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Management Accounting

Management Accounting Project
by

Mr Project

on 30 November 2012

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Transcript of Management Accounting

Management
Accounting Case 4
Jenny Toy Company Flexible and master budget Bonus Bonus of
Marketing manager Bonus of
Purchasing manager Background Background Content Start from small company in 1974 Substantial amount of unfavorable Operating income variance Produce animal toys
Annual sale in 1986 exceeded $1,000,000
Filed for an IPO in 1991
Standard Cost System Group member :
Tai Sing Ming(52599325)
Lai Sze Man(52598992)
Law Ho Wing, Billy(52589909)
Hon Wai Kit(52600617)
Lam Ling Ling(52596058) Jenny Toy company Consist of three departments : Purchasing department ---------------David Hall
Production department ---------------Bill Smith
Marketing department ---------------Rita Smith Year of 2002 Operating income $(843,745) $788,572 $1,632,317U Actual Budget Master-Budget
Variance Background Incentive compensation Purchasing manager will have 20% bonus of the net material price variance if the net variance is favorable. Otherwise, the bonus is zero

Marketing manager will receive 10% bonus of the excess, if any, of actual net revenues over master budget net revenues

Production manager will receive bonus of 3% of the net of several variance: the efficiency variance (usage or quantity) variance for material, labor and varialbe overhead: the labor rate variance: and the variable and fixed overhead spending variance production manager Bonus of Comparison of
actual and master budget Sale volume variance Actual result and flexible budget Flexible budget variance Flexible budget variance Advantage and disadvantage
of the new plan Advantage Disadvantage Comment -Observation on utilizing material

-Keep an eye on the materials’ price

-Figure out the grade of materials

-Maintenance of machinery (sewing machine)

-Management of labor’s performance

-How manager handle with special holiday Role of the budget in performance evaluation Analysis Purchasing manager Comparision 49,625 U 542,967 U Opportunity Cost -Unfavorable Material Usage Variance
-Unfavorable Labor rate Variance
-Unfavorable Labor Efficiency Variance In general Purchasing manager





Marketing manager Use material price variance and material usage variance
reduce the chance of purchase of inferior material Putting more emphasis on Selling Expense Variance(E.g. SEV*1.2)
Reduce the Selling expense Not only focus on their bonus but also whole company Suggestion of the new plan Long term Share Option -Bonus based on controllable variance
-Direct Materials, Direct Labor, Variable O/H
-Exclude uncontrollable variance: Poor quality on materials
Unexpected sales demand

Fixed O/H
Uncontrollable: Depreciation, Property Tax Production manager Short term Investigation of labor rate and efficiency variance -Frequent machine breakdowns and operating inefficiencies

-Reduced morale and efficiency of laborers resulting
from high sale volume and overtime pressure

-Replace factory laborers at a higher wages rates

-Unskilled labor Investigation of variable overhead spending and efficiency Large increase in overtime premium paid - ~ 10% of Total direct labor cost Reduced morale and efficiency of laborers resulting from high sale volume and overtime pressure Huge fringe benefits - 20.55% of cost of labor

Increase in maintenance labor Suggestions of the new plan 1.Background 1.1 Jenny Toy Company
1.2 Incentive Compensation
1.3 Current performance 2.Flexible and Master budget 2.1 Comparison of actual and master budget
2.2 Sale volume variance
2.3 Actual result and flexible budget
2.4 Flexible budget variance 3. Bonus 3.1 Bonus of Purchasing manager
3.2 Bonus of Marketing manager
3.3 Bonus of Production manager 5. Comment 4. Analysis 4.1 Purchasing manager
4.2 Opportunity Cost
4.3 Investigation of labor rate and efficiency variance
4.4 Investigation of variable O/H spending and efficiency
4.5 Investigation of material usage variance 5.1 Advantage and disadvantage of the new plan
5.2 Role of the budget in performance evaluation
5.3 Suggestions of the new plan The
End Q
&
A Group Seven Total selling expense
=1,201,506
=73.6% of total Master-budget variance -Motivate the managers to have better performance
-Favorable variance also brings benefits
-Based on individual contribution and achievement
-Correct basis to measure managers’ performance -Only affect managers’ performance
-Cannot promote teamwork
-Lack of information sharing between departments
-Uncontrollable factors (inflation rate, rush orders)
-Inadequate to use the difference between actual figures and master -budget
-Fail to consider capacity problem 509,127 U 1,101,719 U Budget sale in 1998 : 238,000 -cheaper price of Internet selling may result in less sale in other categories Direct material usage variance: 128,240
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