Table of Contents

QUESTION ONE......................................................................................................................................2
QUESTION TWO.....................................................................................................................................4
QUESTION FOUR....................................................................................................................................5
QUESTION SIX........................................................................................................................................7

QUESTION ONE
PART A

pg. 1
Giving accounting information to business managers so they may manage, make choices, and
carry out control responsibilities is the responsibility of management accounting, also known as
managerial accounting, in contemporary business. It differs from financial accounting, which is
concerned with preparing financial statements for decision-makers as well as internal and
external stakeholders, including stockholders, suppliers, creditors, and banks, employees,
government agencies, and customers, from cost accounting, which aims to record the costs
incurred in a business.

The function of management accounting in contemporary business also entails giving

information to help risk, performance, and strategy management, as shown in the following
examples:

1. Strategic management: The management accountant functions as an organization's strategic

partner.

2. Performance management: The management accountant collaborates with business decision-

makers to develop best practises for managing organisational performance.

3. Risk management: The management accountant adds to frameworks and procedures for
determining, quantifying, controlling, and disclosing risks to the achievement of organisational
goals.

In order to influence managers' and employees' behaviour in order to help a corporation achieve
its objectives, management accounting places a strong emphasis on the future. As with cost
accounting and financial accounting, management accounting is not particularly bound by
generally accepted accounting principles (GAAP) or international financial reporting standards
(IFRS).

What a management accountant does:

The seven functions of a management accountant in an organization's decision-making process

are highlighted in the following points. There are seven roles: Stewardship Accounting, first 2.
Planning in the Long and Short Term Creating a Management Information System (MIS) 4.
Upholding an ideal capital structure. Being a part of the management process 6. Command and
Making decisions.

Stewardship Accounting is the first role of a management accountant. This role involves
designing the framework of cost and financial accounting and creating reports for regular
operational and financial decision-making. Long-term and short-term planning are two of the
main responsibilities of a management accountant. These plans may include long-term plans,
strategic management accounting, developing corporate strategy, doing market research, etc.
Developing Management Information System (MIS): Routine reports and reports for long-term
decision-making are sent to managerial staff at all levels to help them take remedial action when
it is necessary.

These reports are also used by the management accountant when making crucial choices.

pg. 2
Management accountants are crucial to the process of raising money and using it. He must make
a choice on preserving a healthy balance between debt and equity. The cost of borrowing money
is lower due of tax advantages. It is dangerous, though, because whether the company makes
enough money or not, interest on the debt must be paid. Therefore, a management accountant
must maintain an ideal capital structure and take into account various cost of capital theories,
leverage, and the potential for trading on equity.

The management accountant plays a crucial role in the organisation. This is represented by role
number five in the management process. He works as a staff member and has line control over
the accountant and other office workers. He separates significant information from irrelevant
information, communicates the same in a clear manner to the management and occasionally to
interested external parties. He teaches executives on the necessity for control information and on
the ways to use it. The management accountant's role number six entails the analysis of accounts
and the preparation of reports for control, including standard costs, budgets, variance analysis
and interpretation, cash and fund flow analysis, management of liquidity, performance
evaluation, and responsibility accounting.

Optimal product mix, make-or-buy, lease or buy, pricing of products, product discontinuation,
etc. are just a few examples of the short-term decisions that management accountants help
management make. Other long-term decisions include capital budgeting, investment evaluation,
project finance, etc.

Management accounting may be the career for you if you enjoy monitoring a company's income
and expenses and desire a position with significant authority and responsibility. Management
accounting may be the career for you if you enjoy monitoring a company's income and expenses
and want to work in a role with significant authority and responsibility.

Management accountants frequently manage lower-level accountants who perform fundamental

accounting duties including keeping track of tax liabilities and recording income and expenses.
In order to create income statements, cash flow statements, and balance sheets, this data is used.
You might wind up handling these jobs yourself in smaller businesses. In order to help senior
management with operational decision-making, a management accountant undertakes analysis to
forecast, budget, and measure performance and plans. The results are then presented to senior
management. A management accountant may also evaluate and manage risk, plan for funding
and financing operations, spot trends and possibilities for improvement, and monitor and enforce
compliance. They may also design, manage, and oversee the bookkeepers and data processors for
a company's financial system. Budgeting or taxes may be an area of specialisation for
management accountants.

