Management Accounting

The provision of management accounting information are for the intention of planning, control and decision making which may contribute to the success of an organization. Management accounting is the process of gathering information about economic activity that will be advantageous for the organization.

For the planning of an organization, the manager can use the historical, present and future information obtained from management accounting which based on the organization’s situation and position in predicting the organization’s future needs, setting clearer objective and implementing specific strategies that can bring achievement to the organization. After interpreting relevant management accounting information provided, it will be more efficient for the organization to apply and realize their planning and objective that had been set earlier.

For the planning of an organization, the manager can use the historical, present and future information obtained from management accounting which based on the organization’s situation and position in predicting organization’s future needs, setting clearer objective and implementing specific strategies that can bring achievement to the organization. After interpreting relevant management accounting information provided, it will be more efficient for the organization to apply and realize their planning and objective that had been set earlier.

Management accounting able to assists the manager in controlling organization’s cash flow and improve financial stability which included the costs and business operational expenses. With the management accounting information obtained, the manager is able to review the cost of economic resources and other business operations. Therefore, the manager is clearer and familiar with the estimation of cost needed to run the business. Manager can analyze the quality of economic resources consumed in producing goods by using the management accounting information.

As an example, if the overall quality of product would not be affected significantly by replacing with cheaper raw material, the manager can change towards a reduction of production costs. Budgeting is considered as major part of management accounting. To create an effective financial plan with lower operational expenses, manager able to analyze necessary and unnecessary business expenses based on the budget plan obtained from management accounting information in the pathway of saving money for the organization. In contrast, there is also some limitation of management accounting information which based on financial and cost accounting. The interpretation of financial information usually depends on the interpreters’ judgments. The accuracy of decision mostly will be affected by their personal bias or prejudices. Manager usually uses management accounting information as a decision-making tool. This is because management accounting information consists of specific and accurate details related to different competitors, market and industry the organization involved.

With the analyzed data such as competitive advantages, consumers’ demand, potential sales and consumers’ response to price change, manager is able to make decision among all other business opportunities. In contrary, there are some limitations of the management accounting information. The quality of the information is restricted with the proper understanding and knowledge of the management accountants who provided the information.

They may be lack of knowledge in related subject such as Statistic and economics, thus it will lead to inaccurate management accounting information. In conclusion, it is foreseeable that management accounting information is important and can be known as a business tool for the organization although it may has some limitations. But, it can also overcome by applying expertise and professional training for every level of management in the organization.

Therefore, the information still able to assists in internal operation management of an organization. Furthermore, all decisions of the organization rely heavily management accounting information due to the reason it identifies all the factors that will affect the organization to succeed.

Compare the uses of both variable and activity based costing as managerial decision making tools in business providing both examples and applications. Be specific on how service products must have good cost measures to access both profit accuracy and process adjustments to remain competitive. Review of subject Both variable and activity based costing are valuable management tools in business. In this paper, we will discuss how variable and activity based costing used in an organization and explain how these two methods differ.

Variable costing is method of determining unit product cost and it is used internally for planning and control purposes only. Whereas, activity based costing (ABC) is a costing method based on activities that is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity. We will also be looking to find the answer how service products must have good cost measures to access both profit accuracy and process adjustments to remain competitive.

Discussion Variable and activity based costing are managerial decision making tools. Variable costing identifies contribution margins of individual products, helps managers make decisions on what products to develop and what product to improve while ABC identifies profitability of individual products and from individual customers, helps managers make decisions on what products or customers’ relationship to develop and what products or customers’ relationship to improve.

Managers can apply TOC to make improvement for both variable and activity based costing approaches. In terms of cost measurement, profit accuracy, pricing decisions, products’ variable costs are based on volumes that are relevant. In addition, flexibility of managers makes pricing and other critical decisions for variable costing approach. In contrast, for ABC approach, costs assigned to products, customers and other cost objects are only potentially relevant.

Fully allocates all costs (including costs of idle capacity and organization-sustaining costs) to products, customers and other cost objects. This overstates costs and understates margins and causes mistakes in pricing and other critical decisions. It is really interesting that variable costing method is easy to make CVP analysis from income statement because variable and fixed costs are clearly identified but not easy to make CVP analysis from income statement to ABC method because variable and fixed costs are mixed.

