Managerial Accounting

Chapter 1: Managerial Accounting: An Overview

Exercise 01
Categorize each of the following activities as to which management responsibility it
fulfills:
Planning:
Management decides to increase sales growth by 20% next year.

Directing:
Management reviews hourly sales reports to determine the level of staffing needed
to staff the customer service desk
Management reviews hourly sales reports to determine the level of staffing needed
to staff the customer service desk
To lower production costs, management moves production to China
Controlling:
Management analyzes the impact of a recent advertising campaign by comparing
budgeted sales to actual sales.
To lower production costs, management moves production to China

Exercise 02
Managerial accounting differs from financial accounting in several areas. Specify
whether each of the following characteristics relates to managerial accounting or financial
accounting.
Managerial accounting:
Main characteristic of information is that it must be relevant.
Reports tend to be prepared for the parts of the organization rather than the whole
organization
Primary users are internal (i.e., company managers).
Reports are prepared as needed
It is not governed by legal requirements
Focus is on the future
Financial accounting:
Reports are usually prepared quarterly and annually.
Information is verified by external auditors.
Focus is on the past.
It is governed by Generally Accepted Accounting Principles (GAAP) or
International Financial Reporting Standards (IFRS).
The primary characteristics of information are that it must be reliable and
objective
Primary users are external (i.e., creditors, investors).
 Reporting is based mainly on the company as a whole
Exercise 03
Management accountants need a wide variety of skills for their roles in organizations.
These skills can be classified as either technical or nontechnical.

Technical:
Planning, budgeting, and forecasting
Financial statement analysis
Change management
Cost management
Investment decision making

Nontechnical:
Leadership
Adaptability
Strategic thinking
Exercise 04
a. I agree with this quote. Because as author Alfie Kohn wrote the reward is only
temporary compliance, to secure a certain job purpose for a while, not making a
lasting change in attitudes and behavior
b. As a manager, i seek to motivate my employees as:
Increase salary employee if they do work them good
Good communicate be sure to use the impactful words needed to deliver the
efficient message. Effective communication is one of the keys to unlocking the
motivation needed to ensure the open and transparent office culture that you
desire.
Listen effectively. employees have thoughts and opinions that they believe can
improve certain work situations. As a manager, leader and motivator, it’s
important for you to listen to them and take what they say on board.
People to take their annual leave, to do the things they love and to try to make
them happy at work
Ensure the groundwork in getting on their good side( favorite, work passion, love)
c. A manager should use incentives regularly because they have many advantages.
The use of incentives helps to motivate employees to unleash their full job. For
employed people, incentives take many forms, which include monetary rewards,
paid holidays, or gifts. create a lot of motivation to do a good job.
Exercise 05:
1. I recommend reinforcing the sections of the plane that were hit most often by
enemy fire because Increase the ability to fight long-term for plan
2. I think they were relying on a sample that include only those plans that had
returned from combat. The sample did not include planes lost in combat. So there
will also be errors in the decision-making process with respect to reinforcing its
fighter planes
Exercise 06:
I think i would not report your gambling winnings to the Internal Revenue Service so that
i could pay federal income taxes on those winnings because in case When the casino
exchanged my chips for cash they did not record any personal information, such as my
driver’s license number or social security number.
I believe that my actions are ethical because i would not report when they did not record
any personal information so It is difficult to explain the origin of the money

Chapter 2: Managerial Accounting And Cost Concepts

Exercise 01
Classify each of the following costs as a direct cost or an indirect cost, assuming that the
cost object is the Kid Department (clothing and accessories for kid ) in the Dolphin's
department store . (Dolphin 's is a chain of department stores and has stores located
across the Vietnam.)
Direct cost:
Kid Department sales clerks
Cost of Kid clothing
Manager of Kid Department

An indirect cost:
Cost of hangers used to display the clothing in the store
Electricity for the building
Cost of radio advertising for the store
Kid clothing buyers' salaries (these buyers buy for all the Kid Departments of
Dolphin 's stores)
Depreciation of the building
The Dolphin 's store manager's salary
Cost of the security staff at the Dolphin store

