Required

(1) Pearson Company is in need of a Management Accountant. The CEO of Pearson has read
widely that management accounting systems provide information, both financial and non-
financial to managers and employees inside an organization.

In the above context, explain management accounting and explain how management accounting
helps organizations in planning, decision making and controlling functions (40 marks)

1-Why change to ABC? What is different about the competitive, product, and process environment today
that would cause a company to consider implementing an ABC system?(15 marks)
2-Give examples of how an ABC system can result in more reliable products costs than conventional
labor-based product costing system.( 15 marks)
3- Why did the use of ABC change from a focus on generating more accurate product cost numbers to a
greater emphasis on its use for cost planning and cost reduction?( 15 marks)
4-Explain briefly how activity-based costing (ABC) affects cost-volume-profit analysis.( 15 marks)
 Arab Open University
B292: TMA – Fall Semester 2018/2019
Cut-Off Date: 30/11/2018

Part A
Managerial Accounting for Pearson Company

Pearson Company is one of the leading automobile manufacturing companies in Middle East
region. The company has been known for providing best quality products and highest standards
of service level for the possible selling price. Pearson’s products have been most liked by
customers who are in different age groups say 18 – 55 years. The Company has been trying its
best to sustain its competitive edge through its products and pricing structure.

The need for Management Accountant

Required
 (1) Pearson Company is in need of a Management Accountant. The CEO of Pearson has read
widely that management accounting systems provide information, both financial and non-
financial to managers and employees inside an organization.

In the above context, explain management accounting and explain how management accounting
helps organizations in planning, decision making and controlling functions (40 marks)

PART B
The Activity-based costing

While a form of ABC was being used by General Electric back in the sixties, widespread use of ABC
didn't began in the United States until the late eighties. The early focus of ABC was on developing more
reliable product cost numbers to improve firms' product-related strategies (e.g., pricing, product
profitability, and product emphasis). But more recently, companies have found activity-based management
to be of even greater profit.
Required:
5-Why change to ABC? What is different about the competitive, product, and process environment today
that would cause a company to consider implementing an ABC system?(15 marks)
6-Give examples of how an ABC system can result in more reliable products costs than conventional
labor-based product costing system.( 15 marks)
7- Why did the use of ABC change from a focus on generating more accurate product cost numbers to a
greater emphasis on its use for cost planning and cost reduction?( 15 marks)
8-Explain briefly how activity-based costing (ABC) affects cost-volume-profit analysis.( 15 marks)

End of TMA