That is also one of the reasons why ABC much more complexity, much more costly and time consuming than variable costing method. Compared with absorption costing, variable costing is less popular whereas ABC much less popular. Both variable costing and ABC are none conformity to GAAPs. Under variable costing, variable product costs are assigned to the units produced and expensed when the units are sold and fixed product costs are treated as period costs and expensed when incurred.

Under variable costing revenues are first reduced by all variable costs to arrive at an intermediate figure called contribution margin and then reduced by all fixed costs to arrive at a final net income figure. Variable costing is a more effective tool for short-run decision making such as whether to make or buy a component, and pricing – especially when variable selling and administrative costs are included since it focuses on revenues and variable costs.

Variable costing is used for internal management only. Its uses include: (1) inventory valuation and income determination; (2) relevant cost analysis; (3) break even analysis and Cost volume profit (CVP) analysis and (4) short-term decision-making. Variable costing is, however, not acceptable for external reporting or income tax reporting. Companies that use variable costing for internal reporting must convert to absorption costing for external reporting.

Activity Based Costing (ABC — also called transaction cost analysis) starts by apportioning an organization’s expenses to a set of cost pools, usually classified by activity rather than by organizational unit or department. Cost analysts then use statistics to determine which transactions cause these pools to vary in size. These are called activity drivers, resource drivers, or cost drivers. Examples of cost drivers in a manufacturing environment include the number of inspections, raw materials receipts, the number of components in inventory, machine setups, or change orders.

In many organizations, ABC is a by-product of quality management. Under quality management, ABC is used to distinguish between activities that add value (to final products) and those that do not — like inspection, rework, and scrap, which arise out of defects in the service delivery process. Because quality management pushes significant operating decisions down to the lowest levels of the organization, cost measures and cost estimates are needed at the lowest levels, as are measures of rework, activity cycle time, customer satisfaction, etc.

Standards are also needed for cost/performance measures. Standards can be based on the best an organization has achieved over time (base lining), the best practice currently being achieved somewhere (benchmarking), or an engineering standard — in target costing, for example, price targets are set by the market (price less planned markup equals allowable cost) and evaluated for feasibility by computer simulation (drifting cost) (Tani, 1995). ABC is being used in the telecommunication market (http://www. trp. hku.hk/papers/2002/abc_telecom_text. pdf).

One of the better known estimates of the total cost of government regulation in the US uses the logic of ABC, although it applies it at an extremely aggregate level. Based on the presumption that firm level compliance costs are driven by new regulations and federal enforcement efforts, the Center for the Study of American Business at Washington University bases its estimates of regulatory compliance costs on the total number of pages in the Federal Register and the budgets of federal regulatory agencies.

The Fraser Institute has a study underway using this approach to estimating the cost of regulation in Canada. Activity based costing has also recently been applied to the problem of estimating the costs of the Federal Acquisitions Process in the United States. However, this approach still has deficiencies. It entails the cost-benefit trade-offs, since the more activity cost pools are identified in ABC system, the greater will be the accuracy of the cost assignments, which also results in greater costs of implementing and maintaining the system.

In addition, the relevant period inconsistency with each cost per driver per period and activity costs per period can have an impact on the cost analysis accuracy as well. The usual distinction made in the literature is between decision facilitating and decision influencing (Demski and Feltham, 1976). Because time only runs one way, both uses of cost information are problematic. In the first instance, a cost description (measurement or estimate) is provided to decision makers before a decision is made.

Unfortunately, costs can only be measured after the fact. This means that cost analysts must estimate the costs of the alternatives under consideration. In some cases, measured cost is a reliable predictor of future costs; in other cases it is not. Regardless of its reliability, however, it is all we have or can have. In the second instance, cost is measured after decisions have been made and implemented. Only the measurement method and its consequences are conveyed prior to the decision.

In this second case, measured costs are used to evaluate managerial performance, with the purpose of influencing management choices. Consequently, managers must be informed as to how their performance will be measured and how performance measured will affect outcomes they care about — promotion pay, esteem, etc. Conclusion Planned costs must take account of cost behavior if they are to provide a reliable basis for control. In addition, the link between sales and profit performance, under variable costing, ensures a performance measure that managers understand easily.

With the need to identify fixed and variable cost, and their importance to the production or service, as well being needed for managerial decisions these all interlink and are useful in identifying the needs of methods of use. The purpose of the various costing classification are dependent upon what type of project is being undertaken and what the intended outcome is. However, I feel that ABC fits in to the uses of various different.

