Introduction To Managerial Accounting For Ethical Professional Practice

Institute of Management Accountants (IMA)

Write about the Introduction to Managerial Accounting for Ethical Professional Practice.

Requirement 1:

The “Institute of Management Accountants (IMA)” has designed the “Statement of Ethical Professional Practice”, which needs the management accountants to follow four ethical standards and they include confidentiality, competence, credibility and integrity (Imanet.org 2018). These standards are enumerated briefly as follows:

This standard denotes the sharing of information to the intended and authorized personnel only. It is necessary for the management accountants of Middle East Tiles Company to maintain the confidentiality of information. This implies that they should not make such information public; instead, they need to provide to the authorized personnel (Bettner et al. 2014).

This standard signifies the quality of remaining impartial by stringent adherence to the moral values. This requires the management accountants to remain honest and unbiased in all situations. Therefore, they should not breach the integrity standard by misusing the resources for personal use in order to maintain their ethical integrity (Butler and Ghosh 2015).

Competence highlights the ability of an individual to work in an effective manner in a provided situation. There needs to competency amongst the management accountants for carrying out their duties efficiently and effectively (Calderon et al. 2018).

This standard implies the quality of remaining fair, effective and reliable. The management accountants of the organization have to possess the capability so that its owners trust them. This could be ensured, if they communicate reliable and authentic information to them (Epure 2016).

Requirement 2:

Calculation of operating profit for Product A by using contribution margin approach method:

Particulars	Total	Per Unit
Units produced/sold	10,000
Sales revenue	$ 10,000,000	$ 1,000
Less: Variable expenses
Direct material cost	$   6,000,000	$    600
Direct labor cost	$   2,000,000	$    200
Total variable expenses	$   8,000,000	$    800
Contribution margin	$   2,000,000	$    200
Fixed costs	$      800,000
Operating profit	$   1,200,000

Requirement 3:

Particulars	Total	Per Unit
Units produced/sold	10,000
Sales revenue	$ 10,000,000	$ 1,000
Less: Variable expenses
Direct material cost	$   6,000,000	$    600
Direct labor cost	$   2,000,000	$    200
Total variable expenses	$   8,000,000	$    800
Contribution margin	$   2,000,000	$    200
Fixed costs	$      800,000
Break-even point (in units)	4,000
Break-even point (in sales)	$                      160,000

 Requirement 4:

Middle East Tiles Company
Sales Budget
For the year ended 2019
Particulars	First Quarter	Second Quarter	Third Quarter	Fourth Quarter
Expected Sales (Units)	2,000	2,200	2,400	2,600
Selling price	$              25	$                   25	$                25	$                  25
Sales Revenue	$       50,000	$            55,000	$         60,000	$           65,000

Middle East Tiles Company
Production Budget
For the year ended 2019
Particulars	First Quarter	Second Quarter	Third Quarter	Fourth Quarter
Expected Sales (Units)	2,000	2,200	2,400	2,600
Add: Desired Closing Stock	550	600	650	850
Number of units required	2,550	2,800	3,050	3,450
Less: Opening stock available	400	550	600	650
Number of units to produce	2,150	2,250	2,450	2,800

Requirement 5:

Middle East Tiles Company
Schedule of Cost of Goods Manufactured  and Cost of Goods Sold
For the period ended 30 June 2018
Particulars	Total
Beginning work in progress inventory	$             140,000
Cost of materials used	$             280,000
Cost of labor	$             180,000
Manufacturing expenses (overheads)	$             120,000
Total manufacturing costs to account for	$             720,000
Ending work in progress inventory	$             120,000
Cost of goods manufactured	$             600,000
Add: Opening stock of merchandise inventory	$               80,000
Less: Closing stock of merchandise inventory	$               60,000
Cost of goods sold	$             620,000

Budgeting often helps an organization in a variety of ways and in case of Rose Garden Enterprises, budgeting preparation for all its business functions would provide the following set of benefits:

The method of budget formulation shifts the focus of the management from short-term and daily business management to long-term management. This is the basic objective of budgeting, even though the management might not be successful in meeting its objectives highlighted in the budget. In fact, it is thinking regarding the financial and competitive position if the organization and the ways of improving the same (Martin 2016).

