June 10

Managem
en
Accountin
g

201
5
Analysis

Report based on activity of three entity

Table of Contents
Introduction:............................................................................................................... 2
Hexagone LTD:........................................................................................................... 2
Breakeven points:.................................................................................................... 2
(a)

Determine the following for HEXAGONE LTD:..............................................2

Breakeven point in terms of number of screens sold and in sales amount:.........2

Margin of Safety as percentage of estimated sales:.............................................2
Target profit:......................................................................................................... 2
Question: 2.............................................................................................................. 4
Budgets and Cost estimates of ALMOUJ Ltd for the year ending 31st December
2014..................................................................................................................... 4
Twenty limited Question 3.......................................................................................... 5
Overhead cost per unit:........................................................................................... 5
Difference of conventional system and activity based system.............................6

Introduction:
This report is consist of management accounting report of three companies
that are having few issues in either in their budget or on their costing
system. This report provides cost analysis , budgeting analysis and
differences and advantages of different type of costing system.

Hexagone LTD:
Breakeven points:
(a)Determine the following for HEXAGONE LTD:
Breakeven point in terms of number of screens sold and in sales amount:
As per the report the value are as follows,
Selling price = 600, estimated sale = 700, variable cost =250 , fixed cost 80,000
OMR
Profit = Revenue (Cost of sale+ expenses)
Profit = 600*Quantity-(250*quantity+80,000)
Q(600-250)=80,000 OMR
Q=80,000/350=228.5714
Therefore if breakeven point in unit is 228.5714
Further, breakeven in revenue would be =228.5714*600 =137142.8

Margin of Safety as percentage of estimated sales:

MOS= Budgeted Sale( estimated sale)-Breakeven sales
=700-228.5714=472/700*100
In percentage = 67.42%

Target profit:
The company aiming for targeted profit 120,000 for the year in order to analyses
whether it would be sufficient therefore,
Targeted profit + Fixed expenses / Contribution margin per unit
=120,000+140,000/(600-280)
=812.5
As per the calculation the estimated sale would be insufficient. Therefore the entity
would short fall by 112.5 units.
(C) The cost method of volume Profit is the most appropriate model that focuses on
the relationship between the sale price , variable costs , fixed costs , volume and
profit , because it allows the behavior of costs and revenues in different degrees
business surveys .
The importance of this analysis, the improvement of management understanding of
the relationship between financial flows and the level of business activity.
Cost - Volume - Profit is the concept of this break and break-even point zero. It can
be great for the management is aware of the magnitude of the sales were covering
in view of the costs, and to avoid a loss is made to reach.
Cost - Volume method - Profit is the main technique takes the total cost can be split
between fixed costs and variable costs and superior management will decide any
important decision
(d) Management has to look at the amount sold, variable costs, fixed costs and

selling price. If the option is reduced variable costs, show more profit and sales also
increased significantly.
They also look at the safety margin, which is also a key. Profit is defined as an option
in 216,000 and 240,000 in option two, but the sales volume is also considered the
risks and security that helps to improve the performance of the company and the
well reaches the market.

Question: 2
Budgets and Cost estimates of ALMOUJ Ltd for the year ending 31st
December 2014

(a) Overhead analysis Sheet:

Details
Allocated cost
Other cost
Rent & rates
Building
insurance
Electricity &
gas
Plant
depreciation
Plant insurance
Total
Area occupied
Plant at cost
Number of
employees
Machine hours
Direct labor
hours
Number of
stores
requisitions

Production Cost
Work shop
Work
1
shop 2
ORM
ORM
ORM
140,044.000 42,656.000 59,856.00
0
Total

