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ACC203 Management Accounting Method

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  • Course Code: ACC203
  • University: Elite Educational Institute
  • Country: Australia

Question:

You have just been appointed as the new management accountant to manage the transition of the existing Royal Adelaide Hospital to the proposed new site. The hospital has a number of separate departments responsible for direct patient care, such as Accident and Emergency, Intensive Care, Neurology, and Cardiology, as well as a number of support departments such as Radiology and Patient Records. You are a little uncertain as to what your role will be in this new hospital, as consultants have been engaged to design the new management accounting systems. You thought that as a management accountant you would be responsible for developing the new systems
 
Required:
 
1. Write a report to senior management explaining how you, as the management accountant, may contribute to the design and operation of the new management accounting systems for the new hospital.
2. Outline the types of management accounting information that you believe senior managers may require on a regular basis (say, weekly and monthly) to manage the operations of the new hospital. Consider both financial and non-financial information.
3. The new hospital plans to invest in the latest computer technology to run various aspects of the organisation, including the management information systems. Discuss the opportunities that this may present for the way in which you supply weekly and monthly reports to managers.
 
 

Answer:

1. Explaining how the management accountant can help contribute design and operations of the new management accounting system for the new hospital:

Being the management accountant relevant skill is needed by the individuals for adequately conducting operations. The same skills of a management accountant can help in designing and operating the new management accounting system for the new hospital. In addition, the management accounting system needs to be tailored for fulfilling the specific needs of the organisation, which reduces the burden on its operations. Moreover, the contingent factors such as internal and external needs to be evaluated with the help of new management accounting system. Furthermore, the new system needs to be like the transaction-based system, which is currently being used by the company, as it helps in reducing the excessive confusion and reduce materiality risk (Schaltegger and Burritt 2017).

The design of the new operating machine could include range of predictive information, departments budgets, and non-financial information on the ongoing operations. Moreover, management accounting staff is conducted to be the most viable persons for drafting and creating management accounting software for its use. In addition, the requirements of an adequate management accounting system can be provided by management accountant for addressing each activities of the company.

2. Identifying the types of management accounting information that senior manager requires on daily basis:

The different types of information that is needed on weekly and monthly basis by senior management in hospital are depicted as follows.

Different segment of operations

Types of information

Incentive care

Needs information on bed, occupancy rate, number of patients, and average length of stay, which helps in depicting the billing rate. This section of the hospital needs to evaluate different cost in the departments for conducting operation incentive care.

Radiology

The x-rays, number of time consumed in radiology staff, referrals per doctor, billing rates, insurance revenue, medical supply, and average cost per patient.

Neurology

Bed occupancy rate, number of patient waiting, insurance revenue, medical supply, and average cost per patient.

Accident and Emergency

Number of patient treated, umber of referrals, gap revenue, medical supply, cost per bed, insurance revenue, medical supply, and average cost per patient.

Cardiology

Medical revenue, number of patients, average length of the stay, kitchen cost, medical supply cost, insurance revenue, medical supply, and average cost per patient.

3. Discussing the opportunity this may arise in which supply of weekly and monthly reports to managers:

The information can be supplied to the management electronically to the managers, which could have all the relearnt information and details needed for their evaluation. In addition, the new system could help in uploading the details quickly, which could be reviewed by all the managers. This relevantly provides the management quick information about the condition of hospitals and its different departments (Renz and Herman 2016).

1. Preparing the schedule of goods manufactured for Flintoff Fashions:

Flintoff Fashions Schedule of cost of goods manufactured

For the year ended December

Particulars

Amount

Amount

Raw material inventory, 1 January

 $        24,000

 

(+) Purchases of raw material

 $      108,000

 

Raw materials

 $      132,000

 

(-) Raw material inventory, 31 December

 $        15,000

 

Total Raw materials available for the year

 

 $   117,000

Direct labour

 

 $   120,000

Depreciation: plant and equipment

 $        36,000

 

Electricity: plant

 $        24,000

 

Indirect labour

 $          9,000

 

Indirect material

 $          6,000

 

Other manufacturing overhead

 $        48,000

 

Total Manufacturing Overhead

 

 $   123,000

Manufacturing Costs

 

 $   360,000

(+) Work in process inventory, 1 January

 

 $     24,000

(-) Work in process inventory, 31 December

 

 $     18,000

Cost of goods manufactured

 

