Management Accounting

IMPORTANT HINTS

MANAGEMENT ACCOUNTING

1. With things like the bank loan it says interest is 8%/year paid monthly. So in the assumptions under operating expenses should we write in the annual amount or as the monthly amount because thats how it is paid? [Yes, the amount is paid monthly and therefore should appear in op expenses budget as a monthly expense]

2. With credit sales (80% of sales) it says 60% is collected in the month of sales and 40% in following month. So in the assumptions 'Cash Collections' section should we write Collected in month of sale - 60% or 48% as it is 60% of 80%. [Yes, spot on  the amount of the credit sales that is collected in cash in the month is 60% of the 80% or 48%]

3. What is the difference between 'Target Ending Inventory' and 'Finished Goods Required' - i know you need 50% of next months sale estimates but if 'Finished Goods Required' refers to this amount what is the 'Target Ending Inventory' referring to? [Yes, the target ending inventory is 50% of next months sales and the Total Finished Goods required is the sum of Budgeted Sales Volume and Target Ending Inventory]

4. How do we figure out the 'Less Beginning Inventory' especially for January as the only information i can see for ending inventory from December is a $ amount in the balance sheet but it's not in units. [Great question, remember that the ending inventory for Dec (50% of next months sales) is Jan beginning inventory, therefore the Beginning inventory for Jan for One Piece is 50% of 1800.]

Just confirming for Worksheets 5 (Manufacturing Overhead Budget) and 6 (Monthly Operating Costs Budget)

i have gathered that the information is the Production column is worksheet 5 and the right for worksheet 6, but I am unsure of what it means by "allocation rate" in worksheet 5 and what cells I need to formulate to calculate this.

Yes, you are correct. The production column relates the manufacturing overhead (sheet 5) and operating costs (sheet 6).

The allocation rate is how much of the Variable OH and Fixed OH will be allocated to each product.

The rate is calculated by taking:

The total Variable overhead costs and dividing them by the total machine hours for all products. 

The total Fixed overhead costs and dividing them by the total number of units produced.

Hope this helps.