LO1 Demonstrating and understanding of management

LO1 Demonstrating and understanding of management accounting system.

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Management Accounting

Submission Format:

The submission is in the form of a management accounting report. This should be written in a concise, formal business style using 1.5 spacing and font size 12. You are required to make use of headings, paragraphs and subsections as appropriate and ensure that the report is justified aligned. All work must be supported with research and referenced using the Harvard referencing system. Please also provide a bibliography using the Harvard referencing system. The recommended word limit is 1,000–1,500 words, although you will not be penalised for exceeding the total word limit.


Unit Learning Outcomes:

LO1 Demonstrating and understanding of management accounting system.

LO2 Appling a range of management accounting techniques.


Assignment Brief:


ABC Co. Ltd. specialises in manufacturing electronic products. The range comprises of 2 products, Personal Computers (‘PC’) and Video Players (‘VP’). The company’s products have the data shown below.

                    Products                              PC           VP

    Maximum  monthly demand         Unit                10,000         20,000

    Direct labour hours per unit      hr                  2             4

    Selling Price                      $                 1,200        1,600                   

    Unit variable costs

      Direct Material                  $                 600          800

      Direct Labour                   $                 200          400

      Other variable O/H              $                 200          200

The company has adopted the OAR in term of direct labour hour. The total estimated fixed cost and direct hours during the year is $2.4m and 30,000 hours respectively.

The company is planned to manufacture a new product, I-Phone (‘IP’) with estimated contribution of $600 per unit.

The manager wants to prepare the budgets for the coming January to March, assuming that the company will manufacture only IP to fulfill a confirmed special order for 3,000, 3,000 and 4,000 units for Jan, Feb and March respectively at $200 each. The only variable cost is direct raw material. To produce one unit of IP, the standard usage of raw material is 2 units at standard price of $70 per unit of IP.  The actual sale and material purchase for last December is 2,500 units and 50,000 units respectively.

Noted: The Production Department is responsible for the planning, organising and control of the manufacturing process while the Procurement Department is responsible for the purchase of all raw materials.

You need to advise the manager the following issues:

  • Explain the meaning of management accounting, the different types of management accounting and role of management accountants (1.1, 1.2)
  • Explain the classification of costs that would help the management decision-making (2.1)
  • Calculate the unit costs of PC and VP based on absorption costing and marginal costing methods (2.2)
  • There is a special order for 10,000 units of PC at $1050 per unit:

-   which costing method should be used for the accept or reject decision (2.2);

-   calculate the costs using the costing method recommended above (2.2);

  • given that direct labour available is limited to 60,000 hours per month, advise the optimum production mix of PC and VP to maximise profit (2.3)
  • calculate the break-even units of IP and if the manager is confident that a target profit of $1,200,000 is achievable, what would be the corresponding target units sold (2.1, 2.3)
  • evaluate the proposal to spend an additional $600,000 to promote the IP so that selling price can be increased by $60 per unit to sell 6,300 units per month and discuss the corresponding pricing decisions (2.3)

Prepare a proposal to advise the manager who has no management accounting knowledge and background.

To achieve M1, you have to discuss other non-financial factors that may need to be taken into consideration when making the decisions in 2.2 and 2.3.

To achieve D1, you have to discuss other pricing strategies that may need to be taken into consideration when making the decisions in 2.2 and 2.3.

To achieve D2, you have to produce a clear, concise and structured proposal with technical language being accurately used for the manager.

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