VIETNAM NATIONAL UNIVERSITY HO CHI MINH CITY

HO CHI MINH CITY UNIVERSITY OF TECHNOLOGY

MANAGERIAL ACCOUNTING
FINAL REPORT

Lecturer: Dr.
Class CC01 - Group 12 - Semester 242
Targeted Company:
Student list:
Student name Student ID

Ho Chi Minh City – 2024

 TABLE OF CONTENTS
TABLE OF CONTENTS..........................................................................................2

1. Introduction to the company and choose a product for the cost analysis......3

2. The process of making the product....................................................................4

3. Cost classifications: costs involved; products vs period costs; direct vs

indirect; variable vs fixed vs mixed.......................................................................6

4. Break even analysis.............................................................................................8

5. Cost drivers, overhead allocation and product cost based on process costing
.................................................................................................................................10

6. Standard costing: How is the standard cost determined? How did the
company control the costs in the last week/month.............................................13

7. Describe the budgeting process of the firm or a department unit................16

8. Describe how the firm/ department uses the flexible budget to control its
costs.........................................................................................................................22

9. Discuss the firm ethics in Managerial Accounting.........................................28

REFERENCES......................................................................................................30
1. Introduction to the company and choose a product for the cost analysis
About the company: Established in 1946, Knowles Corporation is a world pioneer
in the creation and production of sophisticated micro-acoustic microphones, speakers,
and precision instruments. Knowles has made a name for itself in the audio and hearing
health sectors by putting a lot of emphasis on innovation. The business specializes in
offering state-of-the-art solutions for a variety of uses, such as medical devices, consumer
electronics, telecommunications, and automobiles.

Our target product: Knowles' balanced armature (BA) speakers are one of their
most notable inventions; they have completely changed the portable audio industry.
These tiny speakers, which are mostly found in in-ear monitors (IEMs), hearing aids, and
other small audio equipment, provide excellent sound quality, durability, and efficiency
in a tiny package. Balanced armature drivers are perfect for battery-operated devices like
wireless earphones and hearing aids because of their reputation for producing precise,
high-fidelity sound with little power consumption. Because of their proficiency in this
field, Knowles is currently the preferred supplier of high-performance audio solutions for
sectors that demand accuracy and clarity.

In this project, we will explore the financial and managerial aspects of Knowles
Corporation, focusing on how their balanced armature speaker technology plays a
significant role in their profitability, cost structure, and overall strategic goals. Through
an analysis of the company’s financial performance, we aim to better understand the
economic impact of their innovative products and the operational decisions that drive
success in a highly competitive market.
2. The process of making the product
2.1. Incoming material Quality Control Check (IQC)

Incoming quality control (IQC) is the monitoring of the quality of raw materials
and/or components before the product manufacturing process even begins.

2.2 Production Assembly

Knowles company have several steps to guarantee the quality and consistent flow
of process, include:
2.3. Inspection

Inspection in manufacturing is the process of examining and evaluating products

or components at various stages, such as incoming, in-process, and final inspection, to
ensure they meet the required quality standards and specifications. It involves visual
checks, measurements, and testing to identify and correct defects, maintain product
quality, and prevent faulty items from reaching the market, ensuring customer
satisfaction and safety

2.4 Packing

After the product passes the inspection process, it is packed and distributed to the
allocation place.
3. Cost classifications: costs involved; products vs period costs; direct vs indirect;
variable vs fixed vs mixed
3.1. Overview of Cost Classifications

Cost classification is essential to understanding and managing the different types

of costs a business incurs. These classifications help to allocate costs accurately, track
performance, and identify areas where cost control is needed. For Knowles, classifying
costs into categories such as product costs, period costs, direct costs, indirect costs, and
variable and semi-fixed costs is essential to ensure financial efficiency and operational
effectiveness.

3.2. Costs Involved

Direct Material Costs

Diaphragm: $2.35/unit

Copper Wire: $34.26/kg

Glue: $0.06/g

Magnet: $0.03/unit

Others: Solder Balls, Sound Outlet Tube, etc.