PART B
Financial Management Financial accounting is used to show an organization's external
stakeholders how financially healthy it is. The recipients of financial accounting reports include
the board of directors, the stockholders, financial institutions, and other investors. Financial
accounting allows the audience to observe how the company has performed by presenting a
specific moment in the past. Annual financial accounting reports must be submitted, and for

pg. 3
publicly traded companies, the annual report needs to be made available to the public. Managers
use management or managerial accounting to make judgments about how a business is run on a
daily basis. There are no precise numbers because it is based on current and future trends rather
than prior performance. Management accounting heavily relies on market and trend forecasting
since managers frequently need to make operational decisions in a hurry in a changing
environment.
For both sorts of accountants, familiarity with accounting information systems is crucial. The
financial accountant utilises the system to audit financial information to ensure that it is accurate,
while the management accountant uses it to communicate data to managers. Both types of
accountants must be familiar with how an accounting information system works because many
businesses no longer use paper records to keep track of financial transactions. Information needs
to be current and pertinent. The management accountant must ensure that the information given
to managers is appropriate for use in making budgeting decisions and that it is provided in a
timely manner so that managers can utilise it to develop a budget. The financial accountant must
ensure that the financial report is made accessible on time in accordance with federal legislation
and that an investor or government regulator with reasonable understanding has access to the
information they need to make a choice.

Both managerial accounting and financial accounting gather and evaluate financial data. These
two professions, however, are fundamentally distinct in some ways. The various distinctions
between management accounting and financial accounting are covered in this article. The
various attributes that will be examined include the information's users, categories, regulatory
oversight, and reporting frequency. Internal users must review the company's financial data, such
as financial statement data. They also make use of non-financial data about the business, such as
competitive information and customer satisfaction scores. Internal users concentrate on specific
data that shows the functioning of certain organisational divisions or departments. Management
accounting also puts a lot of emphasis on past, current, and future financial transaction
forecasting.

QUESTION TWO

Year Cash flow Discount factor 10%

1 10,000 0.9091
2 40,000 0.8265
3 60,000 0.7513
4 20,000 0.683

pg. 4
 5 - 0.6209

Part A- PAYBACK PERIOD

Payback period =2 years +(10,000/60,000)*12 months
=2 years and 2 months
PART B – DISCOUNTED PAYBACK PERIOD
Discount factor Discounted
Year Cash flow 10% cash flow
1 10,000 0.9091 9,091
2 40,000 0.8265 33,060
3 60,000 0.7513 45,078
4 20,000 0.683 13,660
5 - 0.6209 -

Discounted cash flow =3 years + (12,771/13660)*12 months

=3 years and 11.2 months
PART C – NET PRESENT VALUE
Discounted cash
Year Cash flow Discount factor 10% flow
0 (100,000) 1 (100,000)
1 10,000 0.9091 9,091
2 40,000 0.8265 33,060
3 60,000 0.7513 45,078
4 20,000 0.683 13,660
5 - 0.6209 -
NET PRESENT VALUE 889

PART D
In the payback period we accept the project because the investment is paid back within the 5
years’ period, a little after 2 years. Secondly using the discounted payback period, we shall still
accept the project because it is paid back within the 5 years’ period, after 3 years and 11 months.
In the third instance, on the Net present value, we can accept the project due to the fact that the
net present value is positive.

