Management Accounting
ACC203 – Management Accounting
SOLUTION
Question 1: Designing a new management accounting system
- Since I am the new management accountant, I am very keen in the designing as well as operation of the new management accounting systems of the hospital. I am a trained management accountant and I possess skill which will help in designing these systems & for ensuring that it meets the requirement of the business. The new management accounting system must be customized to the definite requirement of the hospital. It must come from the company’s policy & it should account for various types of possible contingent factors which are both internal as well as external to the hospital, like the macro and micro environment. I have expertise in strategic planning & high skills in the field of information technology and system as well as accounting systems design.
Most of the information required to work the new management accounting systems will come from the current transaction-based accounting system. As I am an accountant, I am in a fair place to recommend the types of data which is required in valuation services. Additionally, the new accounting system will give a wide assortment of predicted information, like budgets, operational and non operational financial information.
Since, I am a part of the organisation; I know the system and process of the organisation in a better manner than an external consultant. So, I believe that I should be a part of eth development process as I am well aware of the system and I am in a position to guide the consultants who are engaged in designing the new systems, for ensuring smooth operation of new system.
- There are many types of information which are required on monthly, weekly quarterly basis by the management of the hospital for the smooth operation. These information are:
- Accident & Emergency: Information like number of patients, thir contact details, their length of stay, billing information, average bill size, average cost per patient, medical equipment and medicine cost etc.
- Intensive care Units: Cost per bed, nursing hours, cost of medicines and other equipment, revenue generated from intensive care, supply cost, cost of human resources, number of incidents, Occupancy rate of bed, revenue generated etc.
- Neurology: Number of patients, occupancy rate, waiting list if any, average length of stay of patient, billing rate, medicine revenue, revenue, cost of human resources, average cost per patient, cost of equipments
- Cardiology Department: Similar information as neurology department
- Radiology: Number of x-rays per day, Number of other tests each day, average cost of test, number of radiology staff hours during period, average amount of referrals per doctor, billing information, average cost per patient, medicine cost, nursing costs, average cost per patient, number of test per patient
- Patient records Book: Average number of admission per day, number of discharge per day, billing information, number of new records, , staffing costs
- Medical store: Inventory of medicine, average daily usage of medicine, lead time in obtaining medicines, stock of medicines
- Weekly & monthly reports can be provided by e-mail to manager to let the managers access the information at the time they need it & at the different levels of data that they need. Information can be added to the databases after the end of time period weekly or monthly so that managers can assess it.
Question 2: Schedules of cost of goods manufactured and sold; income statement
| Direct Materials Used | Beginning Raw Materials Inventory + Raw Material Purchases – Ending Raw Materials Inventory – Indirect Materials Used |
| Total Manufacturing Cost | Direct Materials + Direct Labor + Overhead applied |
| Cost of Goods Manufactured | Total Manufacturing Cost (Direct Materials + Direct Labor + Overhead applied) + Beginning Work In Process Inventory – Ending Work in Process Inventory |