Direct Labor Costs

Labor Cost: $2.99/hour, with 0.1393 hours per unit (estimated).

Indirect Costs

Cleaning Costs: Based on cleaning hours.

Repair and Maintenance: Based on maintenance hours.

Utilities (Water & Electricity): $56,186/year.

3.3. Product Costs vs. Period Costs

Product Costs (related directly to production):

Direct Materials: Raw materials like diaphragm, magnets, glue.

Direct Labor: Estimated at $0.42 per unit.

Manufacturing Overhead: Costs such as repair and maintenance of machinery and tools
($67,066/year) and utilities ($56,186/year).

Period Costs (not directly tied to production):

Administrative Salaries: $59,022/year.

Selling Expenses: $19,209/year.

Service Agreements (e.g., audit, tax): $157,865/year.

3.4. Direct Costs vs. Indirect Costs

Direct Costs:

Costs directly traceable to each product:

Direct materials such as diaphragms and magnets.

Direct labor costs based on hours worked per unit.

Indirect Costs:

Costs not directly attributable to specific products:

Cleaning costs and repair/maintenance costs.

Depreciation costs: $497,677/year.

3.5. Variable, Fixed, and Mixed Costs

Variable Costs:

Change with the level of production:

Raw materials: Diaphragm ($2.35/unit), Glue ($0.06/unit).

Direct labor: $0.42/unit.

Semi-fixed:

Premises costs: $102,959/year.

Depreciation costs: $497,677/year.

Utilities (Water & Electricity): Base cost plus usage-related fluctuations.

Repair and Maintenance Costs: Fixed base with additional costs based on machine usage.

4. Break even analysis

4.1. Introduction to Break-Even Analysis

A Break-Even Analysis determines the point at which total revenues equal total
costs, resulting in neither profit nor loss. This is crucial for understanding the minimum
sales volume required to sustain operations and guide pricing, budgeting, and financial
planning decisions.

4.2. Key Components for Break-Even Analysis

4.2.1. Fixed Costs (FC)

Fixed costs remain constant regardless of the number of units produced or sold. Based on
the provided data:

- Manufacturing Overhead:

- Repair and Maintenance: $67,066/year

- Utilities (Water & Electricity): $56,186/year

- Period Costs:

- Administrative Salaries: $59,022/year

- Selling Expenses: $19,209/year

- Service Agreements (e.g., audit, tax): $157,865/year

- Depreciation Costs: $497,677/year

Total Fixed Costs (FC): $856,025 per year.

4.2.2. Variable Costs per Unit (VC)

Variable costs change directly with the production volume. Based on the Flexible Budget
and Direct Costs sections:

- Direct Materials:

- Diaphragm: $0.0236/unit

- Copper Wire: $0.000169/unit

- Soldering Tip: $0.000842/unit

- Glue: $0.005689/unit

- Other Materials (Summed from Flexible Budget): Approximately $0.02/unit

- Direct Labor:

- $0.42/unit

- Variable Manufacturing Overhead:

- $0.056/unit

- Variable Selling & Administrative Expenses:

- $7.00/unit

Total Variable Costs (VC): $7.526 per unit.

4.2.3. Selling Price per Unit (P)

From the Flexible Budget:

- Revenue for 225,000 Units: $4,050,000

- Selling Price (P): $18 per unit.

4.3. Break-Even Calculation

4.3.1. Break-Even Point in Units (BEU)

The break-even point in units is calculated using the formula:

BEU = FC / (P - VC)

Substituting the values:

BEU = 856,025 / (18 - 7.526) = 81,581 units.

4.3.2. Break-Even Sales in Dollars (BES)

The break-even sales in monetary terms is:

BES = BEU × P = 81,581 × 18 = $1,468,458.

4.4 Interpretation of Results

- Break-Even Units: Knowles must sell approximately 81,581 units of BA speakers

annually to cover all fixed and variable costs.

- Break-Even Sales: To achieve break-even, the company needs to generate

approximately $1,468,458 in sales revenue annually.

