Management accounting systems of Paradise group Ltd.

Contents I INTRODUCTION 3 II MAJOR FINDINGS 4 TASK 1 4 A Division X 5 B Division Y 6 C Division Z 7 D Paradise Group Ltd 7 TASK 2 8 1 Preparing an income statement for Division X using absorption cost.

I.INTRODUCTION 3

II MAJOR FINDINGS 4

TASK 1 4

A Division X 5

B Division Y 6

C Division Z 7

D Paradise Group Ltd 7

TASK 2 8

1 Preparing an income statement for Division X using absorption costing and marginal costing 8

2 The quantity Division X should produce and sell to get breakeven 10

3 The selling price for 1 kg of catfish fillet and profit of Division X 10

4 The cost of goods sold and profit of Division Z in March 2020 11

5 Closing balance for inventories of Division Y on March 31, 2020 11

III CONCLUSION 14

REFERENCE LIST 15

In this report, an understanding of management accounting systems along with the crucial requirements will be provided by figuring out how Paradise Group Ltd applies different types of management accounting systems on three divisions are X,Y,Z to report and critically evaluating it As a result, the study will provide some recommendations for not only the case study but also the othercompanies use the same method

Paradise Group Ltd is a organization with three main areas of interest, two primarily related to the business of cooking products and seafood, and only one division is entirely different, offering service-ads Division X oversees the production of catfish export fillets, Division Y is the sugar retailer, and Division Z offers promotional services to meet consumer demands

These results give an initial overview of specifically defined accounting management systems in Paradise Group Ltd and specific requirements of the various types of

accounting management systems Last but not least, the organization’s management accounting systems are analyzed critically Last but not least, the management accounting structures of the organization are critically examined

II MAJOR FINDINGS

TASK 1

- Management accounting, which is also known as managerial accounting is a process of creating organizational objectives through the identification, evaluation, examination, interpretation and communication of knowledge to managers It focuses on all accounts planned to remember the operating company metrics to management This incorporates knowledge about the value of the goods or services purchased by the organization (What

Is Management Accounting? | FreshBooks, n.d.)

- The method of management includes the four basic roles of: planning, coordinating, managing, and making decisions Accounting administration plays a crucial role in executives executing these administrative roles (Sharma, n.d.)

- Some kinds of management accounting systems that are normally used are:

+ Cost accounting system

+ Job costing system

+ Normal costing system

+ Inventory management system

+ Price optimization system

+ Process costing system

- Following by using these MA systems ,there are also different types of MA reports that are used to collect, synthesize and calculate the information, figures, numbers from the results of Divisions such as:

+ Reports

+ Tables

+ Diagrams

+ Charts

A Division X

- As for Division X, process costing system is applied, each process is opened one

account This is a method to aggregate direct and indirect production process costs and to average those costs over the equivalent units produced by the process Process costing system is used when a firm generates masses of the same or equivalent units of a good or service

- The reason why it is used for Division X is this department includes two processes are Cutting and Packaging in order to produce catfish, which is a products that are produced and sold daily on the market of huge volumes

- The benefit of this method is Divisional Manager can figure out the cost of each process

in the production, therefore the correct unit cost will be calculated and then they can set the price (Bragg, 2018) Especially, process costing enables greater flexibility in

manufacturing process change To specify, the X’s accountant will provide the Divisional Manager a tabular report which includes the cost and productivity of each process in the production every month

- The most logical and transparent way of dealing with materials and uniformity facilities

is the process costs for Division X In addition, this type of approach is reasonable

because seafood (catfish) has been used on a daily basis and is not too limited in terms of the products created It can be easily seen in industries with goods manufactured in large amounts and regularly consumed, such as beef and chicken, sausage Therefor, it would seem that this system of accounting appears to influence the management of all the output costs most suitable for Division X

- As I have mentioned above, the table report is useful and provides a lot of data monthly

of production costs and productivity which allow the manager to control and assess the price for that product However, it can be seen that the manager still requires quality reports as it might be difficult to follow the tabular report when it can only show numbers and she wants to have reports that are more detailed To satisfy this will of the manager,

it is better to mix a tabular report with charts in order to fill in the data collected by defining profitable products Moreover, X’s accountant might need to summarize the

situations, challenges and trends so that the manager can take the right decisions about improvements and take the opportunity