This method can be a more appropriate way of classification of costs as it recognizes that in the long run most costs are not fixed, and it seeks to understand the forces that cause overhead costs to change overtime, and what activities cause costs and create demand.

References

Demski, Joel, and G. Feltham Cost Determination, Ames: Iowa State University Press, 1976. Garrison, R. H. , Noreen, E. W. , and Brewer, P. C. (2008). Managerial accounting (12th ed. ). Boston: McGaw-Hill/Irwin. Tani, Takeyuki, “Interactive Control in Target Cost Management,” Management Accounting Research, 6/4, Dec. 1995: 401-414.

Although maintaining the current plant- wide rate Is probably not Illegal, its continuation has one purpose: to extract profits from government business. Doug knows the plant-wide rate Is not accurately assigning overhead costs to various Jobs and Is willing to alter the assignments on an “unofficial basis” for purposes of bidding on private-sector jobs. Fundamentally, ethical behavior is concerned with choosing right over wrong. To knowingly overcharge government for future business certainly seems so wrong.

To continue overpricing knowing the new overhead rates would more than make up for any lost profits from the government sector through more competitive bidding in the private sector is a clear indication of greed. While managers have an obligation to maximize profit and shareholders wealth, this obligation must be within ethical boundaries In addition, the solution proposed by Doug Is not ethical as he Is using a plant-wide rate as costing approach for both private and government business but he uses departmental overhead rate to make balding prices competitive.

This arises due to he company having two producing departments, one labor Intensive and the other is machine intensive. This is a violation of at least two major ethical standards: integrity and objectivity. The labor intensive department generates lesser overhead than machine-intensive department. Furthermore, virtually all of their high-volume jobs are labor-intensive. The company is using a plant-wide rate based on their direct labor hours to assign overhead to all Jobs. As a result, the high volume, labor Intensive Jobs receive greater share of the machine intensive department’s overhead than they really deserve.

This problem can greatly alleviated by switching to departmental overhead rates. But as most of the company’s government contract work is done in the labor intensive department and the department overhead will push down the cost on the government jobs, the company will lose revenue. Dual-pricing approach will be used. Plant-wide overhead rate approach for official records and departmental overhead rate approach for bidding in private sector business, which is a practice that is highly unethical. 2. Tanya has an ethical obligation to communicate information and should always make sure that ethical standards are upheld In the company.

Tanya should first determine whether or not Gunderson has a corporate code of conduct. She can pursue the avenues suggested by the code. Check the violations committed and how can you address such violations. For example, If Tanya cannot persuade Doug to refrain from implementing his scheme, she should present her objections to Dough’s needs to reach out on the higher management level. If no resolution is possible after appealing to all higher levels, the resignation may be the only remaining option. Case 9-55 DRP Roger Jones Cash Budget Cash collection and cash available Less: Cash disbursements Salaries Benefits

There is more none going out than there is more money coming in. Increase revenue to make up the deficiency or cut down costs or he can implement both. Three approaches can be applied to reach the goal of increasing revenue and cutting down costs. Alternative #1 : Extend office hours so that a total of 40 hours are worked each week. This could increase revenues by as much as $5,340. Based on a four-week month, the current revenue earned per hour is $166. 88($21 ,360/128). Thus, the total revenue increase that is possible is hours). DRP.

Jones would need to inform his assistants and receptionists of the increased time ND indicate that each will receive a 15% increase in salary for the additional time. The office is currently open for 34 hours per week. Benefits are primarily PICA, SEA and unemployment insurance benefits, and other insurance benefits would also increase. Other expenses that will likely increase with an increase in sales are dental supplies, lab fees and utilities which is about 31% of the sales. The remaining expenses would be assumed as fixed expenses.

In all likelihood, this would require the receptionist to become involved in assisting. This may not be possible without laying off the receptionist and hiring a person that has both sets of skills. Additionally, using the receptionist as an assistant would result in phone calls going unanswered and/or incoming patients being ignored. C. Alternative #3: A third possibility is to increase the free charged for the various dental services. Assuming a variable cost ratio of 31% from Alternative 1, the increase in revenues needed to cover the $2,900 deficiency can be computed as follows: 0. OR = $ 2,900 R = $ 2900/0. 69 R = $ 4,203 The increase would call for fees to increase an average of 19. 7%. Whether this increase is possible or not depends to some extent on how DRP. Jones’ charges compare with other dentists in the area. If some increase is possible, then the increase could be combined with elements of the other two alternatives. For example, 10% increase in fees and working the extra hours per week, say Tuesday evening. I would expect DRP.