5. Cost drivers, overhead allocation and product cost based on process costing
In Knowles manufacturing process, calculating exactly product cost is an essential
part that helps them to control the costs and optimize the processes. In order to reach
those goals, the methods of Process Costing dual with Activity-Based Costing is a
powerful solution to help Knowles to allocate the overhead costs nicely based on the
realistic activities in the manufacturing process. In addition, the model

Being thankful to Ms. Ha - the Cost Control Manager of Knowles for providing
such informative data of production departments, personnel costs, maintenance costs,
utility costs and others. Especially those costs are allocated into specific numerous
sections such as number of machine operating hours, labor hours, and number of machine
setups. In the very next analysis, we will calculate the product costs using the Process
Knowles does not only produce one type of BA speaker but also offers many different
versions such as 1-way, 2-way, 3-way, or customized for different applications
(headphones, hearing aids, medical devices). So that is why we apply ABC, here are
some steps of analyzing the ABC:

Determining the activity cost pools: based on the data that we have collected, we
are going to classify the overhead costs into activity cost pools which are:

- Machine maintenance costs

- Personnel costs

- Car expenses

- Department-specific costs

- Utilities, cleaning and premises maintenance costs

- Depreciation costs

Determining the cost driver for each cost pool: based on the activity cost pools,
we can determine the appropriate cost driver for each activity:

- Machine maintenance costs - Machine operating hours

- Personnel costs - Labor working hours

- Car expenses - Number of vehicle trips

- Department-specific costs - Departmental activities (administrative, selling,..)

- Utilities, cleaning and premises maintenance costs - Area occupied of utilities

- Depreciation costs - Number of assets being used

Determining the product cost based on the activities of making the product:
 To provide the best view, we bring up the following table which briefly shows the
costs pool, the 1st Stage allocation, the activity measure and the activity rate:

Cost pools 1st Stage Activity Activity rate

allocation ($) measure ($)

Machine maintenance 67,066 10000 machine 6.71 / machine

hours hour

Personnel costs 190,641 20000 labor 9.53 / labor

hours hour

Car expenses 9,150 500 trips 18.3 / trip

Utilities & Premises 65,629 allocated evenly N/A

maintenance

Depreciation 497,677 allocated evenly N/A

The table demonstrates how Knowles allocates overhead costs using Activity-Based
Costing (ABC), offering more detailed cost allocation compared to traditional methods.
Key insights include:

Machine Maintenance Costs ($67,066): Allocated at $6.71/hour for 10,000 machine

hours, emphasizing efficient machine use and maintenance to control production costs.

Personnel Costs ($190,641): Allocated at $9.53/hour for 20,000 labor hours,

highlighting the cost impact of labor-intensive activities and the need for process
automation to improve efficiency.

Car Expenses ($9,150): Allocated at $18.30 per trip, linking transportation costs to
vehicle usage and suggesting optimization of logistics to minimize costs.
Utilities, Cleaning, and Premises Maintenance ($65,629): Allocated evenly, which
may cause cost distortions. More precise drivers like utility usage or area cleaning
frequency are recommended.

Depreciation Costs ($497,677): Allocated evenly, masking cost variations among

activities. A more specific driver, such as usage intensity of assets, is suggested.

To enhance ABC, Knowles could adopt more precise activity drivers like utility
usage or asset-specific operating hours and implement automated tracking for accuracy
and efficiency. Regular updates to cost drivers will ensure the system evolves with
production processes, enabling better cost control and resource optimization.

In summary, this way of applying ABC improves cost allocation accuracy by tying
costs to activities, providing clearer insights into cost drivers and aiding decision-making
for cost control and process improvements.

6. Standard costing: How is the standard cost determined? How did the company
control the costs in the last week/month
6.1. What is standard costing?

