Management accounts information

Response to Questions

Part A

Question 1


Requirement (a)

Management accounts information is classified according to corporate, business-unit, and functional level of management. The accountant is tasked with tailoring financial information to suit the needs of different users at different levels. The corporate-level management accounts help the executive board with strategic business planning. This information entails long-term projections on profitability meant to determine whether to proceed with critical decisions, such as investing in production or outsourcing  (Simons 2017, p.369). For example, with relevant data on the present values of long-term investment alternatives, the management is empowered to decide on what option to select in pursuit of future business growth.

Business level management information, on the other hand, target different areas of the business, including divisions or departments. For example,  Armitage, Webb and Glynn (2016, p.33) state that cost accounting information on investment, cost, and revenue centres are consequential to managers in recognising and responding to unit-level operations. Similarly, departmental level budgets issued by accountant office make it easier to track and monitor team performance.

Finally, management accounting at the functional level supports departmental managers in their daily internal operations. For instance, information on unit costs can show the contribution to unit prices by each department, which helps them tackle cost-related issues (Datar, Horngren and Rajan n.d, p.48). Moreover, performance, productivity, and remuneration information can help the section managers appreciate productive workers while and dissuade laxity within their teams.


Requirement (b)

Management accountants need a proper understanding of organisations, their nature and their environs for several reasons. Firstly, these accountants offer decision control and support for different managers through targeted financial information. Tailoring these decisions to suit the needs of various functional departments is vital for management accounts, which makes it imperative that they participate actively in company-wide operations. PwC (2013) outlines the need for a management accountant to be conversant with the management structure, overlaying technology, and procedures.

Besides, firms are often under the influence of internal and external business factors. Adjustments in tax regimes, consumer price indices, and lending rates, among others, can affect organisational performance. Also, changes in the regulatory environment affect corporate policies. For example, legal alterations in real estate policies after legislative changes can affect the valuation of fixed properties.  Hence, understanding these issues and assimilating them into management accounting projections is vital for the credibility of the accountant.

Question 2

Absorption costing has the benefit of accumulating total unit costs, which is consequential in assessing profitability and determining prices strategies. Nevertheless, the subjectivity involved, especially in selecting the approach in allocating indirect expenses, is a disadvantage. This method can be fabricated to reflect the desired position.

Marginal costing, conversely, is vital in short-term decisions, as it emphasises on additional income and cost levels. If a company is faced with a decision to buy or produce commodities, marginal costing would be indispensable in understanding the marginal benefits of each choice (Kono and Barnes 2010, p.11). Unfortunately, the methodology neglects fixed costs, which is a significant threat to operational effectiveness and company liquidity.


Question 3


Requirement (a)

Corporate strategy concerns itself with the management at the head office and how they management functional business units. It deals with significant decisions regarding investing or divesting, or whether to liquidate business divisions (Nevries, Kornetzki and Weide 2006, p.8). A corporate strategy, on the other hand, follows corporate-level policies (Jensen and Meckling 2013, p.452). It deals with how particular business units compete or cooperate to attain specific goals, such as how to be effective in operations.

Requirement (b)

The primary individual units in the business also have functional strategies, in addition to corporate and business-unit policies, as seen below.

Production Function Unit. The develop production plans that deal in issues on sourcing and converting inputs into quality outputs. Production plans are concerned with decisions on whom to buy purchase from, how much to pay, and what production levels to target (Garrison and Eric 2012, p.17). Additionally, the units are interested in containing cost levels through effective policies.

Marketing Function Unit. The unit’s strategies deal with matters related to customer servicing, branding, market segmenting, pricing strategies, and distributing. They are at the core of connecting the organisation to its target market, which makes their plans consequential in determining what commodities to prioritise, and what to subordinate.

The Human Resource Section. Human resource policies, then again, deal with the preferred approach to attracting, retaining and enhancing talents. They help the organisation to maintain the optimal supply of skills and capabilities all year round, even during low demand seasons. This support is possible through quality workforce projections and planning policies.

Finance Section. Financial strategies focus on money matters to ensure the organisation can account for its finances and that enough financial resources are available to meet planned operations. They also handle issues such as how best to obtain needed funds in the face of insolvency threats.