Exercise 2
Classify each of FAST Company's costs as either product costs or period costs. FAST
Company is an automobile manufacturer headquartered in Vietnam

Product costs:
Cost of chemical included in paint to inhibit rust
Cost of electricity at the Lima Engine Plant in Ohio
Depreciation on the buildings
Purchase of aluminum to be used in car wheels
Cost of new software to schedule production
Period costs:
Life insurance for the CEO
Cost of ad campaign and slogan called "By Design" to highlight the designs of
FAST 's cars
Salaries of FAST engineers researching ways to reduce CO2 emissions
Salaries of Ford FAST Company's top executives

Exercise 3
The Rosy Hotel in Ho chi Minh city, has accumulated records of the total electrical costs
of the hotel and the number of occupancy-days over the last year. An occupancy-day
represents a room rented out for one day

a.

variable cost of= (9148−7913)÷( 1920−1270) = 1.9 ( per occupancy-day)

ectricity per occupancy-day

fixed cost of electricity per month ¿ 9148−( 1.9∗1920 )=¿5500 ( per month)
b.

- Seasoned factor like winter or summer: A place where light is use frequently or
constantly like a Manufacturing or production company in which there must
always be availability of light for production during the winter than in the summer
will lead to fluctuation of the cost of the electricity from month to month.
- Systematic Factors like guest, switching off the light and fan : This will affect
electrical cost example an Hotel with a large number of guest in which some of the
guest may either choose to off. the. light or fan will greatly affect electrical cost
because some guest may decide to off the light or fan when leaving th guest room
and others may decide not to.
- Numbers of days present in a month are likely to affect electrical costs from month
to month because of the numbers of days in the month and how the electricity is
been used or consumed on a daily basis.

Exercise 4
In 2015, Ha Tran opened Happy's Flowers, a shop selling floral arrangements
1. traditional income statement
Cost of goods sold = Beginning merchandise inventory + purchases – Ending
merchandise inventory
= $12000 + $90000 – $22000 = $80000
Sales $192000
 Cost of goods sold $80000
Gross margin $112000
Selling and
administrative expenses
Selling $42000
Adminisrative $40000 $82000
Net operating income $30000

2. contribution format income statement

Sales $192000
Variable expenses:
Cost of goods sold $80000
Variable selling $24000
Variable $24000
administrative
Contribution margin $64000
Fixed expenses:
Fixed selling $18000
Fixed administrative $16000 $34000
Net operating income $30000

Exercise 5
Orange Ltd. specializes in the production and sale of ceramics around the world
a. Identify each of the company’s expenses (including cost of goods sold) as
either variable, fixed, or mixed
Cost of goods sold - variable
Advertising expense – fixed
Shipping expense - mixed
Salaries and commissions - mixed
Insurance expense - fixed
Depreciation expense – fixed

b. Using the high-low method, separate each mixed expense into variable and fixed
elements. State the cost formula for each mixed expense.
Salaries and commissions
$ 57000−$ 48000
variable cost per unit = = $6 (per unit)
4500−3000

Fixed Cost = $57000 –( $6 * 4500) = $30000

Mixed = $6X + $30000
c. Redo the company’s income statement at the 4,500-unit level of activity using
the contribution format.
contribution format June
Sales $675000
Variable expenses:
Cost of goods sold $27000
Variable Salaries and $27000
commissions
Variable // $54000
administrative
Contribution margin $621000
Fixed expenses:
Fixed Salaries and $30000
commissions
Fixed administrative // $30000
Net operating income $591000
Chapter 3: Cost-Volume-Profit Relationships

Exercise 1
a) Assume the fixed costs of operating the store are $100,000 per year.
Calculating Break-even in units?
$ 100000
Break-even in units = = 16666.67 units
$6
Contribution Margin = Per-Unit Sales Price – Variable Costs
b) If the owner desired a profit of $25,000; what will be break-even point in
sales?
break-even point in sales= Fixed Costs ÷ Contribution Margin Ratio
Contribution Margin Ratio = Contribution Margin ÷ Per-Unit Sales Price
6
= = 0.4
15
$ 25000+ $ 100000
break-even point in sales = = 87500
0.4
c) If fixed costs increase to $110,000, what is break-even in units?
$ 110000
break-even in units = = 18333.33 units
$6
d) If the selling price increases to $16 per unit, what is break-even in units?
$ 100000
break-even in units = = 14285.71 units
$ 16−$ 9
Exercise 2
1. Calculate break-even point in units and dollars.
300000
break-even point in units= = 12500 units
24
 Contribution Margin Ratio = Contribution Margin ÷ Per-Unit Sales Price
24
= = 0.3
80