6.1.1.Standard cost

A standard cost is described as a predetermined cost, an estimated future cost, an

expected cost, a budgeted unit cost, a forecast cost, or as the “should be” cost. Standard
costs are often an integral part of a manufacturer’s annual profit plan and operating
budgets. When standard costs are used in a manufacturing setting, a product’s standard
cost for a future accounting period will consist of the following:

Direct materials: a standard quantity of each material and a standard cost per unit of
material

Direct labor: a standard quantity of labor and a standard cost per hour of labor
Manufacturing overhead: a budget for the fixed overhead, the standard variable overhead
rate, and the standard quantity for applying a fixed and variable overhead rates

6.1.2. Standard costing

Standard costing is a system of accounting that uses predetermined standard costs

for direct material, direct labor, and factory overheads. It is the second cost control
technique, the first being budgetary control. It is also one of the most recently developed
refinements of cost

accounting. The main purpose of standard cost is to provide management with

information on the day-to-day control of operations.

6.1.3. Advantages

Standard costs offer several significant advantages for organizations. They act as a
benchmark for comparing actual costs, enabling the identification and analysis of
variances, which are the differences between standard and actual costs. This process
ensures regular monitoring of expenditures, enhancing cost control and performance
measurement. By addressing variances promptly, organizations can maintain tighter
control over costs and facilitate cost reduction. Moreover, standard costing systems
motivate employees by incorporating performance-based incentives tied to minimizing
variances. Additionally, standard costs provide a foundation for more consistent
production and pricing policies, offering certainty in decision-making and helping to
maintain cost efficiency. Even as other standards and guidelines evolve, standard costs
remain a reliable tool for evaluating performance and managing expenses effectively.

6.1.4. Disadvantages

Although standard costing is a valuable tool for management, it has several

limitations that must be considered. One major challenge lies in determining accurate
standards, which requires detailed analysis of past data and expert input. If these
standards are incorrect, the entire system becomes unreliable, leading to poor decisions
and potential losses. Additionally, implementing standard costing can be expensive, as it
demands significant resources for research, data collection, and expert consultation.
Standards must also be periodically revised to reflect changes in technology, market
conditions, and consumer preferences, making it a dynamic and ongoing process.
Furthermore, standard costing is only suitable for industries with uniform and
standardized production; it is ineffective for businesses where products vary significantly
in quality or nature. It also relies heavily on budgetary costing techniques, limiting its
application in organizations without robust budgetary systems. Lastly, the system
requires the expertise of specialists, which may not be affordable for smaller
organizations. Despite these limitations, with proper application and periodic updates,
standard costing can still serve as a powerful tool for cost control and performance
evaluation.

6.2. How did the company control the costs in the last week/month?

The company has implemented several effective methods to control costs. By

minimizing scrap and waste, it has ensured that material usage is efficient, with careful
monitoring of estimated scrap rates, such as those for glue and coil formers. Labor
efficiency has been achieved by standardizing labor hours at 0.1393 per unit, ensuring
consistent utilization and regular monitoring of deviations. Overhead costs, including
utilities, maintenance, and depreciation, have been proportionally allocated across units
to enhance efficiency, while fixed costs like premises and freight are managed by
maintaining high production volumes to lower per-unit expenses. Additionally, material
cost optimization has been achieved through strategic procurement, such as negotiating
favorable prices for key materials like diaphragms at $2.35 each and copper wire at
$34.26 per kg. Bulk purchasing and efficient sourcing further contribute to cost
containment. Through a combination of operational efficiency, precise cost tracking, and
strategic procurement, the company effectively manages and controls its costs.
7. Describe the budgeting process of the firm or a department unit
7.1 Expected cash collection for company

Define: Expected cash collections refer to the amount of money a business anticipates
receiving from its customers over a certain period, based on outstanding invoices and
sales made on credit.

Cash collection = Cash Sales + Estimated A/R collection

Knowles estimate lower sale volume in January and the selling price for one wireless
device was 1.5$ /unit :

On January 1st , the December 30th account receivable of the following year was 157500$
will be collected in full in January. Then, Knowles’s collection as following: 50%
collected in the month of sale, 50% collected in the month of following sale, so the sum
of expected cash collection is:

7.2 Production budgeted

Define: A production budget is a calculation of how many units of a specific product a
company can make within a budgetary time period. The production budget must be
adequate to

meet budgeted sales and to provide for the desired ending inventory.

The production budget formula can be determined by multiplying the cost of

manufacturing and selling a unit to the estimated number of units you sell. That is
subtracted by the total cost of manufacturing and selling those units from the money you
expect to get from the sale of those units.