| Cost of Goods Sold | Beginning Finished Goods Inventory + Cost of Goods Manufactured – Ending Finished Goods Inventory |
Part 1:
| Beginning raw material 1st January | $ 24,000.00 |
| Closing raw material inventory 31st December | $ 15,000.00 |
| Raw material Purchased | $ 1,08,000.00 |
| Indirect material used | $ 6,000.00 |
| Direct Material used | $ 1,11,000.00 |
| Direct labour | $ 1,20,000.00 |
| Indirect labour | $ 9,000.00 |
| Depreciation | $ 36,000.00 |
| Selling and administrative cost | $ 90,000.00 |
| Electricity | $ 24,000.00 |
| Other manufacturing overhead | $ 48,000.00 |
| Overhead applied | $ 2,07,000.00 |
| Total Manufacturing cost | $ 4,38,000.00 |
| Beginning WIP | $ 24,000.00 |
| Ending WIP | $ 18,000.00 |
| Cost of Goods Manufactured | $ 4,44,000.00 |
Part 2:
| Beginning Finished Good Inventory | $ 12,000.00 |
| Cost of Goods Manufactured | $ 4,44,000.00 |
| Ending Finished Goods inventory | $ 30,000.00 |
| Cost of Goods Sold | $ 4,26,000.00 |
Part 3:
| Revenue | ||
| Sales Revenue | $ 5,70,000.00 | |
| Total revenue | $ 5,70,000.00 | |
| Expenses | ||
| Cost of Goods Sold | $ 4,26,000.00 | |
| Income tax expense | $ 54,000.00 | |
| Total Expenses | $ 4,80,000.00 | |
| Net Income | $ 90,000.00 |
Part 4:
Question 3: Job costing; department overhead cost allocation: tour operator
Part 1:
| Bali Adventure | Thailand Discovery | Malaysian Orienteering | |
| Revenue | $ 9,00,000.00 | $ 14,40,000.00 | $ 11,20,000.00 |
| Direct cost per package: | |||
| Tour leader | $ 50,000.00 | $ 2,40,000.00 | $ 1,09,000.00 |
| Tour assistant | $ 20,000.00 | $ 60,000.00 | $ 60,000.00 |
| Air travel | $ 2,80,000.00 | $ 6,00,000.00 | $ 3,20,000.00 |
| Accommodation | $ 1,50,000.00 | $ 5,20,000.00 | $ 2,40,000.00 |
| Equipment hire | $ 40,000.00 | $ - | $ 90,000.00 |
| Meals | $ 1,80,000.00 | $ 3,00,000.00 | $ 80,000.00 |
| Total direct Cost | $ 7,20,000.00 | $ 17,20,000.00 | $ 8,99,000.00 |
| Proportion of total revenue | 0.260115607 | 0.416184971 | 0.323699422 |
| Total Overhead Cost | $ 2,30,000.00 | ||
| Overhead cost of each package | $ 59,826.59 | $ 95,722.54 | $ 74,450.87 |
| Total expenses | $ 7,79,826.59 | $ 18,15,722.54 | $ 9,73,450.87 |
| Net Profit | $ 1,20,173.41 | $ -3,75,722.54 | $ 1,46,549.13 |
- Profitability of 3 corporate packages
Malaysian Orienteering is the most profitable corporate package with the profit of $ 146549 followed by Bali adventure with the profit of $ 120173. Overall the portfolio of corporate package is at a loss of $ 109000.
- The overheads are not distributed fairly by dividing it as per the ratio of overall sales. In case of Thailand discovery package, the revenue per person is least while the overall overhead cost in this package is the most. Hence, this method does not take care of applicability of resources; the overhead cost should be distributed equally to all the packages as all the packages use the resources equally.
- To start with, the company should increase the selling price of the Thailand discovery package. It should also focus on decreasing its direct and overhead cost. The company should also change its method of allocating overhead costs.
Question 4: Cost of goods manufactured; overapplied or underapplied overhead; journal entries
Part 1
| Direct Material | $ 26,000 |
| Direct Labor | $ 20,000 |
| Manufacturing OH applied | $ 30,000 |
| Total Manufacturing cost | $ 76,000 |
| add Beginning WIP | $ 9,000 |
| less Ending WIP | $ 7,300 |
| Cost of Goods Manufactured | $ 77,700 |
Part 2
Under applied overhead = 32000-30000
Under applied overhead = $ 2000
Part 3
| Title of account | Debit | Credit |
| WIP Inventory | $ 76,000 | |
| Material Inventory | $ 26,000 | |
| Payroll Account | $ 20,000 | |
| MOH control account | $ 30,000 | |
| MOH control account | $ 32,000 | |
| Various credits | $ 32,000 | |
| Finished Goods | $ 77,700 | |
| WIP Inventory | $ 77,700 | |
| Cost of goods sold | $ 2,000 | |
| MOH control account | $ 2,000 |
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