$ 300000
break-even point dollars = = $1000000
0.3
2. What is the contribution margin at break-even point?
contribution margin at break-even point = 24
Contribution margin = Sales price per unit − Variable cost per unit

Break-even point =Fixed cost/ Contribution margin

3. Compute the number of units to be sold to earn a profit of £36,000
$ 36000+ $ 300000
break-even point units = = 14000 units
24
4. Compute the margin of safety using original data.
Margin of safety dollars = $1200000- $1000000=$200000
$ 200000
Margin of safety percentage = =16.67%
$ 1200000
5. Compute CM ratio Compute the expected increase in monthly net operating if
sales increase by $160,000 and fixed expenses do not change.
24
CM ratio = Contribution Margin ÷ Per-Unit Sales Price = 80 = 0.3
net operating income = CM ratio * Sales – Fixed expenses
= 0.3 * $1360000 - $300000
= $108000
Exercise 3
1. Prepare contribution margin income statement and compute the degree of
operating leverage.
Total Per unit percent of sales
Sales (30000) $3600000 $120 1
Variable expenses $2520000 $84 0.7
Contribution $1080000 $36 0.3
margin
Fixed expenses $900000
net operating $180000
income
Degree of operating leverage = Contribution margin / Net operating income

= 1080000 / 180000

=6
2. Next year the sales are expected to increase by 7,500 fans. Compute
(a) the expected percentage increase in net operating income
 $ 7500
(Percentage change in sales × 6) = × 6 = 150%
30000

(b) expected increase in net operating income

net operating income = $180000 × 1.5 = $270000
(c) expected total net operating income for the next year.
total net operating income = $180000 + $270000 = $450000
Exercise 4
1. Compute break-even point of the company in dollars and units.
Contribution margin = Sales price per unit − Variable cost per unit
= $180 – $126 = $54

$ 270000
break-even point in units = =5000 unit
$ 54
54
CM ratio = Contribution Margin ÷ Per-Unit Sales Price = = 0.3
180

$ 270000
break-even point in dollars = = $900000
0.3
2.
a. Income statement under current operations:
total per unit
Sales( 80000) $1440000 $180
Less variable expenses $1008000 $126
Contribution margin $432000 $54
Less fixed expenses $270000
Net operating income $162000

c. Income statement under proposed operations:

total per unit
Sales( 100000) $1620000 $162
Less variable expenses $1260000 $126
Contribution margin $360000 $36
Less fixed expenses $270000
Net operating income $90000

 The proposal should not be accepted because it will reduce the contribution
margin from $54 per unit to $36 per unit and net operating income from
$162000 to $90000.
3. Compute the number of rechargeable lights to be sold to earn a net operating
income of $189,000 per month (use original data).
number of rechargeable lights to be sold =
 ¿ expenses+Target income $ 270000+ $ 189000
= = = 8500 units
Contributionmargin per unit 54
On the basis of original data, company needs to sell 8,500 rechargeable lights to
earn a profit of $189,000
Exercise 5
1. The sales volume increases by 15%.

total per unit

Sales( 34500) $345000 $10
Less variable expenses $207000 $6
Contribution margin $138000 $4
Less fixed expenses $100000
Net operating income $38000

2. The selling price decreases by 20% per unit, and the sales volume increases
by 30%.
total per unit
Sales (39000) $312000 $8
Less variable expenses $234000 $6
Contribution margin $78000 $2
Less fixed expenses $100000
Net operating income $(22000)

3. The selling price increases by 50% per unit, fixed expenses increase by
£20,000 and the sales volume decreases by 5%.
total per unit
Sales (28500) $427500 $15
Less variable expenses $171000 $6
Contribution margin $256500 $9
Less fixed expenses $120000
Net operating income $136500