Required Production = Sales Forecast Expected Units + Desired Ending Inventory –

Beginning Inventory

The manager of Knowles expects the ending inventory would be equal to 50% of the
following month’s budgeted sale in units.

On January 1st, 95000 units were available, in the ‘yearly’ column, beginning inventory
equal to the amount of January 1st.

7.3 Direct material budget.

The direct materials budget calculates the materials that must be purchased, by time
period, in order to fulfill the requirements of the Production budget

Quantity of Direct Materials Needed for Production + Desired Ending Materials Balance
- Beginning Materials = Direct Materials to be Purchased.

To manufacture one device requires 1 pcs/unit material including several components

like: Drive pin, magnet, sound outlet tube, amature,… so on.
Knowles company expects material on hand at the end of each month equal to 50% of
following month’s production and material cost was $0.14 per unit in total.

To compute the desired ending inventory equal to 50% multiply by amount of production
need of following month

Expected cash disbursement is required to collect in full each month.

7.4. Direct Labor budget.

The direct labor budget is used to calculate the number of labor hours that will be needed
to produce the units itemized in the production budget. The direct labor budget is
typically presented in either a monthly or quarterly format. The basic calculation used by
the budget is to import the number of units of production from the production budget and
to multiply this by the standard number of labor hours for each unit.

Direct labor costs = number of direct labor hours x value added price per hour

In Knowles, each unit requires 0.1393 hours of direct labor. The labor is required
standard handicraft skills, formal training is placed at the first month.

Company pay its employee at the rate of $3 per labor hour.

7.5 Manufacturing overhead budget.

A manufacturing overhead budget includes all costs apart from labor and raw materials
that a production business or department will incur throughout a financial year. These
ongoing costs are legitimate manufacturing expenses that should be factored into your
manufacturing budget.

In knowles manufacturing overhead is applied to units of product on the basis of

direct labor hours. The variable manufacturing overhead rate is $0.4 per direct labor hour.
Fixed manufacturing overhead is $14,000 per month, which includes $195,000 of
noncash costs (primarily depreciation ).

To compute cash disbursement for manufacturing overhead, the budget process went
through the following steps:

Step 1: Get the budgeted direct labor hours. ...

Step 2: Estimate a variable manufacturing overhead rate. ...

Step 3: Multiply the direct labor hours and the variable overhead rate, giving the variable
manufacturing overhead value.

Step 4: Add the fixed cost estimate for the period.

Step 5: Less non-cash cost

7.6 Selling and administrative expense budget.

The selling and administrative expense budget is comprised of the budgets of all
non-manufacturing departments, such as the sales, marketing, accounting, engineering,
and facilities departments. In aggregate, this budget can rival the size of the production
budget , and so is worthy of considerable attention.

At Knowles, the selling and administrative expense budget is divided into variable
and fixed components. The variable selling and administrative expenses are $7 per unit
sold.
 Fixed selling and administrative expenses are $21,000 per month. The fixed
selling and administrative expenses include $16,000 in costs – primarily depreciation –
that are not cash outflows of the current month.

To calculate cash for selling and administrative expense:

Step 1: Get the budgeted sales in the production budget

Step 2: Estimate the variable S&A rate

Step 3: Multiply the budgeted sale and the variable S&A rate

Step 4: Determine the Fixed S&A expenses

Step 5: Less non-cash cost.

7.7 Prepare cash budget.

The cash budget is the combined budget of all inflows and outflows of cash.

Because the cash budget accounts for every inflow and outflow of cash, it is broken down
into smaller components:

1. Cash receipts section lists all cash inflows excluding cash received from financing;

2. Cash disbursements section consists of all cash payments excluding repayments of

principal and interest;

3. Cash excess or deficiency section determines if the company will need to borrow
money or if it will be able to repay funds previously borrowed; and
 4. Financing section details the borrowings and repayments projected to take place
during the budget period.

7.8 Conclusion:

Starting from the initial planning stage, the company goes through a series of
stages to finally implement the budget. Common processes include communication
within executive management, establishing objectives and targets, developing a detailed
budget, compilation and revision of budget model, budget committee review, and
approval.