Jones to be more likely accept a combination like the one Just mentioned rather than accepting any of the approaches in their pure form. The behavioral principles discussed in the chapter do have a role in this type of setting. DRP. Jones’ personal goal must be in line with the goals of his professional organization, and he must have the motivation to achieve those goals. That is, however, a significant difference. DRP. Jones owns and manages the organization. To large extent, his goals must be done the same way as the organization.

Discuss the management accounting issues that affect the business concerned in relation to the news paper article. (www. butlersinthebuff. co. uk) From reading the article it’s quite clear that the business has developed very rapidly over a very few years are on a successful businenss idea but as any business grows in size operations become more complicated, no longer is just having a good idea enough to progress and protect what has been achieved.

Good management and skilled labour are necessary to be able to grow. For managers to be able to make good decisions they require up to date financial information which is related to the issue they are examining, this is the role of management accountants to provide relevant financial data to managers. From reading the article entitled: ‘Starting Out’ 1 and looking at the business’s website2 I’ve got a good understanding of the nature of the business and its history.

There was very little financial data provided in the article and website so I am not able to give much direct management accounting advice but I will discuss various management accounting issues that I think the directors of the business should consider for continued success in the future. Firstly, I would like to discuss contribution analysis and how it can help the company directors make decisions for the future.

Although at the moment contribution analysis is not so important as the company has few fixed costs because they are primarily a service providing business with the butlers being paid on a commission based system, so when a butler is booked and paid for, only then is the butler due 40% of the fee. In the past it probably wasn’t so important as it was obvious that a clear profit was being made as there were few costs. Now that the business has 6 full time employees as well as premises this must be considered.

Furthermore now that the firm is trying to move into events organising as well as merchandising the need for contribution analysis is more apparent as more semi-variable and variable cost exist. Contribution analysis will aid them to create realistic budgets so that they are aware of what capacity they have available to them, how much they will need to spend on equipment and materials as well as what sales levels they must aim for to be break-even or what targets they must meet to achieve strategic goals such as market share targets.

As the business grows the need for cash budgeting will be vital, as it doesn’t matter how much profit is projected if there is a negative cash flow the business will be unable to continue functioning as they will not have enough cash to pay staff and bills on time which would inevitably lead to the business ceasing trade.

There are other issues that the directors will need to examine as they expand the business, one of which is to maintain the flexibility of the workforce but also keep reliable butlers and in greater numbers as they expand they will need more butlers as well as have them spread better around the country, this poses a problem of finding enough butlers in the different areas of the UK and provide them with them enough clients for it to be worthwhile for them to treat it as a consistent job, as well as have enough butlers available to manage demand in order to reduce the loss of customers to rival firms.

At the heart of the business is the butlers themselves so it is important not to lose them to rival companies. As the number of butlers increases it is important that quality standards are maintained or otherwise the businesses reputation will be tarnished by poor customer experiences which would be very bad as a lot of the business comes via referrals from happy customers. By maintaining their high level of customer satisfaction they protect themselves from losing business to possible rivals.

I feel it may be necessary for them to employ a HR manager in the future who is fully in tune with the directors about what kind of people they need to be the butlers so that the HR manager can take on the responsibility of recruiting and training the right people for the job. To expand as well as make it harder for competitors; they need to forge more links and associations with related businesses such as wedding and events organisers, this will not only help them to find more customers but also more consistent work from these firms, as well as make the company well known by the public.

Merchandising will help to strengthen the company brand but I do not believe it will make a considerable profit as it is unlikely anyone other than customers of the service will consider buying any merchandise, furthermore selling actual goods will require hiring more contract staff which will cause fixed costs to increase as well as investing in production. Moving into events organising and PR for customers seems like a natural business to move into, providing these services will not only generate new profit in their own right but also strengthen the existing business as stronger relations are built with clients.

Q2: Discuss the management accounting issues that affect the business concerned in relation to the news paper article. (Cusquena premium beer) From reading the article it seems that the company is doing well and has a lot of potential but it has a major problem that could do it a lot of harm in the future. It is currently operating on very tight margins due to the cost of marketing, and what small gross profit after marketing costs of around 5% being made is being given to charity as their net margins are nil. This poses a major cash flow risk as there is no retained profit being reinvested.

