MAA262 Management Accounting:Cost And Budget Concepts

2. Apply cost and budget concepts to the organisation’s planning, control and management accounting decisions.

3. Analyse and evaluate performance measures and link to organisational strategy.

4. Communicate management accounting concepts and use appropriate technology to provide information to relevant stakeholders.

Stylish Chairs is a small company which makes and sells copies of an 18th-century rococo chair. The company is owned by the couple Anni-Frid and Benny. You are an intern working at Stylish Chairs.

For the sake of simplicity, this assignment does not consider taxes and other fees and there is no stock or work in process in the beginning or end of every year. You might have to use information from previous questions for answering information for following questions and whenever possible support your arguments with your calculations.

Anni-Frid and Benny decided they need a management accountant for helping them understand their business and hire an old friend named Bjorn for this role. Besides being an old friend of the couple, Björn is good at playing the guitar. However, Björn lacks the qualifications for fulfilling the role of a management accountant. 

Required
Please state one of the ethical standards, as provided by the Institute of Management Accountants (IMA) Statement of Ethical Professional Practice1, which is being jeopardized by Anni-Frid and Benny hiring Björn and justify why this standard is being jeopardized. (There might be more than one ethical standard being jeopardized but only one is required for this question).   (10 marks)

Question 2
To have a better picture of what has happened during the previous year Anni-Frid and Benny want to see Stylish Chairs operating profit, and Björn has asked for your help preparing this information. The copies of the 18th-century rococo chair are sold for $1,000 each.

Required
a) Prepare a variable-costing income statement for the previous year for Stylish Chairs.  (e.g., Panel A, 5 marks)

b) Prepare an absorption-costing income statement for the previous year for Stylish Chairs.  (e.g., Panel B, 5 marks)

Question 3
In the current year, Anni-Frid and Benny were approached by Agnetha who wants to buy 20 copies of the 18thcentury rococo chair. Anni-Frid and Benny want to know the manufacturing costs for this job, considering Stylish Chairs has a production budget of 600 chairs for the current year. For allocating the manufacturing overhead (i.e., indirect cost pool) Stylish Chairs uses the direct labour-hours (i.e., cost-allocation base), but Björn is struggling with job costing in manufacturing and has asked for your help.

Required
a) Calculate the direct manufacturing costs, the indirect manufacturing costs, and the total manufacturing costs of this job.

(Job costing in manufacturing, Chapter 3, 10 marks)

b) Considering the current cost-allocation base of direct labour-hours and using a direct allocation method, which of the three activities (assembling, woodworking, and varnishing) has the higher allocated manufacturing overhead and why? (Direct allocation method, Chapter 5,

10 marks)

Question 4
Björn wants to propose to Anni-Frid and Benny a new product for Stylish Chairs, the 21st-century chair. This new product is the standard product manufactured by Stylish Chairs (i.e., a copy of the 18th-century rococo chair) with an extra coat of fancy varnish. Applying this extra coat of fancy varnish takes more 2 hours of direct manufacturing activity (varnishing) for each chair and 1 litre of fancy varnish is used for each chair. This fancy varnish is 50% more expensive than the normal varnish used for the standard product. Whereas a copy of the 18th-century rococo chair is sold by $1,000, Björn says the 21st-century chair could be sold by $1,250 and Stylish Chairs would make more money with this new product.

Required
Anni-Frid and Benny are sceptical about this new product and have asked you to crunch the numbers and show whether it is worth processing the standard product into this new product, the 21st-century chair, and selling it for $1,250. (Sell or process further, Chapter 6, 10 marks)

Question 5
Stylish Chairs has a production budget of 600 chairs for the current year and for allocating the manufacturing overhead (i.e., indirect cost pool) Stylish Chairs uses the direct labour-hours (i.e., cost-allocation base). AnniFrid and Benny are not sure whether the production budget will be met and some of its consequences.

Required
a) If the quantity produced in the current year reaches the budgeted amount of 600 chairs whereas in the past year the production was 500 chairs, Björn says the unit product cost in the current year will decrease when compared to the previous year because the production has increased. Is Björn right or wrong in his statement and why? (Chapter 2, 10 marks)

b) Considering Stylish Chairs uses budgeted indirect costs during the year, if the quantity produced in the current year is only 500 chairs whereas the production budget for the current year is 600 chairs, Björn says there will be an overallocation of indirect costs. Is Björn right or wrong in his statement and why? (Budgeted indirect costs and end-of-period adjustments, Chapter 3, 10 marks)

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