Management Accounting (Gestão/Negócios Internacionais) - Practice Cases Topic 1 – 21/09/2023

Practice Case A
“Eat well” owns three restaurants in Portugal. The business has a head office located in Braga. Budget information relating to the three
restaurants for the year about to commence is contained in the following table.
Braga Eats Porto Eats Lisboa Eats
Revenues 650 000 € 260 000 € 390 000 €
Direct costs 624 000 € 204 000 € 372 000 €
Operating profit 26 000 € 56 000 € 18 000 €
Employees 6 4 5
Budgeted Head Office costs for the coming year are as follows.
Head Office cost category Cost (€)
Administration 30 000 €
HR Management 24 000 €
Marketing 18 000 €
Budgeted Head Office costs are currently allocated to each restaurant on the basis of operating profit, as management believes that the
more operating profit a restaurant generates the more Head Office costs it should incur.
However the business’s management accountant has recently reviewed the allocation method for Head Office costs, and is considering a
new allocation method as follows:
 Administration costs include items such as Head Office salaries. The management accountant is unable to determine an appropriate
allocation base for this cost, so it will be allocated according to each restaurant operating profit.
 Personnel Management costs are incurred in proportion to the number of employees.
 Marketing should be allocated equally between the three restaurants, as each one of them benefits equally from marketing activities.
Questions:
1. If budgeted Head Office costs are allocated to the three restaurants according to the current allocation method, how much
would the operating profit after allocations for each restaurant be?
2. The current allocation method is
a) Based on effective use of head office costs
b) The most appropriate
c) Likely to lead to inappropriate behaviour / performance evaluation
d) The best possible method
(suggestion: explain why)
3. If budgeted Head Office costs are allocated to the three restaurants using the management accountant’s method, how much
would the operating profit after allocations for each restaurant be?
4. The new allocation criterion proposed by the accountant for the administration costs is
a) Cause and effect
b) Ability to bear
c) Fairness
d) Benefits received

Practice Case B
Fitness First” owns three fitness centres in Portugal. The business has a head office located in Braga. Budget information relating to the three
fitness centres for the year about to commence is contained in the following table.
Braga Fit Porto Fit Aveiro Fit
Revenues 480 000 € 720 000 € 400 000 €
Direct Costs 360 000 € 584 000 € 336 000 €
Operating Profit 120 000 € 136 000 € 64 000 €
Employees 8 9 9
Budgeted Head Office costs for the coming year are as follows.
Head Office Cost Category Cost (€)
Administration 80 000 €
Personnel Management 104 000 €
Marketing 36 000 €
Budgeted Head Office costs are currently allocated to each fitness centre on the basis of operating profit, as management believes that the more operating profit
a fitness centre generates the more Head Office costs it should incur.
However the business’s management accountant has recently reviewed the allocation method for Head Office costs, and is considering a new allocation method
as follows:
 Administration costs include items such as Head Office salaries. The management accountant is unable to determine an appropriate allocation base for
this cost, so it will be allocated according to fitness centre operating profit.
 Personnel Management costs are incurred in proportion to the number of employees.
 Marketing should be allocated equally between the three fitness centres, as each one of them benefits equally from marketing activities.

1. If budgeted Head Office costs are allocated to the three fitness centres according to the current allocation method, what would the operating
profit after allocations for “Braga Fit” be?
2. Do you think the current allocation method is the most appropriate? Explain your answer.