Advantage of budgeting process for Knowles company:

· Forecast and calculate expenses, helping businesses stay on track and avoid
overspending. It is the balance of departments for the next period's implementation plan
and also the expectation of the entire business.
· Helps understand the current resources of the business (people, assets, capital, ...)
and find ways to allocate resources effectively.

· Manage cash flow, control costs and determine which products/services bring profit
to the business and evaluate the performance of departments.

· Measure implementation, compare actual performance with plan to detect

abnormalities and promptly handle and adjust for better suitability.

8. Describe how the firm/ department uses the flexible budget to control its costs.
8.1. Flexible budget:

Knowles applies flexible budgeting to manage costs more effectively in the

production of balanced armature speakers. With revenue and production activities
fluctuating based on customer demand (such as in high-end headphones or hearing aids),
a flexible budget allows Knowles to adjust expenses based on actual production levels,
such as machine hours or labor hours. This helps Knowles better predict cash needs,
control costs, and optimize resources during periods of market fluctuations.

8.2. How does the firm establish planned budgets

8.2.1. How Knowles planning budget at a predetermined production level

According to Ms.Ha, there is almost no periodic fluctuation in the number of

products produced during the year, almost completely dependent on the needs of partners.
Knowles only applied 1 average budget that was set and fluctuated only slightly across all
months.

The total number of units predetermined produced is 2,500,000/year => about

209,000/month. As we calculated, Total Standard Cost per Unit = $1.06

Basically, the planned budget for each month is about $221,560/month

Establish planned budget for different expense categories, how expense change when
volume increase more than planned budget
Knowles will develop the planned budget for variable cost and fixed cost separately
(fixed cost almost doesn't exist in making this product, will explain further below).

 Variable costs: Increase/decrease by each unit of output increase/decrease

compared to the planned budget.

Planned Budget for 209,000 Units per Month

RM Name Unit Cost Price Est. Est. Total Estimated

(INV) RM Scrap Norm Cost ($)
(%)

Diaphragm pcs 2.35377 0% 0.0101 4,967.38

Copper Wire kg 34.25718 0% 0.000005 35.79

200 brown

Soldering Tip pcs 4.26230 0% 0.0002 178.56

Glue g 0.06222 0% 0.0925 1,203.13

Coil Former pcs 0.00261 22% 1.0000 545.49

Solder Balls pcs 0.00024 23% 2.0000 100.15

Solder Pad pcs 0.00098 16% 2.0000 409.64

Drive Pin pcs 0.01228 11% 1.0000 2,566.52

Magnet pcs 0.02717 12% 2.0000 11,363.86

Sound Outlet pcs 0.01500 4% 1.0000 3,135.00

Tube

Armature pcs 0.00969 22% 1.0000 2,025.21

Weller Soldering pcs 4.42623 0% 0.0003 277.37

Tip
 Case pcs 0.01055 11% 1.0000 2,205.95

Labor Cost hrs 2.99000 0% 0.1393 87,098.21xj8

Total Monthly Cost: $115,110.36

 Fixed cost: Almost doesn't exist in making this product. Most of the overhead
costs are considered semi-fixed costs.

Semi-fixed costs, also known as step costs, are overhead expenses that remain constant
within a certain range of production but increase when production exceeds specific
thresholds. At Knowles, these costs are evident in expenses such as building rentals or
machinery, where additional facilities or equipment are only needed once production
volume surpasses a defined limit. In this case, if production increases by 100.000 units,
Knowles may need to rent an additional building, causing a step increase in costs. This
approach helps the company manage resources efficiently while scaling operations to
meet demand.

