Contents
I.INTRODUCTION..............................................................................................................................................3
II. MAJOR FINDINGS.........................................................................................................................................4
TASK 1............................................................................................................................................................4
A. Division X..............................................................................................................................................5
B. Division Y..............................................................................................................................................6
C. Division Z..............................................................................................................................................7
D. Paradise Group Ltd...............................................................................................................................7
TASK 2............................................................................................................................................................8
1. Preparing an income statement for Division X using absorption costing and marginal costing........8
2. The quantity Division X should produce and sell to get breakeven..................................................10
3. The selling price for 1 kg of catfish fillet and profit of Division X......................................................10
4. The cost of goods sold and profit of Division Z in March 2020.........................................................11
5. Closing balance for inventories of Division Y on March 31, 2020.....................................................11
III. CONCLUSION.............................................................................................................................................14
REFERENCE LIST..............................................................................................................................................15

1


I.INTRODUCTION
In this report, an understanding of management accounting systems along with the crucial
requirements will be provided by figuring out how Paradise Group Ltd. applies different
types of management accounting systems on three divisions are X,Y,Z to report and
critically evaluating it. As a result, the study will provide some recommendations for not
only the case study but also the othercompanies use the same method.
Paradise Group Ltd. is a organization with three main areas of interest, two primarily
related to the business of cooking products and seafood, and only one division is entirely
different, offering service-ads. Division X oversees the production of catfish export
fillets, Division Y is the sugar retailer, and Division Z offers promotional services to meet
consumer demands.

These results give an initial overview of specifically defined accounting management
systems in Paradise Group Ltd. and specific requirements of the various types of
accounting management systems. Last but not least, the organization’s management
accounting systems are analyzed critically. Last but not least, the management accounting
structures of the organization are critically examined.

2


II. MAJOR FINDINGS
TASK 1
- Management accounting, which is also known as managerial accounting is a process of
creating organizational objectives through the identification, evaluation, examination,
interpretation and communication of knowledge to managers. It focuses on all accounts
planned to remember the operating company metrics to management. This incorporates
knowledge about the value of the goods or services purchased by the organization (What
Is Management Accounting? | FreshBooks, n.d.).
- The method of management includes the four basic roles of: planning, coordinating,
managing, and making decisions. Accounting administration plays a crucial role in
executives executing these administrative roles (Sharma, n.d.).
- Some kinds of management accounting systems that are normally used are:
+ Cost accounting system
+ Job costing system
+ Normal costing system
+ Inventory management system
+ Price optimization system
+ Process costing system
- Following by using these MA systems ,there are also different types of MA reports that
are used to collect, synthesize and calculate the information, figures, numbers from the
results of Divisions such as:

+ Reports
+ Tables
+ Diagrams
+ Charts
3


A. Division X

- As for Division X, process costing system is applied, each process is opened one
account. This is a method to aggregate direct and indirect production process costs and to
average those costs over the equivalent units produced by the process. Process costing
system is used when a firm generates masses of the same or equivalent units of a good or
service.
- The reason why it is used for Division X is this department includes two processes are
Cutting and Packaging in order to produce catfish, which is a products that are produced
and sold daily on the market of huge volumes.
- The benefit of this method is Divisional Manager can figure out the cost of each process
in the production, therefore the correct unit cost will be calculated and then they can set
the price (Bragg, 2018). Especially, process costing enables greater flexibility in
manufacturing process change. To specify, the X’s accountant will provide the Divisional
Manager a tabular report which includes the cost and productivity of each process in the
production every month.
- The most logical and transparent way of dealing with materials and uniformity facilities
is the process costs for Division X. In addition, this type of approach is reasonable
because seafood (catfish) has been used on a daily basis and is not too limited in terms of
the products created. It can be easily seen in industries with goods manufactured in large
amounts and regularly consumed, such as beef and chicken, sausage. Therefor, it would
seem that this system of accounting appears to influence the management of all the output
costs most suitable for Division X.

- As I have mentioned above, the table report is useful and provides a lot of data monthly
of production costs and productivity which allow the manager to control and assess the
price for that product. However, it can be seen that the manager still requires quality
reports as it might be difficult to follow the tabular report when it can only show numbers
and she wants to have reports that are more detailed. To satisfy this will of the manager, it
is better to mix a tabular report with charts in order to fill in the data collected by defining
profitable products. Moreover, X’s accountant might need to summarize the situations,

4


challenges and trends so that the manager can take the right decisions about
improvements and take the opportunity.
B. Division Y

- In the case of Division Y, inventory management system is the one that be used. This
system consisted of planning, coordinating and controlling activities that related to the
flow of inventory into, through and from the firm. Division Y's maximum and minimum
reservation levels to ensure sugar is available for sale while reducing the inventory to low
levels. Alongside this type, FIFO is also used to valuate its inventories. IMS is used to
ensure goods are still available for sale and stocks in Division Y are kept at moderate
prices. The Inventory Management System tracks product inventory time, which is vital
to Division Y because it's a food retailer. Therefore, Y uses a market price as it sells sugar
on the retail so that the competition is not too customer-sensitive and competes with
opponents (Anthony, 2019). In addition , the risk of excess products is typically very high
since sugars are a common product, so IMS is the most fitted process.
- IMS improves reliability, timeliness and decreases operating costs to improve the
company's bottom line, increase the efficiency of inventories and enhance business
streamlining. Division Y's accountants produce reports once a month on the sugar sales
from each store.