 $   366,000

2. Preparing the schedule of cost of goods sold for Flintoff Fashions:

Flintoff Fashions Schedule of cost of goods sold

For the year ended 31 December

Finished goods inventory, 1 January

 $        12,000

(+) Cost of goods manufactured

 $      366,000

Goods available for sale

 $      378,000

(-) Finished goods inventory, 31 December

 $        30,000

Cost of goods sold

 $      348,000

3. Preparing the income statement for Flintoff Fashions:

Flintoff Fashions Income Statement

For the year ended 31 December

Sales revenue

 $      570,000

(-) Cost of goods sold

 $      348,000

Gross profit

 $      222,000

Selling and administrative expenses

 $        90,000

PBT

 $      132,000

Income tax expense

 $        54,000

Net profit

 $        78,000

4.a Changes when raw material purchase amounted to $110,400:

Flintoff Fashions Schedule of cost of goods manufactured

For the year ended 31 December

Particulars

Amount

Amount

Raw material inventory, 1 January

 $        24,000

 

(+) Purchases of raw material

 $      110,400

 

Raw materials

 $      134,400

 

(-) Raw material inventory, 31 December

 $        15,000

 

Total Raw materials available for the year

 

 $   119,400

Direct labour

 

 $   120,000

Depreciation: plant and equipment

 $        36,000

 

Electricity: plant

 $        24,000

 

Indirect labour

 $          9,000

 

Indirect material

 $          6,000

 

Other manufacturing overhead

 $        48,000

 

Total Manufacturing Overhead

 

 $   123,000

Manufacturing Costs

 

 $   362,400

(+) Work in process inventory, 1 January

 

 $     24,000

(-) Work in process inventory, 31 December

 

 $     18,000

Cost of goods manufactured

 

 $   368,400

Flintoff Fashions Schedule of cost of goods sold

For the year ended 31 December

Finished goods inventory, 1 January

 $        12,000

(+) Cost of goods manufactured

 $      368,400

Goods available for sale

 $      380,400

(-) Finished goods inventory, 31 December

 $        30,000

Cost of goods sold

 $      350,400

Flintoff Fashions Income Statement

For the year ended 31 December

Sales revenue

 $      570,000

(-) Cost of goods sold

 $      350,400

Gross profit

 $      219,600

Selling and administrative expenses

 $        90,000

PBT

 $      129,600

Income tax expense

 $        54,000

Net profit

 $        75,600

4.b Changes when indirect labour was $9600:

Flintoff Fashions Schedule of cost of goods manufactured

For the year ended 31 December

Particulars

Amount

Amount

Raw material inventory, 1 January

 $        24,000

 

(+) Purchases of raw material

 $      108,000

 

Raw materials

 $      132,000

 

(-) Raw material inventory, 31 December

 $        15,000

 

Total Raw materials available for the year

 

 $   117,000

Direct labour

 

 $   120,000

Depreciation: plant and equipment

 $        36,000

 

Electricity: plant

 $        24,000

 

Indirect labour

 $          9,600

 

Indirect material

 $          6,000

 

Other manufacturing overhead

 $        48,000

 

Total Manufacturing Overhead

 

 $   123,600

Manufacturing Costs

 

 $   360,600

(+) Work in process inventory, 1 January

 

 $     24,000

(-) Work in process inventory, 31 December

 

 $     18,000

Cost of goods manufactured

 

 $   366,600

Flintoff Fashions Schedule of cost of goods sold

For the year ended 31 December

Finished goods inventory, 1 January

 $        12,000

(+) Cost of goods manufactured

 $      366,600

Goods available for sale

 $      378,600

(-) Finished goods inventory, 31 December

 $        30,000

Cost of goods sold

 $      348,600

Flintoff Fashions Income Statement

For the year ended 31 December

Sales revenue

 $      570,000

(-) Cost of goods sold

 $      348,600

Gross profit

 $      221,400

Selling and administrative expenses

 $        90,000

PBT

 $      131,400

Income tax expense

 $        54,000

Net profit

 $        77,400

1. Calculating the profit per package and total profitability of each of the three corporate packages:

Particulars

Bali Adventure

Thailand Discovery

Malaysian Orienteering

Revenue

 $ 900,000

 $ 1,440,000

 $ 1,120,000

Direct cost per package:

 

 

 

Tour leader

 $ 50,000

 $ 240,000

 $ 90,000

Tour assistant

 $ 20,000

 $ 60,000

 $ 60,000

Air travel

 $ 280,000

 $ 600,000

 $ 320,000

Accommodation

 $ 150,000

 $ 520,000

 $ 240,000

Equipment hire

 $ 40,000

 $ 0   

 $ 90,000

Meals

 $ 180,000

 $ 300,000

 $ 80,000

Gross profit

 $ 180,000

 $ (280,000)

