Planning tools used in management accounting

Assignment Help Managerial Accounting

Reference no: EM132489594

Learning Outcome 1: Explain the use of planning tools used in management accounting

Learning Outcome 2: Compare ways in which organisations could use management accounting to respond to financial problems.

Assignment Brief and Guidance:

Case Scenario

XYZ Company manufactures and sells two different brands of electronic products, known as ‘Pebble 101' and ‘Stone 101'. ‘'Pebble 101'is produced in department 1 and ‘Stone 101' in department 2. The business has a capital investment of more than RO 700,000, with 450 employees working in manufacturing and administrative units of the company. The financial statements of last two years (FY 2019 & FY 2018) of XYZ Company has revealed an overall decline in sales, profitability and liquidity position. The directors of XYZ Company are concerned about this sudden decline in the performance and prospects of the Company.

You have recently joined as a trainee management Accountant in XYZ Company and are now a part of the Management Accounting team.
Directors want company's management accounting team to prepare functional & master budgets for the Financial year 2020, calculate relevant financial ratios considering benchmarks, key performance indicators and budgetary targets, identify variances for last two financial years , apply relevant strategic planning tools , financial governance to monitor strategy, management accounting skill sets and effective strategies and systems and compare the ways in which Company can respond to financial problems effectively and efficiently.

XYZ Company's budgeted information (FY 2020) & financial statements of last two years (FY 2019 & FY 2018) are given below: -

A. Sales Budget information for FY 2020.

Finished product

'Pebble 101' 'Stone 101'

Forecasted Sales (Units)	9,500	2600
Selling price per unit in RO	400	300
Ending inventory required (units)	2,870	100
Beginning inventory (unit)	270	95

B. Information for the FY 2020 of Standard material cost per unit and labour cost per hour:

	RO
Material 'A'	2.8
Material 'B'	5
Direct labour	4
Overhead is recovered on a direct labour hour basis.

C. Information for the FY 2020 of the standard material and labour usage for each product is as follows:

	Finished product
	'Pebble 101'	'Stone 101'
Material 'A' in Units	20	9
Material 'B' in units	6	10
Direct labour in hours	20	25

Information for the FY 2020 of Direct Material	Material 'A'	Material 'B'
Beginning inventory (unit)	9,500	9,000
Ending inventory required (unit)	20,200	2,700

E. Factory overhead budget information for the FY 2020

	Department 1	Department 2
	RO	RO
Budgeted variable overheads rates (Per direct labour hours)
Indirect materials	0.4	0.3
Indirect Labour	0.4	0.4
Power (Variable Portion)	0.25	0.2
Maintenance (Variable Portion)	0.06	0.2

Budgeted fixed overheads
Depreciation	35,000	30,000
Supervision	35,000	20,000
Power (fixed portion)	20,000	600
Maintenance (Fixed portion)	21,400	899

F. Non-manufacturing overheads budgeted Information for the FY 2020:

Information of Estimated non-manufacturing overheads:	RO
Stationary etc. (Administration)	2,000
Salaries sales	28,500
Salaries office	8,000
Commissions	25,000
Car expenses (Sales)	6,500
Advertising	30,000
Miscellaneous (Office)	4,000
TOTAL	104,000

G. Opening cash balance is RO 9500 for the financial year 2020

H. Cash flows Budgeted Information for the FY 2020 are as follows:

	Quarter 1	Quarter 2	Quarter 3	Quarter 4
	RO	RO	RO	RO
Receipts from customers	650,000	700,000	880,000	846,250
Payments:
Materials	300,000	320,000	250,000	336,996
Payment for wages	303,406	330,000	360,000	235,094
Other costs and expenses	30,000	25,000	218,004	333,409

Budgeted balance sheet for the previous year ended 2019 was as follows:	RO	RO	RO
Non-current assets:
Land		262,772
Building and equipment	523,000
Less: Depreciation	63,750	459,250	722,022

Current assets:
Stock of finished goods	136,500
Stock of Raw materials	71,600
Debtors	82,250
Cash	9,500	299,850

Less current liabilities
Creditors		72,200	227,650
Net assets			949,672

Equity: Represented by shareholder's interest:
700,000 ordinary shares of RO 1 each			700,000
Reserves			249,672
Equity			949,672

J. Actual Statements of financial position as at 31st Dec

Amt in RO	2019	2018
Non•current assets (carrying value)	390,000	360,000
Current assets
Inventory	90,000	63,000
Receivable	102,000	53,200
Cash	65,000	70,000
Total Assets	647,000	546,200

Equity and Liabilities
Ordinary share capital ($100 per share)	389,000	356,000
Reserves	60,000	66,600

Non•current liabilities
10% Loan notes	120,000	60,000
Current liabilities
Accruals	42,000	33,600
Trade payables	36,000	30,000
Total Equity and liabilities	647,000	546,200

I. Amt in RO

Actual Statements of profit or loss for the year ended 30th Dec	2019	2018
Sales	320,000	224,000
Cost of sales	204,800	140,000
Gross profit	115,200	84,000
Administration expenses	48,960	24,640
Distribution costs	7,600	5,440
Operating profit	58,640	53,920
Interest	8,000	4,000
Profit before taxation	50,640	49,920
Taxation	2,200	1,000
Profit after taxation	48,440	48,920

Other relevant information:

J. Benchmarks - Average data for companies similar to XYZ Company

Ratios for financial year ended 31st Dec	Benchmark
Gross profit ratio	38%
Operating profit margin	15%
Return on Capital Employed (ROCE)	13%
Current ratio	2.2:1
Quick ratio	1.5:1
Inventory days	40 days
Receivables days	45 days
Payable days	50 days
Gearing ratio	30%

K. XYZ Company - Budgeted information for the financial year 2019 & 2018, no change in actual units & budgeted units produced and sold:

Amt in RO

	2019	2018
Sales revenue	310,000	230,000
Cost of sales	204,900	100,000
Administration expenses	48,600	24,540
Distribution costs	7,400	5,600
Interest	8,200	4,100

As a member of Management accounting team of XYZ Company, you are required to evaluate how planning tools for accounting respond appropriately to solving financial problems to lead organization to sustainable success.

Attachment:- Planning tools used in management accounting.rar

Reference no: EM132489594

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