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Week 1 Tutorial Questions
Q1. Belle Ltd is an online retail store specialising in Plus-size women’s assorted clothing. The company follows a differentiation strategy when pricing its products. List 5 types of management accounting information that might assist Belle Ltd’s management to make business decisions during this COVID 19 pandemic.
Q2. Micol Co. Ltd’s accounting records reflect the following inventories: June 30, 2019 June 30, 2020 Raw materials inventory $120,000 $ 96,000 Work in process inventory 156,000 174,000 Finished goods inventory 150,000 138,000 During the year, Micol purchased $980,000 of raw materials, incurred direct labour costs of $175,000, and incurred manufacturing overhead totalling $224,000. How much would Micol Co. Ltd report as cost of goods manufactured for the year ending June 30, 2020? Show your working.
Q3. Advances in computerized systems, technological innovation, global competition, and automation have changed the manufacturing environment drastically. Discuss with three (3) specific examples.
Solution week 1 Tutorial HI5017
Solution Q 1
A differentiation strategy is an approach businesses develop by providing customers with something unique, different and distinct from items their competitors may offer in the marketplace. The main objective of implementing a differentiation strategy is to increase competitive advantage. A business will usually accomplish this by analyzing its strengths and weaknesses, the needs of its customers and the overall value they can provide.
Benefits of creating a differentiation strategy :
Differentiation strategies have several advantages that may help you develop a unique niche within your industry. Here are the possible benefits of creating a differentiation strategy:
Reduced price competition. Differentiation strategy allows a company to compete in the market with something other than lower prices. For example, a candy company may differentiate their candy by improving the taste or using healthier ingredients. Although its competitors have cheaper candy, they can’t provide the taste that consumers may want from that specific candy company.
Unique products. This benefit of a differentiation strategy is that it builds on the unique qualities of a product. Your company may create a list of characteristics its products contain that your competitors lack. Those characteristics will differentiate your product, and you may communicate this through effective marketing and advertising.
Better profit margins. When products are differentiated and turned into higher-quality products, it offers more opportunity for larger profit margins. For example, if your target market is willing to pay a higher price for top quality or better value, you may generate more revenue with fewer sales.
Consumer brand loyalty. Effective differentiation may create brand loyalty in customers if a business maintains the perceived quality of your products. For example, if you have a brand that is marketed by a sports figure, it will likely increase brand loyalty because it enhances the value of your brand.
No perceived substitutes. A strategy that successfully differentiates may present the idea that there is no other product available on the market to substitute it with. A business may gain an advantage in the market even when there are similar products available because customers will not be willing to replace your product for another one. Companies try to differentiate themselves by providing consumers with unique products that are frequently revolutionized.
Management Accounting :
American Accounting Association defines management accounting as:
Management Accounting includes the methods and concepts necessary for effective planning, for choosing among alternative business actions, and for control through the evaluation and interpretation of performance.
Characteristics of Management Accounting:
Management accounting provides data to the management on the basis of which they take decisions to achieve organizational goals and improve their efficiency. In this section, we will discuss the main characteristics of management accounting.
To Provide Accounting Information
Information is collected and classified by the financial accounting department, and presented in a way that suits managerial needs to review the various policy decisions of an organization.
Cause and Effect Analysis
One step further from financial accounting, management accounting works to know the reasons of profit or loss of an organization. It works to find out the causes for loss and also study the factors which influence the profitability. Therefore, cause and effect is a feature of management accounting.
Special Technique and Concepts
Budgetary control, marginal costing, standard costing are main techniques used in financial accounting for successful financial planning and analysis, and to make financial data more useful.
Studying various alternative decisions, studying impact of financial data on future, supplying useful data to management, helping management to take decisions is a part of management accounting.
Types of Management Accounting Information
Management accounting presents your financial information in a way that will be useful for making operational decisions about your company. Keeping your financial records up to date will help you perform the following managerial accounting tasks that will add value to your company.
1) MARGIN ANALYSIS
Managerial accounting analyzes the incremental benefit of increased production – this is called margin analysis. This flows into the breakeven analysis, which involves calculating the contribution margin on the sales mix to determine the unit volume at which the business’ gross sales equal total expenditures. A managerial accountant will use this information to determine the price point for products and services.
2) CONSTRAINT ANALYSIS
Constraint analysis indicates the limitations within a sales process or production line. Managerial accountants find out where the constraints occur and calculate the impact on cash flow, profit and revenue.
3) CAPITAL BUDGETING
Managerial accountants help a business decide when, where and how much money to spend based on financial data. Using standard capital budgeting metrics, such as net present value and internal rate of return, to help decision makers decide whether to embark on costly projects or purchases.
The process involves reviewing proposals, deciding if there is a demand for products or services, and finding the appropriate way to pay for the purchase. It also outlines payback periods, so management is able to anticipate future costs and benefits.
4) TREND ANALYSIS/FORECASTING
Reviewing the trendline for certain costs and investigating unusual variances or deviations is an important part of managerial accounting. Decisions are made by using previous information like historical pricing, sales volumes, geographical location, customer trends and financial data to calculate and project future financial situations.
5) PRODUCT COSTING/VALUATION
Determining the actual costs of products and services is another element of managerial accounting. Overhead charges are calculated and allocated to come up with the actual cost related to the production of a product. These overhead expenses may include the number of goods produced or other drivers related to the production, such as the square foot of the facility. Along with overhead costs, managerial accountants use direct costs to assess the cost of goods sold and inventory that may be in different stages of production.
Solution Q 2
Cost of Goods Manufactured = $1,385,000
The calculation will be done in the following manner:
Advanced in computerized systems, technological innovation, global competition, and automation have changed the manufacturing environment drastically by decreasing direct labor cost and increasing overhead costs. Three specific examples are:
Earlier labors were required to input and process data in the systems but now the advanced computerized systems have automation systems to process data.
With the technological innovation, many work is now done through machines which were earlier done by labor.
With the increase in global competition, investments are automated. Unit costs can be reduced through customer specific automation.