College of Business & Management

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FINAL ASSIGNMENT

INTRODUCTION TO MANAGERIAL ACCOUNTING

Course Code: ACCT2020

Deadline: June 25th 2024

Students should hand in the Final Assignment as a soft copy (in the form of Word or
Pdf file) on Canvas/Assignment. All assignments submitted are final - students will not
be permitted to turn in any alternative version. Students should cite reference sources
(if any) and are not allowed to copy anyone else’s work, or any other sources and submit
this as the student’s own work. A finding of plagiarism may result in a failing grade
of the assignment.
Part 1 - Long-form question (65 marks)
Question 1 - Variable & Absorption Costing (20 marks)
Cookie Ltd (Cookie) manufactures a single product, the Cake. The budgeted sales price
and production cost per unit of the Cake is as follows:
£
Selling price 280
Variable materials 40
Variable labour 30
Variable production overheads 15
Fixed production overheads 10
The budgeted selling, distribution and administration costs are as follows:
Fixed £33,600 per annum
Variable £3 per unit
The budgeted and actual production for the month of Feb was 550 units. There was
opening inventory at the start of Feb of 20 units and closing inventory at the end of Feb
of 15 units. Budgeted fixed costs are incurred evenly per month.
Actual costs and the selling price were as budgeted in Feb except for the variable selling,
distribution and administration costs, which were 20% higher than budgeted, and actual
fixed production overheads which were £4,500.
Requirement
1.1. Calculate the profit or loss for February using both absorption costing and
marginal costing. (15 marks)

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Enter costs as negative values.
Absorption Marginal
£ £ £ £
Sales

Variable production costs

Fixed production costs

absorbed

Opening inventory

Closing inventory

Production cost of sales

Under-/over- absorption

Variable selling,
administration and
distribution
Fixed selling,
administration and
distribution

Fixed production costs

Profit/loss

1.2. Explain how marginal costing is useful for Cookie management’s decision
making. (5 marks)

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Question 2 - CVP Analysis (25 marks)
Bakery Ltd (Bakery) produces several types of frozen dessert. You have been provided
with the following expected average weekly information for June.
Sales £33,000
Ingredients £6,050
Staff £11,550
Power £3,100
Factory rent and rates £3,600
Profit £8,700
The average dessert sells for £6 per unit. All costs may be regarded as varying with the
number of desserts sold except for power costs which are semi-variable with a fixed
element of £2,000 per week and factory rent and rates which are fixed.
2.1. Calculate the number of desserts (to the nearest whole dessert) that would
need to be sold to earn a profit of £11,000 per week. (5 marks)
desserts per week

In July, the average selling price per dessert is expected to stay the same as June, but
sales volume is expected to be 15% higher than June. Contribution is expected to be
£2.40 per dessert and fixed costs are expected to be £5,700.
2.2. Calculate the margin of safety percentage per week for July (to the nearest
whole number). (5 marks)
%

In August, Bakery considers selling some of the desserts in smaller portions called mini-
pots, in addition to the usual desserts. It estimates that 1,200 mini-pots could be sold
each week at £3 per mini-pot. The variable cost of each mini-pot would be £1.40.
Incremental fixed costs per week would be £1,100. All other revenue and cost data for
existing desserts is the same as in July.
2.3. Calculate the additional profit or loss that Bakery would earn per week from
introducing the mini-pots. (5 marks)
£ additional profit/(loss)
Poor weather conditions have led to a worldwide shortage of vanilla and the recipes for
desserts and mini-pots have been amended slightly. The number of millilitres (ml) of
vanilla extract available for November will be 215,800 ml. The management accountant
has budgeted the following data for November:
Desserts Mini-pots
Contribution per dessert £2.30 £1.10
Vanilla extract required per unit (ml) 40 22
Fixed costs £5,600 £1,200
Maximum demand per week (units) 4,900 1,100

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2.4. Calculate the optimum number of desserts and mini-pots that Bakery should
produce in order to maximise contribution per week in November. (5 marks)
units of desserts
units of mini-pots

2.5. Explain the significance of margin of safety to Bakery’s management. (5

marks)

Question 3 - Master Budgeting (20 marks)

Sandex Corporation operates on a calendar-year basis. It begins the annual budgeting
process in late August, when the president establishes targets for total sales dollars and
net operating income before taxes for the next year.
The sales target is given to the Marketing Department, where the marketing manager
formulates a sales budget by product line in both units and dollars. From this budget,
sales quotas by product line in units and dollars are established for each of the
corporation’s sales districts.
The marketing manager also estimates the cost of the marketing activities required to
support the target sales volume and prepares a tentative marketing expense budget.
The executive vice president uses the sales and profit targets, the sales budget by
product line, and the tentative marketing expense budget to determine the dollar
amounts that can be devoted to manufacturing and corporate office expense. The
executive vice president prepares the budget for corporate expenses, and then forwards
to the Production Department the product-line sales budget in units and the total dollar
amount that can be devoted to manufacturing.
The production manager meets with the factory managers to develop a manufacturing
plan that will produce the required units when needed within the cost constraints set by
the executive vice president. The budgeting process usually comes to a halt at this point
because the Production Department does not consider its allocated financial resources
to be adequate.
When this standstill occurs, the vice president of finance, the executive vice president,
the marketing manager, and the production manager meet to determine the final budgets
for each of the areas. This normally results in a modest increase in the total amount
available for manufacturing costs, while the marketing expense and corporate office
expense budgets are cut. The total sales and net operating income figures proposed by
the president are seldom changed. Although the participants are seldom pleased with
the compromise, these budgets are final. Each executive then develops a new detailed
budget for the operations in his or her area.
None of the areas has achieved its budget in recent years. Sales often run below the
target. When budgeted sales are not achieved, each area is expected to cut costs so that
the president’s profit target can still be met. However, the profit target is seldom met
because costs are not cut enough. In fact, costs often run above the original budget in
all functional areas. The president is disturbed that Sandex has not been able to meet

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the sales and profit targets. He hired a consultant with considerable relevant industry
experience. The consultant reviewed the budgets for the past four years. He concluded
that the product-line sales budgets were reasonable and that the cost and expense
budgets were adequate for the budgeted sales and production levels.
Required:
3.1. Discuss how Sandex Corporation’s budgeting process contributes to its failure to
achieve the president’s sales and profit targets. (10 marks)
3.2. Suggest how Sandex Corporation’s budgeting process could be revised to correct
the problem. (10 marks)

Part 2 - Real World Application (35 marks)

Question 3 - Managerial Accounting Practices (20 marks)
You’ll plan to meet a managerial accountant or a relevant person at a specific
organization to find out how they have been applying managerial accounting.
Required:
3.1. Give an introduction of the organization and the accountant that you met. (5 marks)
3.2. Summarize main findings from your discussion with the accountant or the person
in charge. (about 2-4 page summary, facts and figures should be provided) (15 marks)
Question 4 - Reflection Report (15 marks)
4.1. What have you learnt from this Managerial Accounting course? (about 2-4 pages)
(10 marks)
4.2. How will you be applying what you have learnt in this course? (5 marks)

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