Dell Inc, a global company that designs, develops, and manufactures personal computers (PCs) and a variety of computer-related products. The company is one of the world’s leading suppliers of PCs.
At present, it has several issues that need to be addressed and you have been tasked to examine some of these matters. The company is facing severe competition from PC World, Amazon and other retailers. Dell (the company) wants to assemble and sell a new more profitable computer.
The management accountants are tasked with finding out whether or not the sale of this new individual PC will be profitable.
The company mainly build PC to order. You choose the specifications and then the company build the PC to suit your requirement and then ship them out to you.
In determining the pricing of the computer, the company consider the cost of parts form Original equipment manufacturers (OEM), The cost of labour and the cost of machinery hours used to automatically put the computer parts together. The company uses different management accounting systems to monitor, track and
Management accounting systems (MAS) are the internal systems that an organisation uses to measure and evaluate its processes for the management of the organisation. There are a number of MAS that most organisations use. These MASs include job costing, inventory management, and price optimising systems.
Management accounting techniques
Dell is deciding whether or not to provide the facility to build a brand-new type of computers for the student market. Dell want to know if this project would be profitable and decided to go ahead with a small production run. The company will produce 1000 XCP computers but expected that only 800 units will be sold. All the product and period costs are documented below.
Unit to be Produced 1000 Units
Unit Sold 800 Units
Computer parts Per unit £200
Direct labour Per unit £150
Variable overhead Per unit £60
Fixed overhead Per unit £50
Selling Price per unit £1,200
Selling expense £30 000
Admin £40 000
Distribution £25 000
Required: You are required to demonstrate an understanding of management accounting systems. In completing this task, you are required to:
1) Explain management accounting in details.
2) Identify and explain three different management accounting systems and give the essential requirements of each.
3) Explain at least two different methods used for management accounting reporting and how these reports may be presented to the appropriate internal managers.
4) Apply a range of management accounting techniques to calculate costs, produce financial documents and interpret data for business activities. Calculate the cost of production and cost per unit of the proposed new Dell computers using both the absorption and the marginal method costing technique.
Guidance on Assignment 1:
- You are required to provide a definition of management accounting and financial accounting.
- Also state at least three differences between management accounting and financial accounting. Differences may include: one follows GAAP and the other does not, one if for internal users mainly and the other is for external users mainly, one focusses on reporting on the entire business while the other may focus on parts of the business, one focusses on past transactions while the other tries to predict the future, one focusses on financial information and the other focusses on both financial and non-financial information, etc.
- Explain job costing system, inventory management system and price optimising system. As part of the task, share information on how the different systems will work in Dell. You can explain different reports that are used by the manager; Budget Report, Accounts Receivable, Job Cost Reports, Inventory report, Profit & Loss Statement (or any other MAR) and explain the methods used to present such reports to the different level of internal users.
- Use the figures above to calculate cost of production and cost per unit using both absorption and marginal costing techniques.
To obtain a merit, you need to complete all the PASS criteria (see section A above) as well as the following tasks below:
## Benefits of Management Accounting Systems ##
Identify and explain the benefits of using the job costing system within Dell plc? Provide an example of how the job costing system is applied within Dell plc.
Identify and explain the benefits of using the inventory management system within Dell plc? Provide an example of how the inventory management system is applied within Dell plc.
Identify and explain the benefits of using the Price optimising system within Dell plc? Provide an example of how the Price optimising system is applied within Dell plc.
## Management accounting techniques ##
Use the information provided in cost calculations earlier and produce the income statement using both the marginal and absorption costing methods.
