a special order for 50 jackets, what is the minimum unit selling price it would be
willing to accept for this order?
(c) If 100 extra machine hours are available, what are the maximum amounts that Fashionable would pay for
each machine hour?

Managerial Accounting: Subject Outline

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22746 Managerial Accounting

Result type: Grade and marks

On successful completion of this subject students should be able to:

1. understand the role of management accounting in organisations

19 Jul 2010 © University of Technology Sydney Page 1 of 6

Teaching and learning strategies

Role of management accounting in organisations

Week Dates Description Notes

1 2 Aug Introduction to management accounting Reference: L-S, T, H

3 16 Aug Product costing Reference: L-S, T, H

4 23 Aug Cost allocation — Plant-wide and Departmental Reference: L-S, T, H

5 30 Aug Activity-based costing and activity-based Reference: L-S, T, H

19 Jul 2010 © University of Technology Sydney Page 2 of 6

7 13 Sept Standard costing 1- Material and Labour variances Reference: L-S, T, H

8 20 Sept Mid-semester exam week No classes

9 27 Sept Mid-semester break No classes

10 4 Oct Standard Costing 2 - Manufacturing and General Reference: L-S, T, H

11 11 Oct Pricing decisions and Relevant costing Reference: L-S, T, H

10 18 Oct Performance evaluation — financial performance Reference: L-S, T, H

11 25 Oct Contemporary performance evaluation methods Reference: L-S, T, H

Assessment item 1: Mid-Semester Examination

Assessment item 2: Final Examination

19 Jul 2010 © University of Technology Sydney Page 3 of 6

Assessment item 3: Homework

Examination material or equipment

All examinations will be close-book examinations.

Academic liaison officer

Wing Bui, School of Finance and Economics, telephone: 9514 7717

19 Jul 2010 © University of Technology Sydney Page 4 of 6

19 Jul 2010 © University of Technology Sydney Page 5 of 6

19 Jul 2010 © University of Technology Sydney Page 6 of 6

Week 2 Introduction to Management Accounting

(reference – L-S.T.H. Chapter 1&2)

Week 3 Cost Volume Profit Analysis & Cost Behaviour

(reference – L-S.T.H. Chapter 18)

Week 5 Cost Allocation – Using Predetermined Overhead Application Rates

(reference – L-S.T.H. Chapter 7)

19 July 2010 University of Technology, Sydney Page 7 of 30

(reference – L-S.T.H. Chapter 8)

Week 7 Budgeting: Master, Operating and Cash Budgets

(reference – L-S.T.H. Chapter 9)

Week 8&9 Standard costing 1&2

Week 10 Pricing Decisions and Relevant Costing

(reference – L-S.T.H Chapter 19 & 20)

Week 11 Performance Evaluation - Financial Performance Measures

(reference – L-S.T.H. Chapter 13 – Kaplan & Atkinson Chapter 9 & 10)

19 July 2010 University of Technology, Sydney Page 8 of 30

19 July 2010 University of Technology, Sydney Page 9 of 30

Work in Process Finished Cost of

University of Technology, Sydney

Prime Costs = Direct Materials + Direct Labour

1 Purchase of Raw Materials Debit Stores Control

(i) Cost Price Debit Cost of Goods Sold

(ii) Selling (Retail) Price Debit Accounts Receivable

19 July 2010 University of Technology, Sydney Page 11 of 30

(i) Manufacturing Statement

Add: Work in Process at Start

Less : Work in Process at End

COST OF GOODS SOLD STATEMENT

ADD: Cost of Goods Manufactured

LESS: Closing Stock of Finished Goods

Add UNDER applied Overhead or