Part B

Question 1

Requirement 1

  1. A statement under the contribution income statement
Plaza Tablet.

Profit and Loss Statement

For the year ended December 31, 2017

Revenue/sales   3,000,000
Deduct: Variable costs:    
    Selling costs 220,000  
Manufacturing costs 1,200,000  
Administrative costs 200,000 1,620,000
Contribution margin   1,380,000
Less: Fixed expenses:    
    Selling 80,000  
Manufacturing 800,000  
Administrative 100,000 980,000
Net income/loss     400,000


  1. Traditional income statement
Plaza Tablet, Inc.

Income Statement

For the year ended December 31, 2017

Sales   $3,000,000
Less expenses    
Manufacturing expenses:    
Less: Cost of goods sold (COG)   $2,000,000
      Gross margin   $1,000,000
Less: Operating expenses:    
    Administrative expenses $300,000  
Selling expenses $300,000 $600,000
Net income   $ 400,000

Requirement 2

                     BEP =


Break Even Point =       980000



= 7101 units



Workings : Selling price /unit=3000000/10000 units =300

Variable cost/unit= 1620000/10000=162

Fixed costs (FC)
Contribution margin




Selling price per unit is calculated by dividing $3000000 worth of sales by the 10000 units, which gives $300/unit

Then, calculating variable costs per unit is possible by sharing the $1620000 by 10000 units. The result is $162/unit


Requirement 3

Break-even point in sales        =fixed costs/contribution margin proportions

=9800000/ [(300-162)-300]



Question 2

Part a


Unit BEP                    = (Total FC) / (Unit Contribution Margin (CM))


Cost margin per unit               =Unit SP less unit VC



TFC                 = FC/unit ×Units produced

=55  ×150000


BEP                 =8250000/100

=82500 units

Part b

Anticipated Operating revenue           =Unit CM  × total units -FC

=100  × 175000 -8250000


Question 3

  1. 2019 Income statement preparation
Sales $200,000
Variable costs (VC) 50,000
Contribution margin (CM) 150,000
Fixed costs (FC) 90,000
Operating revenue     60,000

Sales =$200 ×1000 units=200000

Variable costs =50 ×1000 units=50000

  1. Break-even points in units and revenue.

Break even units         = FC/CM per unit

=90000/(200-50) =600 units

Break even revenues   =FC/CM proportion

= 90000/ 0.75 =$120000


Sales $120,000
Less VC 30,000
=CM 90,000
Les FC 90,000
Operating income $  0,000



Sales =200 ×600         =1200000

VC = 50 ×600 =30000

  1. Margin of safety (MOS). = Anticipated revenue in units-Break-even revenue in units

= 750-150

=150 units

MOS in sales  =MOS units ×sales price/unit

=150 ×200


  1. Target sales.

(15000 + 90000)/(200-50) =700 units


Armitage, H. S., Webb, A., & Glynn, J. 2016 The use of management accounting techniques

by medium-sized enterprises: A Field Study Practice. Accounting Perspectives,15(5), 31-69.

Datar, S. M., Horngren, C. T., & Rajan, M. V. n.d. The Manager and Management Accounting.

In Cost Accounting: A Managerial Emphasis(15th ed., pp. 3-4). Prentice-Hall

Garrison, R. H. and Eric W. 2012. Management Accounting. New York. McMillan

Jensen,  M.  C.,  and  Meckling.  W.  H.,  2013.  Theory of the firm:  Managerial behaviour,

agency costs,  and ownership structure. Journal of Financial Economics4: 469–506

Kono, M. P. & Barnes, B., 2010. Financial goals and metrics help firms implement strategy and

track success. Graziado Business Review. Available at [Accessed on 30/4/2020]

Nevries, P., Kornetzki, T and Weide, G. K., 2006, Characteristics of the Strategic Planning

Process and the Relevance of Management Accounting: Evidence from German Dax30 Companies. AAA 2008 MAS Meeting Paper. Available at SSRN:  [Accessed on 30/4/2020]

PwC. 2013.The New Digital Ecosystem Reality: Nine Trends Rewriting the Rules of

Accounting. Available at: [Accessed on 30/4/2020]

Rothaermel, F. T., 2018. What is Strategy? In Strategic Management, Third Edition(p. 4).

McGraw-Hill Education.

Simons, R., 2017. Accounting control systems and business strategy: An empirical analysis.

Accounting, Organisations and Society,12(4), 357-374

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