Production Cost
Canteen
Store
ORM
16,874.000

ORM
20,658.000

9,282.000
7,426.000

3,867.500
3,094.167

3,094.000
2,475.333

773.500
618.833

1,547.000
1,237.667

13,600.000

5,666.667

4,533.333

1,133.333

2,266.667

56,780.000

23,658.333

4,731.667

9,463.333

17,034.000
244,166.00
0

7,097.500
86,040.16
7

18,926.66
7
5,678.000
94,563.3
33

1,419.500
25,550.83
3

2,839.000
38,011.66
7

18,564.000
2,839,000.0
00
2,000.000

7735.000
1,845,000.
000
1,200.000

6188.000
852,000.0
00
600.000

1547.000

3094.000
142,000.0

60.000

140.000

56,000.000
49,600.000

54,400.000
13,600.000

61,600.000

54,800.000

1,600.000
36,000.00
0
6,800.000

(b)Overhead absorption rates:

Over absorption = total overheads/total base

= 244,166/ 56000
=4.36 Overhead rates per unit
(c) Manufacturing cost estimation:
Cutting
Direct material
Direct labor hours
Machine hours
Total cost

Work shop 1
5000
1200*4.36=5232
4000*4.36=17440
27632

Work shop 2
2400
3500*4.36=15260
100*4.36=436
18096

(e) Analyzing the reason below/above absorption:

If the actual price is higher than the price quoted between following absorption
they do not understand the level of the intended target.
When the real compared to the price of the financial statements following the
absorption of coverage is therefore creating more than expected
Therefore, budgeted or the price is higher absorption approached this coverage.
(f) Reason and problems by under and over
The reason behind under absorption, the actual overhead became more than the budgeted
overheads and actual output being less than the expected.
The reason behind over absorption that the actual overheads would be less than the
budgeted overheads and actual output would be more than expected.
Problems with under and over absorption would be the over and underestimation of
budget , because of this it would have negative impact on management moral incase of over
absorption . however it may make them overconfident if it would be under . however , in
both occasion it would have negative impact on entity and moral of staff and management.

Twenty limited Question 3.

Overhead cost per unit:
Overhead expenses = 26,400 + 2,940 + 1,512 + 3,960 + 1,440
= 36252
Volume per hour = (2400*15/60) + (2000*20/60) + (400*30/60)
= 1467
Overhead per machine per hour = 36,252/1466.667
= 42.72 OMR

Alpa
24.72*90

Beta
24.72*120

Delta
24.72*170

Overhead to production

2224.800

2966.400

4202.400

Number of units

2400

2000

400

1.483 OMR

10.506 OMR

Overhead per unit

0.927 OMR
(overhead to
production/No. of units)
(a) Overhead cost per product

Overhead
machine (app
according to
machine hours)
Set up cost &
quality
inspection
2,940+1,440
Storage cost
Distribution &
handling
materials
Number of unit
Overhead per
unit

A31
13200 OMR

A32
11000 OMR

A33
2200 OMR

Total
26400 OMR

2400 = 40
60
4380 * 40
86.66
= 2021.694 OMR

2000 = 33.33
60
4380 * 33.33
86.65
= 1684.577
OMR
3960 * 400
960
= 1650 OMR
1512 * 10
60.10
= 251.581 OMR
14586.158 OMR
2000
7.293 OMR

400 = 13.33
60
4380 * 13.33
86.66
= 673.729 OMR

4380.001 OMR

3960 * 80
960
= 330 OMR
1512 * 12
60.10
= 301.896 OMR
3505.625 OMR
400
8.764 OMR

960 batches
3960 OMR

3960 * 480
960
= 1980 OMR
1512 * 3
60.10
= 75.474 OMR
17277.168 OMR
2400
7.199 OMR

60.10 orders
628.951 OMR
35368.951 OMR

Additional calculation:
(i)

26400 is apportioned with the percentage.

Volume * machine time per unit
(2400*15): (2000*20): (400*30)

Difference of conventional system and activity based system

The conventional system it aligns with GAAP principles compare to activity based. The
conventional system is easy to adopt and implement with in the entity on other than activity
would be difficult to implement. The conventional system would not be appropriate to
apportion the cost efficiently and effectively as compare to activity based system which is
based on activity rather than fixed cost. The conventional system would not provide
accurate observation of cost to the managers.

The ABC method would be more accurate as it is based on activity of each individual pool. It
would also eliminate irrelevant cost and its provide better understanding to help
management to come up with decision.