If there was a sudden need for cash due to some unforeseeable reason such as if there was a fault with a large batch of bottles and they had to do a product recall this would probably put them out of business unless they raised cash from outside the business as internally the cash just isn’t there as they are operating at nil profit. Simply for the company to get into a more comfortable position they need to sell there way out of trouble, if demand increases which it looks like it will due to their investment in marketing and the fact that the major supermarkets have started stocking it.

Cunsquena has a gross profit of 35% (contribution) before marketing costs; this is a healthy profit margin to operate at. As sales increase naturally the marketing cost apportioned to each bottle sold will naturally decrease although total marketing costs will continue to increase for the foreseeable future as the brand moves to new strengths but at a proportionately slower rate than sales, this will result in larger net profits that can be retained and reinvested into the business or just saved giving the business a healthier cash flow.

This does bring up another issue that needs to be examined which is where the necessary investment is going to come from for the company to be able to increase production and the logistical infrastructure needed to increase shipments as well as increased marketing to drive demand. The most obvious option in this kind of situation would be for then to sell equity in the business to raise cash for investment, but this is not an option the two owners are willing to take.

Another option would be to continue as they are and reinvest what net profit is earned into the business; this is a bad idea as there is very little net profit at the current level of sales, which is not likely to change considerably without further investment. Another option would be to borrow money from the banks to invest in the business; the problem with this is it will cause the companies gearing level to increase as they will have debt repayments which will cause costs to increase and possibly strain the cash flow in the short-run.

Another option would be to take on another company as a trade partner who would be able to not only inject investment but also bring experience and extra skills to the project, I think this would be a good option as I think the two owners not only need further investment but also the support a experienced partner would bring with them, but I doubt the two owners will consider this option as they are unwilling to sell any part of the company.

As the company stands at the moment it is a generating only 5% in net profit, if there was no room for increasing demand or increase net profit it wouldn’t really be worth doing as they could generate just as much in interest earnings from the banks. An investment appraisal would help them to get a better image of what they can expect in the future.

Accurate contribution analysis is very important for the company, as they are currently running on very low net margins and on a very tight cash flow as a result of this, they need to be fully aware of how much contribution they are truly receiving on current sales for them to plan for the future as they have very little room for wastage and miscalculation. Also due to their low margins the need for budgeting is even greater so that they can plan more accurately how much production is likely to cost at new sales forecast levels taking into account possible labour efficiency increases due to a gradual learning curve effect.

They should also do a cash budget so they can plan where and when cash is expected and needed over the year to keep the large logistical processes of the company functioning smoothly. Given the long lead time at 8 weeks required to get a bottle from the brewery to the customer, it is essential that effective production and sales budgets are produced, to make sure that enough is in stock to fulfil demand as well as reduce possible over ordering considering the extra cost of storage and logistics of unneeded stock and especially given the existing cash flow constraints.

Given that contribution analysis, sales and production budgets are being used it is necessary to do variance analysis to find out the state of affairs by finding how much budgeted and true figures at the end of the financial year compare. This information will help them to plan in the future as they will have a better idea of what types of variance will occur in different parts of the business and be able to make educated predictions on how much the variance will be or within what expected range. This information will help them to make better budgets in the future as they have a better idea of what to expect.

As a final advice on a non-accounting issue I think they should really push the message that this beer is; ‘the only beer that doesn’t cause a hangover’ as strongly as the charitable aspect and the history of the beers origins in the marketing campaign, as I’m sure that will be a strong advertising point to the British public who are known for their heavy drinking compared to other European countries. Although I myself am a Muslim and do not drink yet this marketing opportunity seems obvious to me.

References

1. ‘Starting Out’ written by Widget Fine for the Daily Telegraph (27/05/06) https://www.butlersinthebuff.com/uk/

To continue overpricing knowing the new overhead rates would more than make up for any lost profits from the government sector through more completive bidding In the private sector is a clear indication of greed. While managers have an obligation to maximize profit and shareholders wealth, this obligation must be within ethical boundaries In addition. The solution proposed by Doug Is not ethical as he is using a plant-wide rate as costing approach for both private and government business but he uses departmental overhead rate to make bidding prices competitive.

This arises due to he company having two producing departments, one labor intensive and the other Is machine Intensive. This Is a violation of at least two major ethical standards: integrity and objectivity. The labor Intensive department generates lesser overhead than machine-intensive department. Furthermore, virtually all of their high-volume Jobs are labor-intensive. The company Is using a plant-wide rate based on their direct labor hours to assign overhead to all jobs. As a result, the high volume, labor intensive Jobs receive greater share of the machine intensive department’s overhead than they really deserve.