 $ 240,000

Overhead cost

 $ 59,826.59

 $ 95,722.54

 $ 74,450.87

Profit

 $      120,173.41

 $ (375,722.54)

 $ 165,549.13

2. Comparing the profitability of three corporate packages:

Particulars

Bali Adventure

Thailand Discovery

Malaysian Orienteering

Profit

 $ 120,173.41

 $ (375,722.54)

 $ 165,549.13

The above table mainly depicts the overall profits that is been generated by three different packages. In addition, from the evaluation Malaysian Orienteering is identified to be the most viable packages, which could generate adequate profits for Asian Adventure Holidays. Moreover, Thailand Discovery package depicts loss, which might hamper the actual profitability of Asian Adventures Holidays. In addition, the Bali Adventure package provides the second-best profits for the company, which helps in inclining their profitability. Messner (2016) mentioned that with the help direct and overhead cost evaluation companies can detect their financial capability in generating high level of returns.

 

3. Depicting the viability of corporate department overhead to packages using actual sales:

The actual sales revenue is used for calculating the corporate department overhead, it does not depict the actual cost incurred by the company during the period. In addition, the actual sales method can be dropped by the company, while relevant direct cost evaluation method can be used. This use of direct cost method percentage could help in depicting the actual cost incurred from operations (Quattrone 2016). The measure could help in detecting actual expenses that is conducted by the company on the relevant packages.

4. Suggesting actions that the company could conduct regarding three corporate packages:

The Malaysian Orienteering and Bali Adventure package needs no amendment, as they are providing adequate revenue and profits for the organisation. On the other hand, the changes in package of Thailand Discovery needs to be conducted, as it incurs loss from operations without deducting overhead cost. This relevantly indicates that costing of the project is not adequate, while increasing the selling price or reducing the expenses can help in improving the benefits provided by the package.

1. Calculating the cost of goods manufactured for February:

Particulars

Amount

Direct Material

 $              26,000

(+) overhead

 $              30,000

(+) Direct labour

 $              20,000

Cost of goods manufactured

 $              76,000

2. Calculating the amount of overapplied or underapplied overhead of to cost of goods sold on 28 February:

Particulars

Amount

Manufacturing overhead incurred

 $              32,000

Overhead absorbed

 $              30,000

Under absorbed overheads

 $                2,000

 

 

Reference and Bibliography:

Bromwich, M. and Scapens, R.W., 2016. Management accounting research: 25 years on. Management Accounting Research, 31, pp.1-9.

Coad, A., Jack, L. and Kholeif, A.O.R., 2015. Structuration theory: reflections on its further potential for management accounting research. Qualitative Research in Accounting & Management, 12(2), pp.153-171.

Eldenburg, L.G., Wolcott, S.K., Chen, L.H. and Cook, G., 2016. Cost management: Measuring, monitoring, and motivating performance. Wiley Global Education.

Fullerton, R.R., Kennedy, F.A. and Widener, S.K., 2014. Lean manufacturing and firm performance: The incremental contribution of lean management accounting practices. Journal of Operations Management, 32(7-8), pp.414-428.

Klychova, G.S., Zakirova, A.R., Zakirov, Z.R. and Valieva, G.R., 2015. Management aspects of production cost accounting in horse breeding. Asian Social Science, 11(11), p.308.

Messner, M., 2016. Does industry matter? How industry context shapes management accounting practice. Management Accounting Research, 31, pp.103-111.

Otley, D., 2016. The contingency theory of management accounting and control: 1980–2014. Management accounting research, 31, pp.45-62.

Quattrone, P., 2016. Management accounting goes digital: Will the move make it wiser?. Management Accounting Research, 31, pp.118-122.

Renz, D.O. and Herman, R.D. eds., 2016. The Jossey-Bass handbook of nonprofit leadership and management. John Wiley & Sons.

Schaltegger, S. and Burritt, R., 2017. Contemporary environmental accounting: issues, concepts and practice. Routledge.

Suomala, P., Lyly-Yrjänäinen, J. and Lukka, K., 2014. Battlefield around interventions: A reflective analysis of conducting interventionist research in management accounting. Management Accounting Research, 25(4), pp.304-314.

Wagenhofer, A., 2016. Exploiting regulatory changes for research in management accounting. Management Accounting Research, 31, pp.112-117.

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