Chapter 4: Profit Planning

Exercise 1
a. Prepare the sales budget
b. Prepare the cash receipts budget

Sales Budget
Quater
1 2 3 4 Total
 Budget 15000 40000 50000 60000 165000
sales in
units
Selling $20 $20 $20 $20 $20
price per
units
Total sales $300000 $800000 $1000000 $1200000 $3300000
Accounts $90000 $90000
receivable,
beginning
balance
First- $210000 $90000 $300000
quarter
sales
Second- $560000 $240000 $800000
quarter
sales
Third- $700000 $300000 $1000000
quarter
sales
Fourth- $840000 $840000
quarter
sales
Total cash $300000 $650000 $940000 $1140000 $3030000
collections

Exercise 2
Prepare the production budget
production budget
quater
1 2 3 4 Total
Budget 15000 40000 50000 60000 165000
sales in
units
Add desired 4000 5000 6000 2000 2000
ending
inventory
of finished
goods(10%
)
Total needs 19000 45000 56000 62000 182000
Less 5000 4000 5000 6000 5000
 beginning
inventory
of finished
goods
Required 14000 41000 51000 56000 162000
production
in units
Exercise 3

a. Prepare direct material budget

b. Prepare cash disbursement budget

direct material budget

Quater
1 2 3 4 Total
Required 14000 41000 51000 56000 162000
production in
units
Raw materials 5 5 5 5 5
needed per
units
Raw materials 70000 205000 255000 280000 810000
needed to meet
production
Add desired 20500 25500 28000 22500 22500
ending raw
materials
inventory(10%)
Total raw 90500 230500 283000 302500 832500
material needs
Less beginning 20000 20500 25500 28000 20000
raw materials
inventory
raw materials 70500 210000 257500 274500 812500
to be purchased
Cost of raw $0.2 $0.2 $0.2 $0.2 $0.2
materials per
unit
 Cost of raw $14100 $42000 $51500 $54900 162500
materials to be
purchased

Schedule of expected cash disbursements of materials

Account $30000 $30000
payable
beginning
balance
First-quarter $7050 $7050 $14100
purchases
Second-quarter $21000 $21000 $42000
purchases
Third-quarter $25750 $25750 $51500
purchases
Four-quarter $27450 $27450
purchases
Total cash $37050 $28050 $46750 $53200 $165050
disbursements
for materials
Exercise 4
Prepare the Direct Labor Budget
Direct Labor Budget
Quater
1 2 3 4 Total
Required 14000 41000 51000 56000 162000
production
in units
direct 0.5 0.5 0.5 0.5 0.5
labor-hours
per unit
Total direct 7000 20500 25500 28000 81000
labor-hours
needed
Direct $30 $30 $30 $30 $30
labor cost
per hours
Total direct $21000 $615000 $76500 $840000 $2430000
labor cost
Exercise 5
Prepare the Manufacturing Overhead Budget
Manufacturing Overhead Budget
Quater
1 2 3 4 Total
Budget direct 7000 20500 25500 28000 81000
labor-hours
Variable $2 $2 $2 $2 $2
manuafacturing
overhead rate
Variable $14000 $41000 $51000 $56000 $162000
manuafacturing
overhead
Fixed $40000 $40000 $40000 $40000 $160000
manuafacturing
overhead
Total $54000 $81000 $91000 $96000 $322000
manuafacturing
overhead
Less 15000 15000 15000 15000 15000
depreciation
Cash $39000 $66000 $76000 $81000 $262000
disbursements
for
manuafacturing
overhead
Total $322000
manufacturing
overhead
Budgeted 81000
labor-hours
Predetermined $3.98
overhead rate
for the year

Chapter 5: Flexible Budgets And Performance Analysis

Exercise 1
a) Prepare planning budget of company if 10,000 Dandy were manufactured.
b) Actually, only 9,900 “Dandy” were manufactured. Prepare the flexible budget
for this level of activity.
c) Prepare a flexible budget performance report for the company using the actual
income statement information shown below.
Revenue £149,200
Direct material 73,200
Wages 19,500
Utilities 5,800
Factory rent 10,000
Miscellaneous 12,000