This problem can greatly alleviated by switching to departmental overhead rates. But as most of the company’s government contract work is done in the labor intensive department and the department overhead will push down the cost on the government jobs, the company will lose revenue. Dual-pricing approach will be used. Plant-wide overhead rate approach for official records and departmental overhead rate approach for bidding in private sector business, which is a practice that is highly unethical. 2. Tanya has an ethical obligation to communicate information and should always make sure that ethical standards are upheld in the company.

Tanya should first determine whether or not Gunderson has a corporate code of conduct. She can pursue the avenues suggested by the code. Check the violations committed and how can you address such violations. For example, If Tanya cannot persuade Doug to refrain from implementing his scheme, she should present her objections to Dough’s 1 OFF needs to reach out on the higher management level. If no resolution is possible after appealing to all higher levels, the resignation may be the only remaining option.

March 15th, 2013 Dr. the Honourable Peter Phillips Minister of Finance and Planning The Ministry of Finance and Planning 30 National Heroes Circle Kingston 4 Jamaica Re: Appeal letter for intervention in the financial regulations Dear Sir: This is with reference to the new regulatory regime for financial institutions. The Laguna Group is a small collection of financial establishments that are not regulated by the Bank of Jamaica (BOJ) and have been self-regulated for the past sixty years.

However, with the implementation of the new financial regulations, it is of strong belief that this will greatly impair the operations of the group. It is with this effect that we are calling upon your high esteem to intervene in this urgent matter. The Laguna Group has been vigorous investors in the country’s financial sector and the collective strength of the industry. As a result, the group currently controls fifteen (15%) and eighteen (18%) percent of the country’s total deposits and personal loans respectively.

The unwillingness of the BOJ to enter into negotiations threatens the stability of the funds controlled by Laguna. Minister, this is of grave urgency, the members of the group are willing to meet with you and BOJ to arrive at a mutually beneficial agreement to best serve the group’s existing one million working class clientele. The Laguna Group will seek to strengthen relationships with the government and the central bank; as such your collaboration would be vital in creating specific regulations that would serve the best interest of the group, the central bank, the government and the people of Jamaica.

Again, with regards to the aforementioned, we are strongly beseeching your immediate intervention in the course of these regulations. The matter has already been discussed and deliberated among the group’s members; however it is your diplomacy that will yield absolution from this regime. We eagerly await your response. Thank you. Respectfully, Frances Hibbert Frances Hibbert Group Corporate Executive Officer Laguna Group of Financial Institutions

Table of Contents Facts| …………………………………………………………………………………| 2| Analysis| …………………………………………………………………………………| 2| ConclusionsReferences| ……………………………………………………………………………………………………………………………………………………………………| 56| Issues 1. a. What would you tell Bates concerning her accounting needs, emphasizing the uses of the accounting information for all stakeholders within and without the business? 2. a. The boatyard operates how many businesses? b. What are the accounting information needs for managing these businesses? Facts

Sarah Bates a returning Navy civilian decides to buy a business with the money she has saved along all this time. Bates buys a small boatyard in a town on the coast of Maine where she had spent many summers. The business being somewhat larger than she could finance alone, she had borrowed the additional funds required from a friend, giving a mortgage on the property as security. Along this way she realized she needs adequate accounting records. The records on hand were for cash receipts and disbursement only, as well actual balance sheet and profit and loss statement.

Bates did not have any background on accounting therefore she finds helps from a friend of her, who advice her on what kind of accounting records should be kept and what kind of financial and cost information should be developed to control operations and to make proper charges to customers for services rendered. Some of the facts of the business are, one of the properties was a large shed for the winter storage of boats. Since the place was very suitable for larger boats there was a great demand for the space in it on the part of owners of expensive boats among the summer people.

Also there was plenty of empty land on the shore front outdoor storage, the space was rented and also hired to haul the boats in equipment that it had for the purpose. During spring and other seasons there was a lot of business in painting and repair work for boats. Also she had a large sized work shed containing woodworking tools and space for when the weather was not the best to work outside it could be done inside. Lastly the property included a good sized wharf and float, a store for the sale of marine hardware and supplies, and gasoline pumps.

