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Business
Decision
Making
(BMAC5203)
Accounting for Business Decision Making (BMAC5203)
Question 1
a. Identification
b. Measurement
When the managers have identified the information to be used for further
analysis, they will have to measure the organization performance and
process efficiency with an intended purpose. Organization financial
measurement requires financial and non-financial inputs by cost analysis
but cost is not the only measurement elements. A proper accounting
method might be needed to ensure that performance measurement is
done correctly.
c. Analysis
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Accounting for Business Decision Making (BMAC5203)
e. Planning
f. Evaluation
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Accounting for Business Decision Making (BMAC5203)
g. Controlling
Question 2
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Accounting for Business Decision Making (BMAC5203)
2(a)(i)
Cost Activi
drive ty Activit
Activi Cost Po r cost Prod y cost
ty driver ol qtty for line per
cost Cost quant Ra Prod for prod volu unit
Activity pool driver ity te uct prod uct me (RM)
Machine 1920 2400
operation H 0 76800 0 3.20
s 192,0 Machine 3360 13440 2400
48,000 4
& 00 hours D 0 0 0 5.60
maintena 2160 1200
nce P 0 86400 0 7.20
19200 2400
H 960 0 0 8.00
Machine 440,0 Setup 28800 2400
2,200 200
setups 00 hours D 1440 0 0 12.00
19200 1200
P 960 0 0 16.00
2400
H 1200 16800 0 0.70
Electric 49,00 Kilowatt 2400
3,500 14
power 0 hours D 2400 33600 0 1.40
1200
P 1800 25200 0 2.10
1920 15360 2400
H 00 0 0 6.40
Materials 320,0 400,00 2400 19200 2400
Pounds 0.8
handling 00 0 D 00 0 0 8.00
1680 13440 1200
P 00 0 0 11.20
2400
H 480 67200 0 2.80
No.of
Quality 252,0 13440 2400
inspectio 1800 140
control 00 D 960 0 0 5.60
ns
16800 1200
P 1200 0 0 14.00
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Accounting for Business Decision Making (BMAC5203)
2(a)(ii)
Delux
Home e Pro
Direct material 24.00 30.00 36.00
Direct labor 18.00 30.00 40.00
Supervision
(0.10x Direct
labor cost) 1.80 3.00 4.00
Total direct
cost per unit 43.80 63.00 80.00
Machine
operations
&
maintenance 3.20 5.60 7.20
Machine setup 8.00 12.00 16.00
Electric Power 0.70 1.40 2.10
Materials
handling 6.40 8.00 11.20
Quality control 2.80 5.60 14.00
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Accounting for Business Decision Making (BMAC5203)
unit
Total product
cost 64.90 95.60 130.50
2(b)
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Accounting for Business Decision Making (BMAC5203)
The company should optimize the machine to produce the product that gives
contributes more per limiting factor, which is according to the product ranking
mentioned above.
Therefore, the company will first produce Home module with the amount of
24,000 units:
With the balance of 28,800 hours available, the number of Deluxe model can be
produced:
28,800 ÷1.40hours =20571.42857
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Accounting for Business Decision Making (BMAC5203)
= 20,571 units
Since the production of Deluxe model has used up the available machine hours,
therefore the company will not produce any units of Pro Model.
Question 2(c)
Machine
operations
& maintenance 3.20 5.60 7.20
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Accounting for Business Decision Making (BMAC5203)
Total overhead
cost per unit 21.10 32.60 50.50
Total overhead
cost per unit
(x
20%manufactu
ring support
cost) 25.32 39.12 60.60
1.38/1.
0.98/0.80 40 -1.44
Contribution
per limiting
factor
(contribution /
limiting factor) 1.23 0.99 -1.44
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Since the company has fully produced Home Model, therefore, the additional
machine hours will be used to produce Deluxe model and Pro model.
Production ranking:
1. Deluxe
2. Pro
= 36,800hours
Since the company has produced 20,571 units earlier, therefore, the company
will maximize the additional machine hours by producing the balance of 3429
units.
Assuming that the additional machine hours are fully utilized to produce both
models, the balance after the production of Deluxe model will be used for
producing Pro Model. Therefore:
36,800 hours – 33,600 hours [24000 of Deluxe model fully produced x 1.4
machine hours]
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Accounting for Business Decision Making (BMAC5203)
From the table above, it illustrated that Deluxe model has positive contribution
while Pro model has negative contribution. Therefore, Petrol Drill should not
produce Pro Model under overtime premium.
Question 3
In the study, it also mentioned that managers built slack in their budgets as
means of protecting their personal interest and it was rational economic
behaviour for them to do so (Lowe & Shaw, 1968). The main purpose that
managers build slack in the budgets is to increase their payoff chances. It was
proposed by Schiff and Lewin (1970) that if subordinates perceive that their
compensation depends on budget achievement, they might aim to have slack in
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their budget. The authors also find that the management can and does create
slack to achieve attainable budgets. In addition, it secures resources for
furthering their personal goals and desires. By doing so, it may give the
managers to access to private information and it may leads to an increase in
budget slack.
b.
(i) Cash collections for 4th quarter
Payments
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Accounting for Business Decision Making (BMAC5203)
Cash (20%
paid in month
of purchase,
2% discount)
October 4,000 784 3,216
November 6,000 1176 4,824
December 5,000 980 4,020
784 4392 5804 4020
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Accounting for Business Decision Making (BMAC5203)
Question 4 (PART A)
a.
1 2 3
Cost
Budget Actual variance
[1-2]
Volume 90,000 75,000
Manufacturing cost
From the report above, Fruity Bhd had compared the budget and actual
manufacturing cost for the month ending 31 May 2009. The estimated volume
for the month is 90,000 units while the actual amount produced is 75,000 units.
From the comparison that they have made based on the units estimated to be
produced and the actual amount produced, three manufacturing cost are
favourable which are direct materials, direct labour and variable overhead.
However, the calculation should not be made by comparing the estimated
volume with actual volume. It doesn’t reflect the difference spending of each
activity. Therefore, we have to apply flexible budgets to get the correct cost
variance.
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Accounting for Business Decision Making (BMAC5203)
b.
1 2 3 4 5 6
Standard New cost
Cost
cost variance
Flexible varian
per unit Budget Actual (75,000
[1 x 3] ce
(budget units)
[2 - 4]
cost/unit) [3 - 4]
Volume 90,000 75,000 75,000
Manufacturing
cost
From the report prepared above, it illustrated that the company has overspend
from what they have estimated. They have overspend on direct materials with
RM6,000 and direct labour with RM85,000. Hence, the total manufacturing cost
in unfavourable with RM76,000.
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Even though static budget is suitable for planning, but it is insufficient for
evaluating how well costs are controlled because the actual level of activity
is unlikely to equal the planned level of activity.
Question 4 (PART B)
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what are the causes of the variances and correct them to reduce
unnecessary expenses.
b. Standard
costing
Actual
Actual Standard
Actual Price
Quantity cost/unit
(AP)
(AQ) (RM)
11000 RM2.20
gallons 24,200
purchased gallon
Direct material and used
Actual hour Actual Rate
(AH) (AR)
3200 RM14
44,800
Direct labor hours hour
Total 69,012
Actual Output 6,000 cans
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