For each 100,000 units increase: The semi-fixed costs increase a constant number.
(Example: Maintenance team or operation team needs to hire more willpower, using
more buildings…)

How semi-fixed costs Increase for each 100,000 Units Increase (Monthly):

Cost Name Planned budget per Increase per 100,000

month ($) Units ($)

Salary (IPC, Admin, Selling) 45,764.67 13,000

Soc. sec. premium Employer 6,655.08 2,000

Severance Allowance 737.17 300

KPI and Other Bonus 3,303.08 1,500

Meal Allowance 765.58 300

Personnel Cost (Other 295.58 100

Benefits)

Uniforms 31.33 10

Education and Training 666.58 200

Recruitment Cost 1,000.00 400

Car Expenses 957.50 400

OT and Night Shift 995.42 500

Minor Assets 866.67 400

Tool and Fixtures 875.42 600

Help Materials 390.25 150

Repair and Maintenance 7,088.50 3,000

(Machinery)

Office Supplies 956.33 400

Service Agreements 13,163.75 7,500

Travel Cost 146.08 60

Utilities (Water & Electricity) 4,682.17 2,000

Cleaning Cost 786.92 300

Repair and Maintenance 2,540.75 1,200

(Building)
 Other Premises Costs 570.08 200

Depreciation Cost 41,473.08 25,000

8.2.2. Application of Flexible Budget in Variance Analysis

Compare actual costs to the flexible budget at the actual production level

The flexible budget is a crucial tool used by Knowles to evaluate cost performance
and manage variances effectively. By comparing actual costs to the flexible budget
adjusted for the actual production level, the company can identify areas of efficiency and
inefficiency. For instance, if the actual costs for labor, materials, or overhead deviate
significantly from the flexible budget, these variances can reveal inefficiencies in
resource utilization or unexpected changes in operational conditions. Specifically, in a
production scenario of 209,000 units per month, Knowles uses the flexible budget to
accommodate varying activity levels, allowing for a more accurate comparison of costs.
Positive variances (actual costs below budgeted costs) highlight cost savings, while
negative variances (actual costs above budgeted costs) signal the need for corrective
actions. This approach ensures that cost control measures are based on realistic
operational data, leading to better financial decision-making and resource optimization.

According to Ms.Ha, the increase/decrease in costs is mainly related to the

arrangement of working hours for direct workers. If demand decreases sharply,
management will give employees unpaid leave. If they increase, management will give
employees overtime or hire more workers. As for other indirect costs, it can be
understood that there will not be many fluctuations.

Knowles’s Flexible budget performance report for the Month JUN-24

Category Actual Flexible Planning Variance Variance

Results Budget Budget (Actual (Flexible vs
(225,000 (225,000 (209,000 vs Planning)
 units) units) units) Flexible)
Revenue $4,050,000 $4,050,000 $3,762,000 $0 $288,000
(Favorable)
Variable Costs
Raw Materials: $5,297.33 $5,297.33 $4,967.38 $0 $329.95
Diaphragm (Unfavorable)
Copper Wire $38.03 $38.03 $35.79 $0 $2.24
(Favorable)
Soldering Tip $189.47 $189.47 $178.56 $0 $10.91
(Unfavorable)
Glue $1,275.94 $1,275.94 $1,203.13 $0 $72.81
(Unfavorable)
Labor Costs $93,630.53 $93,630.53 $87,098.21 $0 $6,532.32
(Favorable)
Semi-fixed Costs
Salary $58,764.67 $58,764.67 $45,764.67 $0 $13,000
(Unfavorable)
Soc. Sec. Premium $8,655.08 $8,655.08 $6,655.08 $0 $2,000
(Unfavorable)
Repair/Maintenance $10,088.50 $10,088.50 $7,088.50 $0 $3,000
(Unfavorable)
Total Costs $120,218.65 $120,218.65 $109,918.38 $0 $10,300
(Favorable)
Net Operating $3,829,781.35 $3,929,781.35 $3,652,081.62 $100,000 $277,699
Income F (Favorable)

Reason for reasons for differences between standard and actual costs

The Variance between actual results and the flexible budget is usually not very high. If
there is a larger Variance than expected, it is usually due to a decrease in demand from
direct customers for some reason or a fluctuating labor market (For example, managers
are paid more at other companies, so Knowles has to increase their benefits if it wants to
retain them).

