Question

(a) Royal Garden Industries and the need for Management Accountants

Royal Garden manufactures equipment that are used in agriculture sector. The company has been performing well in GCC Countries and hoping to expand its territories across Europe and Asia. Some of the key attributes for their success been cost leadership and distinguished products. In order to improve their operational efficiency and improve its decision making process, he top level of the company has been thinking seriously on implementing a management accounting mechanism, that is perceived to provide good information and analysis for making appropriate decisions The top management has advised the lower level management and the finance manager to study the possibility of developing and implementing a management accounting system. The following diagram best illustrates decision making and other management processes wherein management accountants are highly involved in Jackson Company

(b) Merchandising and Manufacturing Divisions of Royal Garden

The Company has two divisions of operations i.e. manufacturing and merchandising. The Cost and Sales details of these two divisions for the year financial year 2018 are summarized and presented below:

Information	Merchandising Division			Manufacturing Division
	For the year 2018 (in ‘000) ($)	Beginning of 2018 (in ‘000) ($)	End of 2018 (in ‘000) ($)	For the year 2018 (in ‘000) ($)	Beginning of 2018 (in ‘000) ($)	End of 2018 (in ‘000 ($))
Sales	1,900,000			1,400,000
Merchandising inventory		400,000	260,000
Materials Inventory					140,000	130,000
Purchase of merchandising inventory	800,000
Purchase of Materials				800,000
Direct Labour				676,000
Manufacturing Overheads				166,000
WIP inventory					320,000	120,000
Finished Goods inventory					40,000	120,000
Administration Expenses	200,000			55,000
Selling Expenses	100,000			125,000

(c) Multiple Products of Royal Garden Industries

The Company (RGI) manufactures three different types of equipment. The cost and sales details of these three products are given below:  

	Products
	X	Y	Z
Sales Mix Ratio	2	2	1
Selling price per unit	$ 3,600	$ 2,800	$ 2,000
Variable Cost per unit	$ 2,400	$ 2,000	$ 400
Sales units (expected for 2018)	8,000 units	8,000 units	4,000 units
Fixed Cost	$ 5,600,000

(d) Estimations for the year 2019

Royal Garden Enterprises wants to expand its business activities more intensively from 2019 onwards.   The Finance Manager of Royal Garden has provided some estimates as below:

Fixed Costs	$ 13,200,000
Contribution Margin Ratio	75% of Sales Revenue

                                                                       

Required

(1) As Royal Garden wants to get benefits out of having management accounting mechanisms, the top management of it would like to invest heavily in creating such systems.

You are required to explain the meaning of management accounting and elaborate its usefulness for companies like Royal Garden Industries.                              

  

Answer 1

1. Contribution per unit of the product mix

PARTICULAR	X	Y	Z
SELLING PRICE PER UNIT	3600	2800	2000
LESS: VARIABLE COST	2400	2000	400
CONTRIBUTION PER UNIT	1200	800	1600

AS the contribution from product z is higher than the product Y and X . The sales mix should be in ratioof contribution per unit .

2. Company has used absorption costing for preparation of its financial statments it should be changed to marginal costing for better understanding

3. Managment Accounting- It consist of analysisng buisness operations for cost mangmnet, decsion making and budgeting(Planning, controling and budgeting). Mangment acounitng take in account the need of the ebuisness to evaluate companies financial statments. The main tasks of mangment accountant could be summarised as -

a. preparation of cash flow statments

b. Income statment reporting and ratio analysis

c. Budgeting

d. change in stock holders equity

e. taxation for organisation

Royal Industries required a mangment accountant for incresing itsoperational effienciencies.the company need to take decsion on production of products based on the contribution per unit rather than profit per unit of the product. The company also need to calculate break even point for all of its products with allocation of fixed cost. with all these data it should prepare its financial statment based on marginal costing rather than absorption costing.