Analysis 1. Bates did not have any proper accounting system; Bates only has record for cash disbursement and cash receipts. Bates should use the cost accounting system. This system is suitable for her as she can identify and assign the cost to each department. Bates should implement segmental reporting for each of the department so that she can assess the contribution and profitability of different departments by comparing the revenues and costs that they generate.

Based on the segmental reporting, she can identify whichever departments that contribute profit or loss to her business. At the same time she can remove the unprofitable department. Bates needs to keep other accounting records other than the cash disbursement and cash receipts. She has too many business activities without any proper accounting management. Bates should identify which activity she wants to focus more on and, to be able to make it as her core business.

Based on the segmental reporting used, Bates can analyze and determine which continuously gives profit to her. There a couple of suggestions Bates should implement on her accounting needs, first of all to implement a computerized accounting system in order to generate proper accounting records, since manual records are subject to greater human error, and can be easily misplaced. As for inventory purpose on her store, she should have an automated system that can help her keep track of inventory.

Also Bates should conduct a cost benefit analysis, she wants to invest more money from capital that she does not have at the moment by adding a fishing tackle, sporting goods, and refreshment to her retail shop and without finding out if by adding the shop would really add more value into her business. Also she needs to study on what seasons is her business more profitable, in order to use the space more efficiently and effectively, and at the same time to segregate duties accordingly to demand of customers. . a. The Boatyard operates 3 different businesses. The first one is a large shed for winter storage of boats. There is great demand for space since it is a very suitable space for boats. Also there is more space for storage and haul of boats in on equipment on the front. The second one is a large sized work shed containing woodworking tools and space to construct about six boats up to 40 feet in length at one time. This space also it could be used for painting and repair shop.

Lastly a good size wharf and float, store for the sale of marine hardware, supplies, and gasoline pumps, also a great spot for people who surfs to be around. b. One of the accounting information that Bates needs in order to manage his business, would be to calculate certain business functions costs. Bates needs to determine how much labor is used and the amount of materials used. Since managerial accounting helps decide the amount of time spent on each customer to maximize profit. Cost Objects need to be identified for measuring and assigning costs.

For Bates there are different cost objects involved, which are; a large shed for winter storage, empty land for outdoor storage, and a yard at the same time as painting and repairing department. Another cost objects include; work shed for construction of boats, hardware and supplies store, gasoline pump, wharf and float. Each of these cost objects should be clearly defined as a separate department. The cost must be identified, measured and assigned to each department for planning, controlling and decision making.

The direct cost can be identified through direct tracing that recognizes costs that are exclusively and actually associated with each department. To assign costs that have a cause and effect relationship with each department, the driver tracing method should be used, and this method is less expensive than assignment or allocation and the result is usually more accurate. At the same time indirect cost must be assigned through allocation. These costs must be measured with high degree of accuracy so that the profit can be calculated correctly.

This cost information is needed for setting up objectives such as quality of painting and repair work; in order to reduce inspection costs, customer complaints, and waste material. Another objective would be evaluation suppliers and signing a contract with the suppliers for long term supply of defect free hardware tools and supplies at a fixed rate. An additional objective is that, maintenance costs must be identified as well as budgeted, and a maintenance schedule should be made to reduce labor costs. This is accomplished by having performance reports that compare the actual data with budgeted, planned data.

A schedule must be maintained for employees working in painting, repair department and hardware store to avoid overtime premium. In order to achieve all the objectives, the best strategies need to be chosen and implementation of all objectives must be monitored so that corrective action can be taken. Conclusions 1. I would extremely recommend Bates to analyze her economically and business position at this moment. She needs to understand that she is involved in so many different businesses at this moment, and she is really the only one who is somehow on control and management of the all businesses.

She should either take some intensives classes in how to use managerial accounting correctly or hire someone with accounting background that would advise her and collect the necessary data in order to used it properly, and to make the right decisions. Also since she just started her business she should study the industry that she is getting involved in first, before she make any further decisions in investing more money or expanding her business. At the same time she should try to focus in one business at the time to make sure everything gets handle the way it should be, as she could start earning some profit as soon as possible.

Lastly she needs to understand that since she borrow some money she would need to start adjusting her finances, and increase profit in order to comply with all of her obligations that would be coming up. 2. a. the business operated by Bates Boatyard are described on analysis 2a along the analysis we could observed how many different business she is operating, and once again recommender her to focus one by one at the time, to ensure everything is running well on her business.