Management Accounting Scenarios and Applications Assignment

Management Accounting Scenarios and Applications - Assignment Example In this way, a proper mechanism can be developed which can easily assist the departmental head regarding the cost patterns (Drury, 2006). Variance Analysis Variance Analysis is the next tool which can be used by the departmental heads after the incurrence of actual costs (Drury, 2006). This tool supports the departmental managers as to identify the cost which is actually representing more deviations from the estimated/budgeted/standard cost. Once the cost is identified to have shown deviations, proper investigations should be conducted as to find out the causes of the deviations of that cost. The variance can be either favorable or adverse; however, the departmental heads should investigate both types of variances because at times the favorable variances occur due to using substandard raw materials or other similar issues. By utilizing the above mentioned tools, the departmental heads can easily trace as well as monitor and control the cost patterns of their department. Email 2: The following response is generated to guide Brenda in respect of the equipment to be included in the capital budgeting process: Identification of Cash Flows For any equipment to be included in the capital budgeting process, the first and foremost step of including the particular item is the identification of all possible cash inflows and outflows along with their evaluation (Garrison, 2009). All the equipments have a particular initial outlay followed by the benefits (cash inflows in monitory terms) over its remaining useful life. However, the exact amount of cash inflows to be received is a bit judgmental task and needs careful estimation and forecast. The scenario mentioned in the case, needs a little adjustment as the printing machine to be purchased has a useful life of less than a year. Generally, equipments which are included in the capital budgeting process have a useful life of more than a year and their cash flows are estimated on yearly basis. In this scenario, the situation is a bit different. Here, an adjustment can be made such that a discount factor on monthly basis should be used by Brenda, and the Net Present Value of the printing machine should be calculated on monthly cash flow basis. If the NPV of the printing machine comes in positive figures, then the printing machines should be recommended for the final capital budgeting process. However, in case if the negative figure comes up for NPV, then plan for acquiring the printing machine should be discarded as it is no more feasible for Brenda to exploit the machine in best possible manner (Gupta, 2001). Email 3: Breakeven Quantities This response is presented for Carl’s inquiry regarding the breakeven quantity. Under the existing situation when fuel changes are not added in the cost of the product, the contribution earned is $1.87. However, if the cost of fuel is added, then contribution is decreased to around $1.72. As a result of this change in the cost of the product, the breakeven quant ity to be sold is also changed such that before the increase in the cost, the breakeven quantity is around 445,283 units. However, after the increase in the cost, the breakeven quantity is increased to around 484,116 units. Target Profits Assuming if the company is also interested in earning some profits of let’s say $100,000 then in that case, the company needs to sell some more units so that they can earn this much profit. It can be