Flexible Budget Performance Report

Plannin Flexible Revenue Actual
g Budget budget and Results
(1) (2) spending (3)
variances
(3-2)
Number of Units 10000 9900 9900
Revenues ( $15/ per $150000 $148500 $700 F $149200
unit)
Expenses:
Direct Material($ 7.25/ 72500 71775 1425 U 73200
per unit)

Wages ($20000) 20000 20000 500 F 19500

Utilities ($0.45/ per unit 5700 5655 145 U 5800
+ $1200)

Factory rent ($10000) 10000 10000 0 10000

Miscellaneous ($0.9/ 11000 10910 1090 U 12000
per unit + $2000)
Total expenses 119200 118340 2160 U 120500

Net Operating Income $30800 $30160 1460 U $28700

Exercise 2

Variable overhead cost formula = variable overhead cost / activity level

Fixed overhead costs do not change as the level of activity changes.

Activity Level in Units

8,000 10,000 15,000
Variable cost:
Supplies( $10.8) $86400 $108000 $162000
Utilities( $6) 48000 60000 90000
Repairs( $2.4) 19200 24000 36000
Total variable overhead $151800 $192000 $288000
Fixed overhead:
Depreciation $15000 $15000 $15000
Salaries 96000 96000 96000
Rent 44000 44000 44000
Total fixed overhead $155000 $155000 $155000
Total overhead $306800 $347000 $443000
 Exercise 3
Prepare a flexible budget showing actual results; calculate the flexible budget
variances; and indicate whether the variances are Favorable (F) or Unfavorable
(U).

Exercise 4
During March, the company’s activity was actually 250 diving-hours. Prepare a flexible
budget for that level of activity.

Flexible Budget Actual Results Variance

Units 22000 22000 0

Sales $1100000 $1067000 $33000 U
Variable costs 704000 726000 22000 U
Contribution 396000 341000 55000 U
margin
Fixed costs:
Manufacturing 100000 104000 4000 U
Selling and admin 40000 39000 1000 F
costs
Income 256000 198000 58000 U
flexible budget
Budgeted diving-hours (q) 250
Revenue ($380q) $95000
Expenses:
- Wages and salaries ($12000 + ($12000+($130*250))
$130q) = 44500
- Supplies ($5q) 1250
- Equipment rental ($2500 + 9000
$26q)
- Insurance ($4200) 4200
- Miscellaneous ($540 + $1.5q) 915
Total expense 59865
Net operating income $35135

Exercise 5
Prepare a flexible budget performance report for August
Mt. Hood Air
Operating Data
For the Month Ended August 31
Planning Activity Flexible Budget Revenue Actual
Budget Variances and Results
spending
variances
Flights (q) 50 52 52
Revenue $18000 720 F $18720 1740 U $16980
($360.00q)
Expenses:
- Wages 8400 184 U 8584 44 F 8540
and salaries
($3800 +
$92q)
- Fuel 1700 68 U 1768 162 F 1930
($34.00q)
- Airport 2620 70 U 2690 0 2690
fees ($870 +
$35q)
- Aircraft 500 20 U 520 0 520
depreciation
($10q)
- Office 280 2U 282 168 U 450
expenses
($230 +
$1.00q)
Total expense $13500 344 U $13844 286 U $14130
Net operating $ 376 F $2026
income $4500 $4876 U $2850

Chapter 6: Standard Costs And Variances

Exercise 1
Topper Toys has developed a new toy called the Brainbuster.
1. Compute the following variances for August:

a. Direct materials price and quantity variances.

