Management Accounting 2
Course Code (AC 420)
[Fourth Year, Second Semester]
LECTURER: MR V. MASVIBA
GROUP ASSIGNMENT
Probity Mushaikwa P R171621H
Leeroy Mugweni R171887H
Deone Magondo T R171200H
a) Outline the major elements of a Management Accounting System [10]
There are many kinds of management accounting systems they include inventory management,
cost accounting system, price optimization and job costing system all with various accounting
objectives, elements, and functions. However, all the accounting systems’ basic elements create
the standardized context as to the aim for the data that is analysed, identified and communicated
(Edmonds and Olds, 2013).
Cost accounting system or costing system is the framework applied by the corporation to
approximate the cost of its products for inventory valuation, profitability analysis, and cost
control. In the cost accounting system allocation of cost is performed based on either activitybased costing system or traditional costing system. Approximating the actual products’ cost is
crucial for effective functions (Blocher, 2016). Cost accounting is the kind of accounting
system which aims at capturing the corporations’ production cost through weighing the inputs
costs of every production step plus fixed costs like capital equipment depreciation.
Costing system will individually measure and record the costs then comparing of inputs
outcomes to actual results or output to assist management of the company in measuring
financial performance. Business managers rely on accounting data in general and specific on
cost since any task of the company may be explained via its cost. Cost accounting is seen as
the key concept in management accounting as it offers the analytical tools like budgetary
control, marginal costing, standard costing, operating costing and inventory control which are
applied by management in discharging their reproducibility efficiently.
Inventory management refers to the method of controlling and overseeing the ordering, use,
and storage of components which the corporation applies in the production of the goods it sells.
Inventory managing system combines the application of barcode scanners, desktop software,
mobile devices and barcode printers to streamline the inventory management such as
consumables, goods, stock, and supplies (Drury, 2015). Also, it is the practice of controlling
and overseeing of quantities of the finished goods for sale. The objective of inventory
management is to accurately understand present inventory levels and minimize overstock and
understock situations. Through efficient tracking of quantities across the stocking location,
managers will have insight and be capable of making sufficient inventory decisions. The
inventory of a business is one of its key assets and accounts of the investment which is tied up
to the products sells.
The following constitutes to functions of the inventory management system: creating purchase
orders, receiving, relocating, adjusting and disposing of inventory. Also, it makes sales orders,
picking, packaging, and shipping of products (Drury, 2015). It performs cycle counts, and
physical inventory counts, create, manage, scheduling and sharing reports plus printing barcode
labels. Benefits of the inventory management system to an organization include improving the
bottom line of the company, enhancing inventory accuracy and improving company workflow.
Job costing refers to the system of allocating manufacturing costs to the individual item or
batches of the products. It is applied if the goods processed are different from one another. It
involves the practice of accumulating data on the costs related to a particular service or
production job. The information can be needed to submit cost data to a consumer under the
contract in which costs are refunded. Also, the information is important for determining the
accuracy of the estimating system of the company that must be capable of quoting prices which
permit for a reasonable income (Drury, 2015). The information may also be applied to
assigning inventorial costs to processed products. The job costing system requires
accumulating the following three kinds of direct information labor, direct materials and
overhead.
Price optimization refers to the application of mathematical analysis to the corporation to
determine how consumers will react to various price for their goods and services via different
channels (Edmonds and Olds, 2013). Also, it is applied to determining the prices which a
company determines shall best fulfill their goals like maximizing the operating profit.
Discovering an alternative via the highest achievable performance or cost effective under the
provided constraints through maximizing desired aspects and minimize the undesired ones
(Edmonds and Olds, 2013
b) Design a Management Accounting System that would effectively achieve the objectives
of the company. Include in your answer account headings, account codes and formats of
operating statements and reports) [20]
Managerial accounting focuses on internal information received via financial accounting.
Management accounting is applied for controlling, planning and decision-making. However,
they also apply other forms of accounting reports in evaluating corporation information. These
may include budgets cost reports, product and performance reports
Management accounting system for Quality Foods
•raw materials
•labour
•overheads
•Work In Process
Dept Acooking oil
Dept Bmargarine
•raw materials
•WIP from dept A
•labour
•overheads
•Work In Process
•transfer to finished goods
•normal loss
•abnormal loss
•rentals
•wip from dept b
•finished goods
finished goods
MANAGEMENT
ACCOUNTING
SYSTEM
FOR
A
COOKING
OIL
AND
MARGARINE MANUFACTURING COMPANY
Cost /Finance
management/
procurement Finance
Sales & Marketing
Department
IT Department
BATCH 1A Raw materials
Material for
BATCH 1
Normal loss
BATCH 1B Raw materials
Normal loss
Overhead
Work in progress BATCH 1
Direct labor
Abnormal Loss
Finished Goods
HR DEPT
Selling and
administrative
Cost of
goods sold
Period Costs
Period Costs
DATABASE
Selling and
administrative
PRODUCTION REPORT example
Work in process, May 1: 200 units
Materials:
50% complete.
Conversion:
30% complete.
Units started into production in May:
Units completed and transferred out in May:
Costs added to production in May
Materials cost
Conversion cost
Work in process, May 31: 400 units
Materials
40% complete.
Conversion
25% complete.
Cost
$ 3,000
1,000
5,000
4,800
$ 74,000
70,000
1. Quantity Schedule with Equivalent Units
Units to be accounted for:
Work in process, May 1
Started into production
Total units
200
5 000
5 200
Equivalent units
Materials
Conversion
Units accounted for as follows:
Completed and transferred
Work in process, May 31
Materials 40% complete
Conversion 25% complete
4 800
400
4 800
4 800
160
5 200
100
4 900
4 960
2. Compute cost per equivalent unit
Cost to be accounted for:
Work in process, May 1
Costs added in the Shipping
and Milling Department
Total cost
Equivalent units
Total
Cost Materials
Conversion
$ 4 000
$ 3 000
$ 1 000
144 000
$ 148 000
74 000
$ 77 000
4 960
Cost per equivalent unit
$15.524
70 000
$ 71 000
4 900
14.490
($77 000÷4
960units)
($71,000÷4 900units)
Total cost per equivalent unit = $15.524 + $14.490 = $30.014
3. Cost Reconciliation
Total
Cost
Cost accounted for as follows:
Transferred out during May (4,800 units @ $30.014) $ 144,067
800
Work in process, May 31:
Materials (160 units @ $15.524)
2 484
Conversion
(100 @ $14.49)
1 449
Total work in process, May 31
3 933
Total cost accounted for
$ 148 000
Equivalent Units
Materials
Conversion
4 800
4
160
100