QUESTION FOUR
(a) The Break Even Point for each company:

Break Even Point (BEP) = Fixed Cost / PV Ratio

pg. 5
 

Profit Volume Ratio (PV Ratio) = [(Sales - Variable cost) / Sales] * 100

Particulars Rock J Ltd

PV Ratio = {(17,00,000 - 34,000) / 17,00,000} * 100

Profit Volume Ratio
               = 98%

BEP = 85,000 / 0.98

Break Even Point (BEP)
        = 86,734.69

Particulars Jets Ltd

PV Ratio = {(17,00,000 - 85,000) / 17,00,000} * 100

Profit Volume Ratio
               = 95%

BEP = 34,000 / 0.95

Break Even Point (BEP)
        = 35,789.47

(b) Five advantages and disadvantages of break even point:

Advantages
The break-even point provides an estimate of how many units must be sold before the company
begins to generate real profits. It is a measurement tool that is useful for setting goals. By
coordinating their relationship and identifying the variable and fixed expenses, the previous two
points aid. The break-even point enables businesses to calculate their figures for profit and loss at
different levels of production and sales. The data offered by the break-even point aids
management in key decision-making, such as price setting while putting together competing
bids.

pg. 6
Disadvantages
The break-even threshold is determined with the presumption that costs and revenues won't
fluctuate along with output. The procedure of developing break even charts and determining
break even thresholds is time-consuming. It is unrealistic to assume that the sale price will stay
the same at every output level. One of the restrictions is that it may only be used for one product,
which makes it difficult for businesses with multiple items. Organizations occasionally establish
unrealistic goals after determining their break-even threshold, which causes stress.

QUESTION SIX
 Marginal Cost Statement of product A, B & C   

 A B C
 
k k k

sales 10,000 20,000 5,000

Variable manufacturing costs:      

      -Direct material 2,500 10,000 1,000

      -Direct labour 3,000 3,000 500

     -Variable overheads 2,000 5,000 2,500

Total Variable cost 7,500 18,000 4,000

Contribution (Sales - Total Variable cost) 2,500 2,000 1,000

Less : Fixed costs  3,000 3,000 3,000

NET LOSS 500 1000 2000

 Net loss for A is K500,

Net loss for B is K1,000

Net loss for C is K2,000

B)

pg. 7
Planning: Planning is the first goal; a budget is a planning tool. In terms of planning, it is a plan.
Planning allows management to look ahead, foresee potential outcomes, make preparations for
unexpected events, and provide an ordered flow for accomplishing organisational goals. A
budget outlines an organization's strategy, goals, and policies and represents them in monetary
terms. It offers management an operating strategy to be used throughout a predetermined time
period.
Coordination: Coordination is described as "the orderly organisation of group effort to produce
a unit of action in the pursuit of a common aim. In other words, it is the method by which each
division of a company contributes to the achievement of a shared aim or target while giving fair
consideration to the other divisions. Without any explanation of what a budget is, it has already
been noted that each manager with the capacity to make decisions may do so, believing that his
choice is in the best interests of the organisation. In actuality, though, such a decision can
contradict with the one made by another manager.
Communication: Good communication is essential for effective collaboration. Every employee
of the company needs to be extremely clear about his or her role in achieving the goal outlined in
the budget. He should be aware of what is planned, how it is planned, when it will be completed,
and who will be doing it.
Motivation: A budget is a very effective tool for influencing managerial staff members'
behaviour and inspiring them to work hard to achieve the organization's goals. A budget serves
as a challenge to the managerial staff in the completion of the standard set by establishing
standards of achievement.
The managerial staff is held accountable for upholding the standards because they had the chance
to contribute to the budget's preparation and set the criteria for success. Thus, a budget serves as
both a challenge for managers and a powerful motivator.
Control: Nothing can be accomplished by just stating the goals and wishing that the ideal
organisational goals would be met, according to goal number five, control. Control is also
necessitated by planning. In actuality, implementing the budget is a control function in and of
itself.
A budget places the burden of accomplishing the goal on individuals who took part in the
budgetary planning function. The performance of the department for which the individual is
accountable is continuously assessed against the pre-determined targets thanks to the budget's
link to individual accountability. If there is a discrepancy between the budgeted performance and
the actual performance, this needs to be looked into, analysed, and fixed.
Performance Evaluation: Managerial performance is assessed based on how well a manager
achieves the goals established for his or her section. Thus, a budget serves as a tool for both
monitoring and notifying managers of their progress toward achieving the goals they helped
define.

pg. 8