BDAP2203

Q1A
Management accounting differs from financial accounting. Financial accounting concentrates on outward reporting, whereas
management accounting focuses on internal decision-making. It is focused with delivering information to owners and managers
that will allow them to make educated decisions regarding the future of the company. Management accounting offers
information on the expenses of producing things and services, the profitability of those products and services, and the
performance of business units.

Strategic decision-making is the process of determining the optimal course of action to fulfill a business's goals and objectives.
Management accounting is an important part of this process. It gives information on the company's financial performance,
which is critical for spotting opportunities and risks, assessing alternatives, and making choices.

Management accounting data is critical for discovering cost-cutting possibilities, improving efficiency, and increasing
profitability. By analyzing the cost of each company activity, owners and managers may make more informed decisions about
how to allocate resources and streamline procedures.
The data produced in a set of management accounts reflects the company's financial performance. This data is then utilized to
create budgets and projections. These tools are critical for organizing and managing business activities. Budgets and projections
assist owners and managers in setting objectives, allocating resources, and monitoring performance. They also help
organizations forecast future trends and change their plans accordingly.

Aside from that, Determining the profitability of products and services is essential for every firm. A well-prepared set of
management accounts provides this critical information and assists in determining which items and services generate the most
income and which are unprofitable. By analyzing product and service profitability, owners and managers may make more
informed decisions about which items and services to prioritize and which to discard.
management accounting may create data that helps to evaluate the efficacy of corporate plans and make necessary
modifications. Rather of evaluating the financial performance of individual company divisions, management accounts may assist
owners and managers in identifying areas of weakness and making educated decisions about how to enhance performance.

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Q1B
i)
Direct material costs are expenses that your company can fully trace to the creation of a product. The costs are clearly attributed
to a single project. Direct expenses are not allocated, thus they are not distributed over many departments or projects. Direct
costs might be constant or variable.

A fixed direct cost might be the wage of an employee who does direct labor. Supplies used to manufacture the product might be
considered a variable direct cost.
Direct material costs include the supplies utilized to manufacture the product. For example, the paper for each job is a direct
expense. Employees who work on the manufacturing line are termed direct labor. Their pay might also be considered a direct
cost of the initiatives.

Now consider the company's sales personnel. The sales crew is not assigned to a single project. As a result, their wages are not
direct costs because they cannot be allocated to a specific project. Their salary must be distributed over various projects.
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%20a%20direct,direct%20cost%20of%20the%20projects.

Direct costs include manufacturing supplies, laborer compensation, and freight.The direct material cost is an important
component of the overall production cost, which also includes direct labor and manufacturing overhead. It is a crucial
component of cost accounting and is used to make price decisions, analyze profitability, and manage a company's finances.

Direct material costs are called variable costs because they vary in direct proportion to the number of items produced: the more
goods produced, the higher the direct material cost, and vice versa.
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%20direct%20material%20costs.

II)
Direct labor is defined as any employee who is directly involved in the manufacture of a product. If your company provides
printing and binding services, the personnel who print or bind items are considered direct labor. Direct labor costs are always
variable expenses since they grow and fall with production costs as they are finished. Therefore, your wage is considered a direct
labor cost.
It is critical to maintain direct labor expenses distinct from other labor costs since you will need access to them in order to
appropriately calculate overall production costs. If you operate a service business, your direct labor costs are the salary of staff
members that deliver services directly to your consumers, such as retail salespeople,stylist, even accountants and
attorney.https://www.fool.com/the-ascent/small-business/accounting/articles/direct-vs-indirect-labor/

Direct labor costs are determined by the wages paid, which include all costs incurred by the manufacturer in employing a
worker, the number of laborers required to complete the operation, and the paid operating time. Typically, only direct laborers
are included in this computation, with the remainder factored into overhead. The most important aspect of this computation is
establishing the paid operational time.It is tempting to just utilize the cycle time for manufacturing the part; however, this must
be adjusted for worker productivity. To do so, it is frequently simplest to compute the yearly paid operating time, allocate an
appropriate percentage to the product of interest, and then divide by the net annual production volume to calculate a unit cost.
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Iii)
Factory overheads are the sum of indirect materials, labor, and other costs that cannot be easily linked with the goods produced
or services provided.The advantages from these expenses cannot be tied to a single cost unit. Instead, they are distributed fairly
throughout the cost units.Overheads are a cost component, however they are supplemental and cannot be added to a specific
project.The primary cost of a product is comprised of direct materials, direct labor, and direct costs.

Aside from these fees, there are other indirect costs that cannot be easily associated with the product produced.These costs
cannot be assigned to a specific job, process, or item of production. These expenses are known as factory overheads.

The overall cost of maintaining and running the manufacturing facility or factory (excluding direct expenditures) is referred to as
factory overhead.

These are also known as production overheads or working overheads.

