Describe The Role Of The Management Accountant In This Organ

Describe the role of the management accountant in this organisation

The management accountant plays a vital role within organizations like Merafe Resources by providing financial insights and strategic analysis to support decision-making and enhance operational efficiency. They are responsible for preparing and analyzing financial reports, budgets, and forecasts, ensuring management has accurate and timely data. Their role extends to cost management, performance measurement, and aiding strategic planning by identifying financial risks and opportunities. Management accountants also facilitate resource allocation, support investment decisions, and ensure compliance with financial regulations. They act as a bridge between financial data and management, helping to align financial strategies with organizational goals to promote sustainable growth and competitive advantage.

Drawing on at least two different topics taught in the course, provide and explain two examples of the type of information that a management accountant in this organisation would supply to company management to assist in their planning and control decisions

One key topic is cost behavior analysis. A management accountant would provide detailed cost reports highlighting fixed and variable costs associated with operations. By analyzing cost patterns, management can make informed decisions about pricing, product mix, and cost control initiatives. For example, understanding whether costs are primarily fixed or variable aids in assessing the impact of sales volume changes on profitability. Another critical topic is budgeting and variance analysis. The management accountant prepares detailed budgets aligned with strategic goals and monitors actual performance against these budgets. Variance reports on areas like materials usage and labor efficiency help management identify areas of waste or efficiencies, allowing corrective actions to optimize operational performance. These insights improve planning accuracy and strengthen internal control systems.

Answer to Practical Questions

Question 2: Overhead Allocation and Cost Calculation for a New Job

Using the provided data, first, we calculate overhead allocation based on direct labor hours. The total overhead costs across all pools sum to $788,500. With 90,000 labor hours expected, the overhead rate per direct labor hour is $8.76 ($788,500 / 90,000 hours). For the new job with 1,700 hours of direct labor, the overhead applied is $14,892 ($8.76 x 1,700). The total cost using labor hour allocation includes direct materials ($11,250), direct labor ($17,000), and overhead ($14,892), totaling $43,142.

Next, applying activity-based costing (ABC), we assign overhead based on the respective activities. The overhead rates per activity are calculated as follows: Maintenance rate is $7 ($315,000 / 45,000 hours), Materials handling rate is $15 ($135,000 / 9,000 moves), Setups rate is $250 ($112,500 / 450 setups), and Inspection rate is $12.50 ($225,000 / 18,000 inspections). For the new job: maintenance overhead is $4,725 ($7 x 675 hours), materials handling is $270 ($15 x 18 moves), setups cost is $1,750 ($250 x 7 setups), and inspections are $150 ($12.50 x 12). Summing these gives total overhead of $6,895. The total cost now sums as: direct materials ($11,250), direct labor ($17,000), overhead ($6,895), totaling $35,145.

Question 3: Process Costing Calculations

a. The units started in June are computed by adding units completed (120,000) to ending inventory units (90,000) and then subtracting beginning inventory units (82,000): (120,000 + 90,000 - 82,000) = 128,000 units.

b. Equivalent units for materials are total units completed and in ending WIP, which are 120,000 + (90,000 x 100%) = 210,000 units. For conversion costs, the ending WIP units are 90,000 x 60% = 54,000 units, so total equivalent units for conversion are 120,000 + 54,000 = 174,000 units.

c. Cost per equivalent unit for materials: (Cost of beginning WIP materials + materials added) / total equivalent units for materials = ($60,000 + $320,000) / 210,000 = $1.9048. For conversion: (Cost of beginning WIP conversion + conversion costs for June) / total equivalent units for conversion = ($110,000 + $730,000) / 174,000 = $4.8368.

d. Ending WIP inventory cost: materials are 54,000 units x $1.9048 = $102,747. Remaining conversion cost: 54,000 units x $4.8368 = $261,055. Total ending WIP cost is approximately $363,802.

Question 4: Make-or-Buy Analysis and Production Decisions

a. For manufacturing socks, total units are 10,000 pairs. To meet sock requirements and purchasing gloves as needed: the company produces all socks internally and buys gloves externally. They need 12,000 pairs of gloves, purchased at $25 per pair, totaling $300,000. For the gloves, as the required production is 12,000 pairs, and production capability is limited, the number of gloves to purchase is 12,000 pairs. The sock production is the entire 10,000 pairs. Since internal costs for socks are based on variable and fixed manufacturing costs, the decision will depend on cost comparison with external sourcing.

b. The net benefit of manufacturing versus purchasing can be measured by comparing the variable manufacturing cost per pair ($10 for labor + allocated overhead) with external purchase price ($20 for socks). If internal production costs exceed $20 per pair, buying is preferable; otherwise, manufacturing is more cost-effective. Similarly, for gloves, with a variable manufacturing cost of $10 (labor) plus proportional overhead, if internal costs are less than $25, manufacturing is advantageous.

c. Considering machine hours, socks require 3 hours per pair, totaling 30,000 hours for 10,000 pairs, while gloves require 4 hours per pair, totaling 48,000 hours. Total available machine hours are 36,000, so the company should prioritize production based on contribution margin per hour. Given the higher contribution margin per hour for socks, and limited machine hours, the company should prioritize sock production first and purchase gloves externally, aligning with cost efficiency strategies.

Question 5: Budgeting for Purchases and Payments

December Purchases: Sales in December are $470,000; COGS at 30% is $141,000. Purchases in December are $141,000. Payments for December: 40% in December ($56,400) and 60% in January ($84,600). January Purchases: Sales of $400,000; COGS $120,000; purchases also $120,000. Payments in January: 40% of January purchases ($48,000) in January, and 60% of December's purchases ($84,600) in January. February Purchases: Sales of $420,000; COGS $126,000; purchases $126,000. Payments: 40% in February ($50,400), 60% of January purchases ($72,000). Cash payments in January consist of $48,000 + $84,600 = $132,600, and in February: $50,400 + $84,600 = $135,000.

Question 6: Variance Analysis

Materials price variance: (Actual price - Standard price) x Actual quantity purchased = (($143,500 / 26,000 kg) - $5) x 26,000 kg. Actual price per kg: $5.52; variance: ($5.52 - $5) x 26,000 = $13,200 unfavourable. Materials efficiency variance: (Actual quantity used - Standard quantity) x Standard price. Standard quantity = 4,500 units x 5 lb. per unit / 2.2 lb. per kg = 10,227 kg. Variance: (24,750 kg - 10,227 kg) x $5 = $72,330 unfavourable. Labour rate variance: (Actual rate - Standard rate) x actual hours = ($148,500 / 14,850 hours - $9) x 14,850 hours. Actual rate: $10 per hour, variance: ($10 - $9) x 14,850 = $14,850 unfavourable. Labour efficiency variance: (Actual hours - Standard hours) x Standard rate = (14,850 - 13,500) x $9 = $12,150 unfavourable. Variable overhead spending variance: Actual variable overhead - Budgeted variable overhead based on actual hours = $178,000 - ($12 x 14,850) = $178,000 - $178,200 = $200 favourable. Variable overhead efficiency variance: (Actual hours - Standard hours) x Standard variable overhead rate = (14,850 - 13,500) x $12 = $16,200 unfavourable. Fixed overhead spending variance: Actual fixed overhead - Budgeted fixed overhead = $520,500 - $510,000 = $10,500 unfavourable.

References

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