MARY GRACE ARZAGA-MASDO

DBM STUDENT

Midterm Examination
DBAM 1: Advance Managerial Accounting
Professor: Candido M. Perez, PhD – Mgnt., CPA

1. Managerial Accounting is defined as profession that involves partnering in management

decision making, devising plan and performance management systems and providing
expertise in financial reporting and control to assist management in the formulation and
implementation of an organization’s strategy” (IMA). Managers use the provisions of
accounting information in order to better inform themselves before they decide matters within
their organizations, which aids their management and performance of control functions.
Simply stated, Managerial accounting is about providing information in support of the internal
management processes.

Differences between management accounting, financial accounting and cost accounting:

Financial accounting gives out information about the company’s financial performance and
position as well as its all activities, with the use of its past or historical data. Cost Accounting
helps in the determination of the cost of the product, how to control it and in making
decisions. It makes use of both past and present data for ascertainment of product cost.
Managerial Accounting deals with both quantitative and qualitative aspects. This involves
the preparation of budgets, forecasts to make viable and valuable future decisions by the
management. Decisions are taken based on the projected figures of the future. It also makes
use of both cost and financial statements to analyse data. These three fields of accounting
differs in several ways:

Basis Financial Cost Accounting Managerial

Accounting Accounting
Users shareholders, Internal Internal
creditors, and users/managers users/managers
public regulators
Reporting Generally at end As and when desired As and when desired
frequency of the year by the management by the management
Publication Published in case Not Published Not Published
 of companies
Information Monetary Both monetary and Both monetary and
recorded transactions only non-monetary non-monetary
information information
Forms of account Accounts are These are generally These are generally
prepared to meet kept voluntarily to kept voluntarily to
legal meet requirements of meet requirements of
requirements the management the management
Focus shows the provides detailed provides detailed and
company as a and disagregated disagregated
whole. information about information about
products, individual products, individual
activities, divisions, activities, divisions,
plants, operations plants, operations and
and tasks tasks

So, above are the most important differences between the Financial, Cost and Managerial
Accounting. However, the information provided by the cost accounting and financial
accounting is helpful in the decision making of the managers to control costs, but it lacks
comparability. The information provided by financial accounting is capable of making
comparisons, but future forecasting cannot be done through this information. That is why
the go side by side by side, in fact cost accounting data is helpful for financial accounting
?/and financial accounting data is needed to come up with viable and valuable managerial
accounting information.

Managerial accounting information could be helpful by applying my professional knowledge

and skill in the preparation and presentation of financial and other decision oriented
information in such a way as to assist management in the formulation of policies and in the
planning and control of the operation of the undertaking. Managerial accounting knowledge
and experience can therefore be used in varied fields and functions within an organization
since every department in an organization has to incur costs to operate. Aside from managing
costs, every department has to prepare budget and forecasts for effective and efficient
utilization of resources.
2. A. The stakeholders in this situation would be Claro de Retso, controller of Robbin Industries,
the President, Vice-President for finance, others who disagreed and argued and other users
of Robbin industries financial statements. Each of them will be affected by any choice Robbin
Industries make that affect the company’s financial statements. These stakeholders have
something to lose by the company providing falsified or inaccurate financial information.
B. It is clear that there is an Ethical Issues in Financial Reporting, ethical financial reporting
and accounting practices correspond to basic human requirements. The management of
Robbin Industries has an accountability to all of its stakeholders both internal and external. It
is also their responsibility to do what is expected of them and that is choosing to do what is
right and just such as simply following the Generally Accepted Accounting Principles
(GAAP). Violating the GAAP to create misleading financial statements and to satisfy a short-
term personal goals is UNETHICAL.
C. Claro de Retso as the controller of the company is responsible to manage all the accounting
functions of the Company and most importantly as a controller they are expected to ensure the
integrity of the processes, procedures, and information systems, and provide timely,
meaningful, and understandable financial information. As a controller of the company I will
going to tell the president that I will choose to do what is right by following standards. I will
tell the management the consequences of preparing and presenting misleading financial
reports. Therefore, I would try to report the condition and results of the operations fairly and
in accordance with the GAAP. I would properly inform the management and explain to them
what is acceptable according to GAAP. Reporting all the financial costs/expenses and income
of the company correctly is part of my duty. It is important to tell the management the correct
treatment and correct expensing of the advertising expense. I would show the management
that advertising costs can be treated as an asset – prepaid advertising when paid for a definite
period of time and generally expensed in the period they were incurred by making some
adjusting entries at the end of the company’s fiscal year.
3. Costs denotes the amount of money that the company has to spend to create or produce goods
and services in order to run the business. Every factor of production has an associated costs.
Costs can be classified into different categories for different purposes, for managerial purpose,
cost can be categorized based on (1) behaviour which are classified as the fixed, variable and
mixed costs; categorized by (2) traceability which are classified as direct and indirect;
 categorized as (3) for external reporting which are classified as product costs and period costs;
and lastly, categorized as (4) for decision making which classified as sunk, opportunity,
marginal, incremental costs which can be relevant in making future decisions. Classification of
costs based on behaviour helps in cost-volume-profit analysis, classification on traceability is
important for accurate costing of jobs and units produced, classification for the purpose of
decision making is important to help management identify costs which are relevant for
decision.
Would you ever make a decision in your business or organization without thinking of the costs
or the value you will forgo? Of course not. Analyzing the costs related to any decision is at the
heart of every management process. However, with today’s sophisticated technology and
advanced accounting software for small businesses, data is readily available on just about every
aspect of a company’s activity. But definitely you won’t be needing all of this information, the
only data you need when making managerial decisions are those relevant costs. You just have
to make sure that you are considering the right cost for your decision. Another thing is by
looking at the costs in the financial reports you will be able to see whether the company is
liquid, solvent and stable, you will be able to see which costs can be minimized for better
operation results, and furthermore, you will be able to see what efforts or adjustments could be
made on the next accounting period to achieve financial goals of the company.
4. A. Capital Intensive Method:
Total Fixed Cost = $ 2,508,000 + $ 502,000 = $ 3, 010,000
Contribution margin per unit = $ 30 (Selling price) - $ 16 (Variable costs) = $ 14
Break-even point (u) = $ 3,010,000/$14 = 215,000 units
Labor Intensive Method:
Total Fixed Cost = $ 1,538,000 + $ 502,000 = $ 2,040,000
Contribution margin per unit = $ 30 (Selling price) - $ 20 (Variable costs) = $ 10
Break-even point (u) = $ 2,040,000/$20 = 204,000 units

B. Indifference point = ($ 3,010,000-$2,040,000) / ($14-$10) = 242,500 units

C. Both methods have advantages and disadvantages over other. Capital intensive method has
a lower variable cost and higher fixed cost while Labor intensive method has a higher variable
cost and lower fixed cost. The choice of method will be dependent on your sales level forecast. If
 the sales level is expected to be above 242,500 units then capital intensive method should be
preferred as it will result higher profits, while when the expected sales is in contrary, labor
intensive method should be preferred.

5. Incremental analysis is a decision-making tool in which the relevant costs and revenues of one
alternative are compared to the relevant costs and revenues of another alternative. Relevant costs
may be defined as those future costs that are different between alternatives. Costs that are the
same are considered irrelevant. Incremental analysis is sometimes called differential costing,
marginal costing, or relevant costing. Incremental analysis is basically a worksheet technique in
which the relevant costs of one alternative are listed in one column and the relevant costs of
another alternative are listed in an adjacent column. Frequently, an optional third column is used
to show the difference in the costs. The differences in relevant costs are called incremental costs.
Technically, incremental cost may be defined as the difference between the sums of the relevant
costs of two alternatives. In short, it is a tool for choosing between two alternatives. The best
decision is the one with the least amount of relevant costs or the greatest relevant revenue.
In an ordinary course of business operation, incremental analysis is a tool for evaluating
decision alternatives such as:
• Keep or replace
• Make or buy
• Sell now or process further
• Lease space or continue operations
• Continue or discontinue product line
• Accept or reject special offer
• Change credit terms
• Open new territory
• Buy or lease
As a tool, incremental analysis can be used in all areas of a business. The tool is just as useful in
the area of marketing as it is in the area of production. The objective in using incremental
analysis is to identify the alternative with the least relevant cost or the most relevant revenue.
The difference in the sum of relevant costs is either called incremental cost or net benefit.
Consequently, the alternative with a favorable incremental cost (sometimes called net benefit) is
the desirable alternative. Since this tool relies strictly on estimated costs/revenues and because
the margin of error can be significant, different computations of incremental cost should be made
based on different cost assumptions.