B Division Y

- In the case of Division Y, inventory management system is the one that be used This system consisted of planning, coordinating and controlling activities that related to the flow of inventory into, through and from the firm Division Y's maximum and minimum reservation levels to ensure sugar is available for sale while reducing the inventory to low levels Alongside this type, FIFO is also used to valuate its inventories IMS is used to ensure goods are still available for sale and stocks in Division Y are kept at moderate prices The Inventory Management System tracks product inventory time, which is vital

to Division Y because it's a food retailer Therefore, Y uses a market price as it sells sugar on the retail so that the competition is not too customer-sensitive and competes with opponents (Anthony, 2019) In addition , the risk of excess products is typically very high since sugars are a common product, so IMS is the most fitted process

- IMS improves reliability, timeliness and decreases operating costs to improve the company's bottom line, increase the efficiency of inventories and enhance business streamlining Division Y's accountants produce reports once a month on the sugar sales from each store

- By IMS, managers advance the inventory processes and unnecessary cost risks can be minimized or quality issues fixed This is obviously needed for a sugar retailer such as Y IMS allows the firm tracking its production, storage, packing, transport, shrinkage and quality costs; improves reliability and timeliness

- Meanwhile, the Divisional Manager also looks for information of each store’s inventory balance Both cost management and revenue are needed The system and report above still have weakness when they cannot provide information on each item’s sales and income Therefore, Y’s accountant can optimize flexibly by applying the line and bar diagrams to ensure timely import decisions or adjustments in product flow, provide comparable information, evaluate fast moving parts and slow product movement that enables the organization to do so The inventory balance system should automatically

submit figures as comprehensive as possible to each store once a month to help affiliates still capture the flow of products

C Division Z

- In Division Z, the job costing and normal costing scheme are applied A job costing method involves the process of collecting information about the costs associated with a particular work in production or service This information may be required to submit the cost information under a contract to a customer where costs are reimbursed (Bragg, 2020) In fact, the job costing method can be tailored to the needs of the consumer Some consumers need only certain costs for their employment In addition , it is important to provide details to ensure the consistency of the company's calculation method that the financial crisis for fair income needs to be developed This is used when making many different goods (Nagle and Müller, 2018) A normal costing system that retraces direct costs to a cost item by using current direct cost value times real direct cost input amounts and that collects indirect costs according to the estimated indirect cost rate times the actual cost allocation base quantities

- The combination of normal costs and job costs helps the accountant to analyze the real value at the end of each month In this case, Z’s accountant has chosen table charts to do the annual reports since the service’s requirements need a certain number depends on the outcome The director is also concerned with customer quality, with the advertising industry's strong competition The Customer Satisfaction Index is one of the variables deciding company revenue and companies must also consider customer value, consumer satisfaction in delivering the most appropriate goods In order to plan the most suitable service strategy, Division Z should also research information on customer satisfaction by survey, fees, online quiz, etc

D Paradise Group Ltd

- For each Division, this company provide a summary of the income and benefit

variations The changes of Divisional are reported by the diagrams and histograms with absolute and related values are ROA, ROS For that reason, GD records the relative income of the divisions and can make stronger decisions regarding the allocation of capital In addition to periodic reports, accountants from Division X, Y and Z send emails

to Divisional Managers urgently notifying managers of unforeseen shifts in operating costs

- However, this approach has a disadvantage that is the Divisions have not allocated the firm expenses yet The company may evenly dispense the amount of work and the

mission should be distributed to dissimilar Divisions by allocation base The work level should also be suitable between the Divisions in order to keep the workforce always distributed and can operate unwrinkled without the big differences When the workloads being divided, it also boost the movement animation, improve profits and has flexible solutions if necessary By this, the firm could build up the relationships between the Divisions and employees as well as avoid unequal job conditions and complaints over wages

TASK 2

1 Preparing an income statement for Division X using absorption costing and marginal costing

- Absorption costing:

The cost per kg of catfish and Division X’s profit in March 2020 will be calculated using the absorption costing in the table below:

Variable

manufacturing cost

per unit produced

Direct material cost = 1,5

1,5 -1 = 0,5

Direct labor cost = 1 Variable production cost Total manufacturing cost = 3

3 + 0,5 = 3,5

Fixed manufacturing cost = 0,5

Total inventoriable cost

According to Horngren, absorption costing is an inventory cost approach that covers inventory costs of both variable cost of production, and fixed cost of production Or put it another way, inventory "absorbs" all costs of production From a given data, we can calculate the total variable production cost per kg of catfish fillet, which is $3

- Income statement:

Income statement is one of a company's key financial statements that shows its income

and loss over a period of time The income or loss is determined by taking all revenues

from operating and non-operating operations as well as by deducting all expenses

Variable manufacturing = 40,000 * 3 = 120,000

Fixed manufacturing cost = 40,000 * 0,5 = 20,000

120,000 + 20,000

Cost of good available for sale = 140,000

Deduct ending inventory = 8000 * 3,5 = 28,000

140,000 – 28,000

Gross margin = Revenue – Cost of good sold = 160,000 – 112,000

Fixed selling = 10,000

48,000 – 10,000

 Profits = Revenue – Cost of good sold – Fixed selling = 160,000 - 112,000 – 10,000 = 38,000

- Marginal costing:

In other ways, marginal costing is an alternative costing approach to loss absorption The marginal cost is the expense of a product or service unit that would be reduced if this unit

were not manufactured In marginal costing, only VC is charged as a cost of sale which

stands for variable cost The fixed cost is viewed as a expense of the time

Variable

manufacturing cost

per unit produced

- Income statement:

By using the marginal costing, the table below will show the Income Statement for

Division X:

Variable manufacturing 40,000 * 3 = 120,000

Cost of good available for sale = 120,000

Deduct ending inventory = 8000 * 3 = 24,000

120,000 – 24,000

Contribution margin = Revenue – Cost of good sold

Fixed selling + Fixed manufacturing cost = 10,000 + 20,000

(160,000 – 96,000) – 30,000

 Profits = Revenue – Cost of good sold – Fixed selling = 160,000 - 96,000 – 30,000 =

34,000

2 The quantity Division X should produce and sell to get breakeven

Breakeven quantity is the production point at which profits are only adequate to cover all

expenses including fixed costs and variable costs Which means the producer does not

make a profit at the breakeven quantity but he also does not lose In other words, this is

the production level situated at the company's breakeven point

Breakeven Q = Price−Variable cost per unit¿cost = 30,0005−3 = 15,000 kg

Inventory = 8,000 kg

 Division X should produce 15,000 – 8,000 = 7,000 kg

3 The selling price for 1 kg of catfish fillet and profit of Division X

- In this case, we assume that Division X will use absorption costing and set the selling

price for one kg of catfish fillet Division X’s profit is also measured and then an

financial statement is prepared as well

 The selling price for one kg of catfish fillet = Total inventoriable cost + 35% mark up

= 3,5 + 35% * 3,5 = $4,725

- Income statement:

Revenue = 32,000 * 4,725 = 151,000

Cost of good sold

151,200 – 112,000

Gross margin = 39,200

Fixed selling = 10,000

39,200 – 10,000

4 The cost of goods sold and profit of Division Z in March 2020

Since the over allocated/under allocated overhead is counted in the cost of sale (of Job

201), this report will calculate the figures based on Job 201

Production cost for Job 201

 Direct materials = $10,000

 Direct labor = $8,000

 Applied overhead = 8,000 * 150% = 12,000 $ = Budgeted overhead

 Total production cost for Job 201 = 21,000

 Applied overheads = (6,000 + 4,000 + 8,000) * 150% = 27,000

 The overall located overhead is counted in the cost of good sold = 28,000 – 27,000 = 1,000

 Total cost of good sold = 21,000 + 1,000 = 22,000

5 Closing balance for inventories of Division Y on March 31, 2020

Unit Per

unit

Amount Unit Per

unit

Amount Unit Per

unit

Amount Unit Per

unit

Amount

1/3/2020

3/3/2020

100 400

500

500 505

50,000 202,000

252,000 13/2/2020 100

400 500

500 505

50,000 202,000 252,000

100

200 300

500

505 1,005

50,000

101,000 151,000

200 505 101,000

18/3/2020

20/3/2020

26/3/2020