8.2.3 Recommendations for Improvement

According to Ms. Ha when discussing Identifying areas where costs can be cut,, the
continuous improvement department can identify areas for improvement. The supply
chain can reduce inventory levels. New sources and suppliers can be found at lower costs.
Manufacturing can review processes to optimize processes and worker actions to reduce
cycle times and redundant movements.

9. Discuss the firm ethics in Managerial Accounting

In managerial accounting, the concept of firm ethics refers to the standards and
principles that guide internal accountants and decision-makers in the preparation,
analysis, communication, and use of financial and operational data. While managerial
accounting primarily serves internal stakeholders—such as executives, department
managers, and project leads—rather than external investors or creditors, the ethical
obligations remain just as critical. Key elements of firm ethics in managerial accounting
include integrity, objectivity, confidentiality, competence, and a sense of professional
duty to the organization and its broader community of stakeholders.

9.1. Adherence to Professional Standards and Codes of Ethics:

Professional bodies such as the Institute of Management Accountants (IMA)
provide ethical guidelines that managerial accountants should follow. These guidelines
often emphasize honesty, fairness, responsibility, and respect. They require managerial
accountants to refrain from actions that could discredit their profession, misrepresent
information, or compromise the reliable flow of data. By adhering to such standards,
firms help ensure that internal decision-making is founded on accurate and unbiased
information.

9.2. Integrity in Information Reporting:

At the core of firm ethics in managerial accounting is the reliable collection and
truthful reporting of information. Managerial accountants must ensure that cost
allocations, variance analyses, and performance metrics are reported objectively. Any
deliberate manipulation—such as underestimating costs, overestimating productivity, or
selectively omitting unfavorable data—erodes trust within the organization and can lead
to misguided strategic decisions. A culture that promotes ethical behavior encourages
transparency, enabling managers to respond effectively to genuine performance signals
rather than skewed or distorted data.

9.3. Avoiding Conflicts of Interest:

Managerial accountants often have access to sensitive internal information,
including trade secrets, proprietary production processes, and strategic plans. It is their
ethical responsibility to avoid using this information for personal gain or allowing
personal relationships to influence their professional judgment. Ethical codes stress that
accountants must remain independent in their internal reporting tasks and refrain from
activities—such as favoring certain departments or individuals—that could result in
biased cost reporting, unfair resource allocation, or strategic misalignment.
 REFERENCES
The cost file of Knowles that Ms. Ha provided for us:
 Yearly

IPC Admin Selling

Amount $ Amount $ Amount $
Salary 364,530 59,022 19,209 f
Soc.sec.premiumEmployer 66,554 9,736 3,571 v
Severanceallowance 6,832 1,313 701 v
13th month salaryprovision 26,731 4,655 1,795 v
KPI and other bonus 31,922 6,103 1,612 v
Meal allowance 7,565 1,151 471 v
Personel cost 2,976 540 31 m
Uniforms 376 - - m
Education and training 8,000 399 - f
Recruitment cost 12,000 - - f
Car expenses 9,150 2,333 - m
OTand night shift 11,945 10 - v
Other personel cost 595 601 305 m
Personnel costs(gross)Total 549,176 85,863 27,695

Minor assets 10,400 623 - f

Tool and fixtures 2,613 7,728 - f
Help materials 4,683 1 2 v
Repair and maintenance(Machineries &equipments) 67,066 18,046 - m
Officesupplies 1,151 6,089 - v
Serviceagreements (Taxconstultant, audit…) 6,104 157,865 - f
Travel cost 1,309 289 166 f
Other cost 704 - - m
Departmentspecificcosts 94,030 190,641 168
Utilities cost (Water &electricity) 56,186 - - m
Cleaningcost 9,443 - - f
Repair and maintenance(Building) 30,489 - - f
Other premises cost 6,841 102 - m
PremisescostsTotal 102,959 102 -
Depreciationcost 497,677 3,344 -

Bank charges and taxes 304 6,567 -

Propertyinsurance 13,304 - -
Lawyer fee - 1 -
Desk phone 97 2,820 -
Canteen supplies 3,397 - -
Jointcoststotal 17,102 9,388 -

Incomingfreight 67,776 - -
TOTAL 831,043 285,994 27,863
Process of making the product: