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FIN4284 ALTERNATIVE ASSESSMENT-Final
FIN4284 ALTERNATIVE ASSESSMENT-Final
Assignment Details:
Declaration by student(s):
I/We, hereby declare that the attached assignment is my/our own work and understand that if
I/we am/are suspected of plagiarism or another form of cheating, my/our work will be
referred to the Programme Coordinator/Head of Faculty who may, as a result recommend to
the Examinations Board on academic disciplinary action including expulsion for the SEGi
University and Colleges.
Student’s Details:
Page 1 of 11
PROGRAMME : BACHELOR OF ACCOUNTING /
BACHELOR OFACCOUNTING & FINANCE /
BACHELOR OF BUSINESS MANAGEMENT
Table of Contents
Calculation of Payback Period...............................................................................................2
Payback Period.......................................................................................................................3
Accounting Rate of Return.....................................................................................................4
Calculation of Net present value............................................................................................4
Importance of relevant cost in capital budgeting...................................................................5
Variance calculation and operating statement for the month ending 31 January 2020..........5
Importance of setting standards in management accounting.....................................................6
Budget....................................................................................................................................6
Motivational considerations...................................................................................................6
Budgetary planning and control system.................................................................................7
Behavioral problems..............................................................................................................7
Budgetary Slack.....................................................................................................................7
Motivation..................................................................................................................................7
Bottom-up approach...............................................................................................................7
Responsibility accounting......................................................................................................8
Benefits of Responsibility Accounting..................................................................................8
Management by objectives (MBO)........................................................................................8
Management by exception (MBE).........................................................................................9
Japanese owned company in Malaysia...................................................................................9
For Effective Responsibility Accounting...............................................................................9
Responsibility Centers.........................................................................................................10
Cost center............................................................................................................................10
Profit center..........................................................................................................................10
Investment center.................................................................................................................10
References................................................................................................................................11
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PROGRAMME : BACHELOR OF ACCOUNTING /
BACHELOR OFACCOUNTING & FINANCE /
BACHELOR OF BUSINESS MANAGEMENT
Answer 1 (a)
Payback Period
The equipment will pay back its initial investment after the third year of operations.
Therefore, the payback period is three years.
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PROGRAMME : BACHELOR OF ACCOUNTING /
BACHELOR OFACCOUNTING & FINANCE /
BACHELOR OF BUSINESS MANAGEMENT
Since the NPV is positive therefore the project is feasible on financial grounds.
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PROGRAMME : BACHELOR OF ACCOUNTING /
BACHELOR OFACCOUNTING & FINANCE /
BACHELOR OF BUSINESS MANAGEMENT
Answer 1 (b)
The cost which is relevant in decision making is called relevant cost. A cost is said to be
relevant if there is any change in cash flow that is caused by the decision. (ACCA.COM,
2012)
Any change in cash flow either decreases or increases due to the project is relevant.
For instance, if the company discontinues the production and sales of an old product the
decrease in revenue and cost are relevant, as the revenue and cost increase on the new
product due to discontinuation of old product resources and materials diverted to this new
product.
The relevant cost helps in the decision making of capital budgeting, but it is not useful for all
pricing decisions because, for a business to be sustainable in the long-term, it should charge a
price that provides a sufficient profit margin above its total cost and not just the relevant cost.
Answer 2 (a)
Variance calculation and operating statement for the month ending 31 January 2020
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PROGRAMME : BACHELOR OF ACCOUNTING /
BACHELOR OFACCOUNTING & FINANCE /
BACHELOR OF BUSINESS MANAGEMENT
Answer 2 (b)
Importance of setting standards in management accounting.
Goals are designed to achieve any targets same over here in management accounting
standards are set to measure the variances with the standards and may able to benchmark
performance and able to assess how far or above our performance is, this helps to ensure that
any inefficiencies should not be faced again in future and performance and quality should not
be compromised.
Answer 3:
Budget
A budget is a quantifiable detailed plan for any given period. It always stated in terms of
quantities for instance number of employees to be recruited in a year, revenue target for a
year to achieve, the quantity of material to be consumed in a year, number of sales during a
year. The budget is prepared separately for each activity in coordination with departmental
heads to make them accountable for their course of actions and results. These budgets include
cost budget, sales budget, material budget, and lots of other budgets for planning activities of
the organizations and control of cost and expenditures.
Motivational considerations
A budget is a target to control costs and maximize revenue. While setting targets to achieve
budgetary goals it is necessary to ensure that there should be a motivational element for
employees to achieve those targets.
Setting too high targets may result in dissatisfaction of employees with their work and create
problems for the company or setting average or low targets for employees would not allow
them to do any efforts as these are simple to achieve.
Page 6 of 11
PROGRAMME : BACHELOR OF ACCOUNTING /
BACHELOR OFACCOUNTING & FINANCE /
BACHELOR OF BUSINESS MANAGEMENT
Behavioral problems
The budgets usually prepared by the managers who are not the managers who are then made
responsible for achieving those budget targets. This results in dysfunctional behavior due to
not involving in the part of budget preparation.
Budgetary Slack
Budget slack or bias results due to over-estimation of expenditure or under-estimation of
revenues in the budgeting exercise. This results in a budget that is poor for control purposes
and meaningless variances.
Motivation
Budgets can be used as a tool to motivate and improve employee performance. For effective
budgeting, it should have two-way communication and have an element of participation,
especially those employees should participate who will be accountable for it.
Bottom-up approach
A bottom-up approach is an approach in which budgets are prepared following the flow of
information from lower-level staff.
These front line staffs are more knowledgeable due to their routine tasks have a direct impact
on the budget therefore, their input is most important in setting up budget exercise.
This participative style of budgeting helps in understanding budget goals as the goals of
participants as they were participated and gave their views and their views were owned in
preparation of budget this results in the motivation of employees in setting budgets.
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PROGRAMME : BACHELOR OF ACCOUNTING /
BACHELOR OFACCOUNTING & FINANCE /
BACHELOR OF BUSINESS MANAGEMENT
If the budget will implement without any consent from employees it will results in the
demotivation of employees as they were not involved in budget preparation exercise and this
will consequence in loss of control of the budget.
To make employees motivated and setting tight control over budget it is necessary to reward
employees as well by the achievement of budgetary targets.
For instance, on the achievement of sales targets, they should be given incentives including
bonuses, promotions, and additional responsibilities.
Answer 4:
Responsibility accounting
In responsibility accounting, persons are made responsible for a specific area to cost
control. For any increase, that person will be held accountable. In this type of accounting
system, responsibility, and accountability are delegated to a person who is capable and can
take ownership of the task as being knowledgeable and skillful to do this job. The
responsibility accounting supports all the Planning, Costing, and Responsibility Centres of a
company. Responsibility accounting mainly focuses on responsibilities centers.
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PROGRAMME : BACHELOR OF ACCOUNTING /
BACHELOR OFACCOUNTING & FINANCE /
BACHELOR OF BUSINESS MANAGEMENT
For example: when a department has very huge cost variance compared to its standard
variance then management will try to find the reason behind it and try to fix the issue, it
might in the planning side of variance or at the operational side This will help him to decide
either to reduce cost, go for process re-engineering or establishing new standards, etc.
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PROGRAMME : BACHELOR OF ACCOUNTING /
BACHELOR OFACCOUNTING & FINANCE /
BACHELOR OF BUSINESS MANAGEMENT
Responsibility Centers
A responsibility center is made responsible to control their costs, watch revenues, and
investments.
Cost center
A division of the organization that has control and responsibility for their cost only.
They are not responsible for revenues and investments. Example of a Japanese company in
Malaysia that has a service department and production division they both usually incurring a
cost but not generating sales, as sales division was responsible for revenues.
Revenue center
Revenue Centers are responsible for their revenue generation but have no control over
their costs and investment, e.g. the sales department of the Japanese company has no control
over costs.
Profit center
The profit center has control over both revenues and costs. The profit centers are
responsible for their revenues to maximize and cost to minimize profit in return.
Investment center
Investment centers are operate as an authority to decide over its investments, these are
usually corporate offices of any company and treat sometimes as a separate entity. Investment
centers evaluated the performance of their branches, products, business segments, and take
different profitability measures.
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PROGRAMME : BACHELOR OF ACCOUNTING /
BACHELOR OFACCOUNTING & FINANCE /
BACHELOR OF BUSINESS MANAGEMENT
References
ACCA.COM. (2012). Retrieved from https://www.accaglobal.com/sg/en/student/exam-
support-resources/fundamentals-exams-study-resources/f5/technical-articles/relevant-
costs.html
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