Factory overheads include expenses such as rent, rates, insurance, water, heat, and electricity, as well as maintenance costs
such as cleaning, servicing, repairs, oiling, and greasing. They also include depreciation of machinery and buildings, and wages
for employees such as foremen, supervisors, maintenance staff, administrative staff, testers, and examiners.
0
Q1C
The term "cost" refers to any expense incurred by a firm during the manufacture or production of its goods and services. Simply
put, it refers to the amount of money spent by businesses on acquiring and selling goods. When businesses manufacture items,
they incur two sorts of costs: variable and fixed. Understanding the differences between these charges can assist a corporation
in maintaining budgetary soundness.

VARIABLE COST
Variable costs are expenses that alter depending on how much a firm produces and sells. This indicates that variable costs grow
as output increases and decline as production decreases. Labor, utility bills, commissions, and raw materials are among the most
prevalent categories of variable costs.

Variable costs are those expenditures incurred by a corporation that are related to the quantity of products or services
produced. Variable expenses fluctuate with a company's output volume. Variable costs rise as manufacturing volume increases.
However, when volume decreases, so do the variable expenses. If a company's product line is underperforming or outmoded, it
may decide to discontinue manufacturing of that line. This product's expenditures are deemed avoidable.
Variable costs often include labor, commissions, packaging, utility bills, and raw materials for production.

To calculate variable costs, multiply the quantity of output by the variable cost per unit of production. Assume Gogoprint
manufactures binding booklets for RM5.00 each booklet. If the firm produces 500 pieces, the variable cost will be RM2,500.
However, if the firm does not create any products, there will be no variable costs associated with creating the mugs. Similarly, if
the firm produces 1000 pieces, the cost will go to RM5,000.

(insert graph)

FIXED COST
Fixed costs, on the other hand, are expenses that stay constant regardless of how much a firm generates. These expenses are
typically unrelated to a company's core business activity and include rent, property tax, insurance, and depreciation.

Fixed expenses stay constant regardless of whether products or services are produced or not. Thus, a corporation cannot escape
fixed expenditures. As a result, fixed costs do not fluctuate with production volume and are indirect, which means they do not
often apply to the manufacturing process—unlike variable costs.
 The most typical fixed costs include lease and rent payments, property taxes, some wages, insurance, depreciation, and interest
payments.
To show, let us utilize the identical example as before. In this scenario, imagine Company ABC pays a set monthly rent of RM
5,000 for the paper-making machine. If the firm does not create any paper throughout the month, it must still pay RM5,000 to
rent the machine. But even if it produces one million sheets of paper, the fixed cost stays
constant.https://www.investopedia.com/ask/answers/032515/what-difference-between-variable-cost-and-fixed-cost-
economics.asp#:~:text=Variable%20costs%20change%20based%20on,%2C%20insurance%2C%20and%20interest%20payments.

( insert graph)

Q2A
A mixed cost consists of both a fixed and variable cost component. It is critical to understand the combination of these cost
components in order to forecast how expenses will fluctuate with varying levels of activity. Typically, a fraction of a mixed cost
may exist in the absence of full activity, and the cost may rise as activity levels grow. As the utilization of a mixed cost item rises,
the fixed component of the cost remains constant, but the variable cost component increases.

The formula for this relationship is:

Y = a + bx

Y = Total cost

a = Total fixed cost

b = Variable cost per unit of activity

x = Number of units of activity

Mixed costs are widespread in corporations since many departments require a certain amount of baseline fixed costs to support
any operations at all, as well as variable costs to deliver varied amounts of services over the basic level of support. Thus, the cost
structure of a whole department may be described as mixed cost. This is also an important consideration when designing
budgets, because some mixed expenses may fluctuate only slightly with predicted activity levels and must be adequately
accounted for in the budget.

The easiest method to deal with mixed expenses in a budget is to utilize a formula instead of a single figure, with the cost
shifting dependent on a predetermined activity level (such as sales). This method is more complex, but the budget calculations
are more likely to reflect the real outcomes.

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If a corporation owns a building, its overall annual cost is a mixed cost. The asset's depreciation is a fixed cost that does not
fluctuate year after year, however the utilities expense varies based on how the facility is used by the organization. The
building's fixed cost is RM10,000 per year, while the variable cost of utilities is RM80 per tenant. If the building has 150
inhabitants, the combined cost calculation is RM22,000 Total cost = RM10,000 Fixed cost + (RM80/occupant x 150 occupants)

Another example of a mixed cost is a firm that has a broadband contract with a local cable operator and pays RM300 per month
for the first 800 megabytes of consumption, after which the price rises by RM0.50 per megabyte consumed. The following table
depicts the mixed cost nature of the problem, in which there is a baseline fixed cost and the cost grows at the same rate as
usage:

MEGABYTES (MB) VARIABLE COST (RM) FIXED COST (RM) TOTAL COST (RM)
800 0 300 300
900 50 300 350
1000 100 300 400
1100 150 300 450
1200 200 300 500
(insert graph)