ACC-Week 3-Practical Assignment Managerial Accounting

Running Head: PRACTICAL ASSIGNMENT-MANAGERIAL ACCOUNTING 1

ACC.-Week 3-Practical Assignment: Managerial Accounting

Student Name

Name of Institution

PRACTICAL ASSIGNMENT-MANAGERIAL ACCOUNTING 2

Question 1

a) Financial accounting has an external orientation. Management prepares financial

statements to report the organization’s operating results, cash flows, and financial

position primarily for the benefit of external stakeholders such as shareholders, creditors,

regulatory agencies, and customers. However, management may also make use of

financial accounting information. Financial accounting provides a way for management

to satisfy their accountability to investors for their investment decision, customers and the

greater community to ensure the company acts in a responsible way, and regulatory

agencies to ensure the company is abiding by the relevant laws (Horngren, Harrison, &

Oliver, 2012). On the other hand, managerial accounting information has an internal

orientation. Its purpose is to help managers make better decisions, enhance the efficiency

of the organization’s operations, and improve overall effectiveness (Drury, 2012).

b) Mahony and Doran (2009) found that, with the introduction of ERP systems, the role of

the management accountant has shifted from processing of data to analysis. In the ERP

environment, management accountants are required to possess a broad knowledge of the

business and adopt decision-making roles in cross-functional teams. The scope of the

management accountant’s duties must necessarily increase to include strategic

management (Mahony & Doran, 2009). According to Yazdifar and Tsamenyi (2005), the

most important tasks for a management accountant in the nineties were cost control and

business performance evaluation. Looking to the future, Yazdifar and Tsamenyi (2005)

found that more emphasis would be placed on business performance evaluation. Strategic

planning and managing IT systems were also expected to be tasks the management

accountant would undertake in the future.

PRACTICAL ASSIGNMENT-MANAGERIAL ACCOUNTING 3

c) Hagerman (1980) demonstrates that some of the fundamental ideas that form the basis of

accounting can be traced to the Bible. For instance 2 Kings 22:7 (NRSV) says, “But no

accounting shall be asked from them for the money that is delivered into their hand, for

they deal honestly.” This verse implies that one of the main purposes of accounting is to

curb instances of fraud. Where individuals act with the utmost integrity, accounting may

not be necessary. Matthew 24:46 (NRSV) says, “Blessed is that slave whom his master

will find at work when he arrives.” This verse seems to be an endorsement of the

effectiveness of surprise checks as an internal control device (Hagerman, 1980).

d) Shrader, Mulford, and Blackburn (1989) describe strategic planning as long-term

planning, which incorporates a mission statement and states the organization’s objectives.

Strategic planning provides the basis for the measurement and evaluation of the

company’s overall performance. The researchers go on to describe operational planning

as coming up with short-term objectives for individual functional areas of the business

(Shrader, Mulford, & Blackburn, 1989).

e) According to Horngren, Harrison, and Oliver (2012), the information that is relevant

when making decisions is that which has a future orientation, and differs from one

alternative to the next. The factors to be considered in making decisions may be

qualitative or quantitative in nature. Impact of the decision on employee morale is an

example of a qualitative factor that must be considered before any decisions are made.

Quantitative factors to be considered are the future costs to be incurred or revenues to be

earned that differ among alternatives.

PRACTICAL ASSIGNMENT-MANAGERIAL ACCOUNTING 4

Question 2

a) Two pieces of financial information that would be considered in the plant closure

decision include the contribution margin of the product line and the operating income or

loss from the product line. Two pieces of financial information that would not be relevant

to the closure decision include the cost incurred to acquire or build the plant, and

corporate headquarters costs allocated to the product line. Kirkham, Richbell, and Watts

(1999) found that some non-financial factors such as state of labor relations and labor

productivity can influence the decision to close a plant.

b) A contribution margin income statement isolates costs depending on whether they are

variable or fixed. The contribution margin income statement is more useful in making

short-term special business decisions such as product mix decisions and whether or not to

accept special orders (Horngren, Harrison, and Oliver, 2012). A traditional income

statement makes no distinction between fixed and variable costs. It is required however

for external reporting of the company’s operating results.

