Question 1

1.1: Management accountants advocate that marginal costing is superior to absorption costing when assisting management with decision-making.

In light of the above statement, discuss in detail the advantages of marginal costing as the basis of management reporting.

1.2 Justify whether management accounting is required in non-profit organisations.

Question 2

Mo Salah is employed by Liverpool Limited. The normal working week is 45 hours. Mo Salah worked for 48 hours during the last week of March 2022. He is remunerated at R90 per hour during normal working hours. Overtime is calculated at 1.5 times the normal rate. The following are her deductions for the week:

• Medical aid fund R400
• Pension fund 8% of the normal wages
• Income tax R850

Liverpool Limited contributes the same amount as the employees towards the medical aid fund and pension fund.

Calculate the net wage of Mo Salah for the last week of March 2022.

Man City Enterprises commenced operations on 1 January 2022, and produces a single product that sells for R36 per unit. During 2022, 300 000 units of the product were manufactured of which 240 000 units were sold. There was no work-inprocess inventory at the end of the year. All costs are presented in the table below:

Cost type Fixed Variable
Direct materials R6.00 per unit produced
Direct labour R4.00 per unit produced
Factory overhead R600 000 R2.00 per unit produced
Marketing and administrative R300 000 R1.00 per unit sold

Prepare the income statement using the Marginal Costing method for the year ended 31 December 2022.

Get answers on questions from Management Accounting

Answer 1: Managers are required to make decisions as a part of their roles and responsibility in the organisation. It is therefore important that they should be provided with sufficient information relevant to making decisions. Marginal costing and absorption costing are significant in this respect in providing cost related information to management in taking decisions. However marginal costing is considered superior in comparison to absorption costing in assisting management in their decision making process because it provides management with information about the impact of variable cost on the profitability performance of a product or service. It is also beneficial in providing information in relation to achieving better cost control, providing accurate profitability performance allowing management to take relevant decisions.

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