Direct material price variance = purchase quantity x (actual price – standard
price) = 70000 x (0.28 - 0.30) = $1400 favorable
//Direct materials price Variance = (AP- SP)*AQ
= (0.28- 0.3)*70000 = $1400 (F)

and Direct materials quantity variances =SP*(AQ- SQ)

= 0.3*(50000-(5000*8))= $3000 U
b. Direct labor rate and efficiency variances.
Direct labor rate = ( AH * AR) – (AH * SR)
= AH*( AR – SR)
= 3200*((48000/3200)-14)= $3200 U
Direct labor efficiency variances = SR *( AH -SH)
= 14 * ( 3200 – (5000*0.6)) = $2800 U

2. Prepare a brief explanation of the possible causes of each variance.

Materials variances: From mayny factors, including faulty machines, inferior
materials quality, untrained workers and poor supervision, purchasing
department by inferior materials at a lower price
Labor variances case poorly trained or motivated workers, poor quality
materials, requiring more labor time, fauty equipment, casing breakdowns and
work interruptions, poor supervision of workers and inaccurate standards,
insufficient demand for the company’s products.
Exercise 2
(1) Calculate the material price variance
material price variance = (AP- SP) *AQ
151200
= 6300 *(( ¿−25 ¿=¿ $6300 F
6300
(2) Calculate the material usage variance
material usage variance = SP*(AQ- SQ)
= 25 * (6300 – (1500* 4)) = $7500 U

(3) Calculate the material total variance

(4) Calculate the labour rate variance

Labor rate = (AH * AR) – (AH * SR)
= AH*( AR – SR)
 = 4200 * (( 88200
4200 )
−20 ¿ = $4200 U

(5) The labour efficiency variance

Labour efficiency variance = SR *(AH -SH).
= 20 *(4200 – (1500 *3))
= $6000 U
(6) Calculate the labour total variance
Exercise 3
Compute the amount of overhead volume variance for the year under each of the
following assumptions regarding actual output:

1. 19,500 units.
Variable manufacturing overhead volume variance
VMVV = (AQ *SP) – (SQ *SP)
= SP (AQ – SQ)
30000
= * ( 31000-(19500 *1.5))
20000
= $2625 U
Variable manufacturing overhead rate variance
VMRV = (AQ × AP) – (AQ *SP)
= AQ (AP -SP)
31000
= 31000*(( ¿ – 1.5)
19500
= $2782 U

2. 23,500 units.
Variable manufacturing overhead efficiency variance
//VMEV = (AH × SR) – (SH – SR)
// = SR (AH – SH)
// = $6.00 per hour (24,000 hours – 21,000 hours)
// = $18,00 U
//Variable manufacturing overhead rate variance
//VMRV = (AH × AR) – (AH – SR)
// = AH (AR – SR)
// = 24,000 hours ($6.50 per hour – $6.00 per hour)
// = $12.00 U
Variable manufacturing overhead volume variance
VMVV = (AQ *SP) – (SQ *SP)
= SP (AQ – SQ)
30000
= * ( 31000-(23500 *1.5))
20000
= $6375 F
Variable manufacturing overhead rate variance
 VMRV = (AQ × AP) – (AQ *SP)
= AQ (AP -SP)
31000
= 31000*(( ¿ – 1.5)
23500
= $ 5606 F
Exercise 4
1. Compute the direct materials price and quantity variances for the month.
Direct materials price Variance = (AP- SP)*AQ
= (4.8 - 5)*20000= $4000 (F)

Direct materials quantity variances =SP*(AQ- SQ)

= 5*(20000-(2500*7.2))= $10000 U

2. Compute the direct labor rate and efficiency variances for the month.
Direct labor rate = ( AH * AR) – (AH * SR)
= AH*( AR – SR)
= 900*((21600/900)-20)= $3600 U
Direct labor efficiency variances = SR *( AH -SH)
= 20 * ( 900 – (2500*0.4)) = $2800 F
Exercise 5
1. Compute the direct materials price and quantity variances for the month.
Direct material price variance = purchase quantity x (actual price – standard
price)
Direct materials price Variance = (AP- SP)*AQ
= (4.8 - 5)*20000= $4000 (F)

Direct materials quantity variances =SP*(AQ- SQ)

= 5*(17600-(2500*7.2))= $2000 F

2. Compute the direct labor rate and efficiency variances for the month.
Direct labor rate = ( AH * AR) – (AH * SR)
= AH*( AR – SR)
= 900*((21600/900)-20)= $3600 U
Direct labor efficiency variances = SR *( AH -SH)
= 20 * ( 900 – (2500*0.4)) = $2800 F