It is observed often that an organization loses its sight of the areas where it is making money at the time of scramble daily management. With the help of effective budgeting structure, it would be possible for Rose Garden Enterprises to determine the aspects producing more money. In this way, it could decide whether to shut down some counterparts or diversify in others.

Statement of Ethical Professional Practice

With the help of budgeting procedure, the management of the organization could think of the reasons that it is in business along with its significant assumptions regarding its business environment (Mih?il? 2014). A periodic reassessment of such issues might lead to change in assumptions and the management might have to alter the ways of business operations.

 The management of Rose Garden Enterprises could collaborate with its staffs for setting goals for a budgeted timeframe along with including bonuses and incentives based on their performance. After this, budgets could be formulated compared to actual reports for providing staff feedback regarding the ways of progressing towards their goals (Noreen, Brewer and Garrison 2014). This technique is prevalent with the financial objectives, even though the operational goals like minimizing the rework rate of the product could be added to budget for performance assessment.

Particulars	Quarter 1	Quarter 2	Quarter 3	Quarter 4
Sales revenue	$ 80,000	$ 96,000	$ 115,200	$ 144,000
Less: Cost of goods sold	$ 48,000	$ 57,600	$   69,120	$   86,400
Gross profit	$ 32,000	$ 38,400	$   46,080	$   57,600
Selling and administration expenses	$ 24,000	$ 33,600	$   35,520	$   38,400
Operating income	$   8,000	$   4,800	$   10,560	$   19,200
Income tax expense @30%	$   2,400	$   1,440	$     3,168	$     5,760
Net income	$   5,600	$   3,360	$     7,392	$   13,440

Requirement 3:

Particulars	Quarter 1	Quarter 2	Quarter 3	Quarter 4
Sales revenue	$   80,000	$   96,000	$ 115,200	$ 144,000
Net income	$     5,600	$     3,360	$     7,392	$   13,440
Total assets	$ 200,000	$ 200,000	$ 200,000	$ 200,000
Profit margin ratio	7.00%	3.50%	6.42%	9.33%
Return on investment	2.80%	1.68%	3.70%	6.72%

According to the above table, it could be observed that the profit margin ratio has fallen significantly from 7% in the first quarter to 3.50% in the second quarter; however, it has increased to 6.42% in the third quarter and 9.33% in the fourth quarter. Profit margin ratio denotes the percentage of profit that an organization earns after incurring all its expenses from the revenue earned (Pretorius and Ronan 2015). The rise in this ratio is due to the fact that the sales revenue has increased considerably in tandem with the operating expenses and seasonal market demand.

The similar trend is observed in case of return on investment as well. It implies the percentage of return that an organization earns by deploying its asset base in the market (Weygandt, Kimmel and Kieso 2015). This denotes that Rose Garden Enterprises has deployed its asset base more effectively with the rise in net income and improvements could be seen in terms of profitability position over the last two quarters.

References:

Bettner, M., Williams, J., Haka, S. and Carcello, J., 2014. Financial & Managerial Accounting.

Butler, S.A. and Ghosh, D., 2015. Individual differences in managerial accounting judgments and decision making. The British Accounting Review, 47(1), pp.33-45.

Calderon, T., Hesford, J.W., Mangin, N. and Pizzini, M., 2018. Sunrise Hotels: An integrated managerial accounting teaching case. Journal of Accounting Education.

Epure, M., 2016. Benchmarking for routines and organizational knowledge: a managerial accounting approach with performance feedback. Journal of Productivity Analysis, 46(1), pp.87-107.

Imanet.org., 2018. [online] Available at: https://www.imanet.org/career-resources/ethics-center?ssopc=1 [Accessed 19 Jul. 2018].

Martin, J.R., 2016. Management Accounting: Concepts, Techniques & Controversial Issues, Chapter 1, Introduction to Managerial Accounting, Cost Accounting and Cost Management Systems.

Mih?il?, M., 2014. Managerial accounting and decision making, in energy industry. Procedia-Social and Behavioral Sciences, 109, pp.1199-1202.

Noreen, E.W., Brewer, P.C. and Garrison, R.H., 2014. Managerial accounting for managers. New York: McGraw-Hill/Irwin.

Pretorius, A. and Ronan, M. eds., 2015. Managerial Accounting and Financial Management. Oxford University Press.

Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2015. Financial & managerial accounting. John Wiley & Sons.