c) Total contribution margin = Sales revenue – total variable costs

Total contribution margin = $705,000 - $490,000 = $215,000

Contribution margin ratio = contribution margin ÷ sales

Contribution margin ratio = $215,000 ÷ $705,000 = 30.4965%

Unit contribution margin = $215,000 ÷ 40,000 units = $5.375

BEP ($) = Fixed costs ÷ contribution margin ratio

BEP ($) = $220,000 ÷ 30.4965% = $721,394.26

BEP (units) = Fixed costs ÷ unit contribution margin = $220,000 ÷ $5.375

BEP (units) = 40,930.23 ≅ 40,931 units

PRACTICAL ASSIGNMENT-MANAGERIAL ACCOUNTING 5

d) The contribution margin would remain the same. Contribution margin is derived by

subtracting variable costs from sales. Therefore, as long as sales and variable costs are

constant, the contribution margin would not change. Fixed costs do not affect the

contribution margin. The manufacturing unit can decrease its break-even point by

increasing the price of the product, or sourcing cheaper raw materials from suppliers.

e) GAAP requires that an entity distinguish discontinued operations from continuing

operations. The loss or gain on discontinued operations is reported in the income

statement after the operating results of continuing operations. Total company net income

is the sum of continuing operations results and the gain or loss from discontinuing

operations.

Matthew 7:12 (NRSV) says, “In everything do to others as you would have them do to

you; for this is the law and the prophets.” This verse can guide the company on how to

treat displaced workers. Some of the obligations that the company has to the plant

workers include giving them sufficient notice of the imminent layoffs, discussing options

with them and offering to aid them in their job search, providing adequate severance pay,

and writing good recommendation letters for them. Job loss is often painful. The

company’s managers should put themselves in the shoes of those workers facing

displacement and treat them as they themselves would like to have been treated were they

in that situation. The bottom line is that displacement of employees should be conducted

in a compassionate and humane way.

PRACTICAL ASSIGNMENT-MANAGERIAL ACCOUNTING 6

References

Bible Gateway passage: 2 Kings 22:7 - New Revised Standard Version. (2017). Bible Gateway.

Retrieved 18 November 2017, from

https://www.biblegateway.com/passage/?search=2+kings+22%3A7&version=NRSV

Bible Gateway passage: Matthew 24:46 - New Revised Standard Version. (2017). Bible

Gateway. Retrieved 18 November 2017, from

https://www.biblegateway.com/passage/?search=matthew+24%3A46&version=NRSV

Bible Gateway passage: Matthew 7:12 - New Revised Standard Version. (2017). Bible Gateway.

Retrieved 18 November 2017, from

https://www.biblegateway.com/passage/?search=matthew+7%3A12&version=NRSV

Drury, C. (2012). Management and cost accounting (8th ed.). Cengage Learning.

Hagerman, R. L. (1980). Accounting in the Bible. Accounting Historians Journal, 7(2), 71-76.

Horngren, C. T., Harrison, W. T., & Oliver, M. S. (2012). Financial and management

accounting.

Kirkham, J., Richbell, S., & Watts, D. (1999). Manpower factors and plant closures in multiplant

firms. International Journal of Manpower, 20(7), 458-468.

O'Mahony, A., & Doran, J. (2009). The changing role of management accountants; Evidence

from the implementation of ERP Systems in large organisations. International Journal of

Business and Management, 3(8), 109.

Shrader, C. B., Mulford, C. L., & Blackburn, V. L. (1989). Strategic and operational planning,

uncertainty, and performance in small firms. Journal of Small Business Management,

27(4), 45.

PRACTICAL ASSIGNMENT-MANAGERIAL ACCOUNTING 7

Yazdifar*, H., & Tsamenyi, M. (2005). Management accounting change and the changing roles

of management accountants: a comparative analysis between dependent and independent

organizations. Journal of Accounting & Organizational Change, 1(2), 180-198.

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