- By IMS, managers advance the inventory processes and unnecessary cost risks can be
minimized or quality issues fixed. This is obviously needed for a sugar retailer such as Y.
IMS allows the firm tracking its production, storage, packing, transport, shrinkage and
quality costs; improves reliability and timeliness.
- Meanwhile, the Divisional Manager also looks for information of each store’s inventory
balance. Both cost management and revenue are needed. The system and report above
still have weakness when they cannot provide information on each item’s sales and
income. Therefore, Y’s accountant can optimize flexibly by applying the line and bar
diagrams to ensure timely import decisions or adjustments in product flow, provide
comparable information, evaluate fast moving parts and slow product movement that
enables the organization to do so. The inventory balance system should automatically

5


submit figures as comprehensive as possible to each store once a month to help affiliates
still capture the flow of products.
C. Division Z

- In Division Z, the job costing and normal costing scheme are applied. A job costing
method involves the process of collecting information about the costs associated with a
particular work in production or service. This information may be required to submit the
cost information under a contract to a customer where costs are reimbursed (Bragg,
2020). In fact, the job costing method can be tailored to the needs of the consumer. Some
consumers need only certain costs for their employment In addition , it is important to
provide details to ensure the consistency of the company's calculation method that the
financial crisis for fair income needs to be developed. This is used when making many
different goods (Nagle and Müller, 2018). A normal costing system that retraces direct
costs to a cost item by using current direct cost value times real direct cost input amounts
and that collects indirect costs according to the estimated indirect cost rate times the

actual cost allocation base quantities.
- The combination of normal costs and job costs helps the accountant to analyze the real
value at the end of each month. In this case, Z’s accountant has chosen table charts to do
the annual reports since the service’s requirements need a certain number depends on the
outcome. The director is also concerned with customer quality, with the advertising
industry's strong competition. The Customer Satisfaction Index is one of the variables
deciding company revenue and companies must also consider customer value, consumer
satisfaction in delivering the most appropriate goods. In order to plan the most suitable
service strategy, Division Z should also research information on customer satisfaction by
survey, fees, online quiz, etc.
D. Paradise Group Ltd.

- For each Division, this company provide a summary of the income and benefit
variations. The changes of Divisional are reported by the diagrams and histograms with
absolute and related values are ROA, ROS. For that reason, GD records the relative
income of the divisions and can make stronger decisions regarding the allocation of
capital. In addition to periodic reports, accountants from Division X, Y and Z send emails
6


to Divisional Managers urgently notifying managers of unforeseen shifts in operating
costs.
- However, this approach has a disadvantage that is the Divisions have not allocated the
firm expenses yet. The company may evenly dispense the amount of work and the
mission should be distributed to dissimilar Divisions by allocation base. The work level
should also be suitable between the Divisions in order to keep the workforce always
distributed and can operate unwrinkled without the big differences. When the workloads
being divided, it also boost the movement animation, improve profits and has flexible
solutions if necessary. By this, the firm could build up the relationships between the
Divisions and employees as well as avoid unequal job conditions and complaints over

wages.

TASK 2
1. Preparing an income statement for Division X using absorption costing and
marginal costing

- Absorption costing:
The cost per kg of catfish and Division X’s profit in March 2020 will be calculated using
the absorption costing in the table below:
Variable
manufacturing cost

Direct material cost = 1,5
Direct labor cost = 1
Variable production cost

per unit produced
Total manufacturing cost = 3
Fixed manufacturing cost = 0,5
Total inventoriable cost

1,5 -1 = 0,5
3 + 0,5 = 3,5

According to Horngren, absorption costing is an inventory cost approach that covers
inventory costs of both variable cost of production, and fixed cost of production. Or put it
another way, inventory "absorbs" all costs of production. From a given data, we can
calculate the total variable production cost per kg of catfish fillet, which is $3.
- Income statement:
7



Income statement is one of a company's key financial statements that shows its income
and loss over a period of time. The income or loss is determined by taking all revenues
from operating and non-operating operations as well as by deducting all expenses.
Revenue
Beginning inventory
Variable manufacturing = 40,000 * 3 = 120,000

32,000 * 5 = 160,000
40,000
120,000 + 20,000

Fixed manufacturing cost = 40,000 * 0,5 = 20,000
Cost of good available for sale = 140,000

140,000 – 28,000

Deduct ending inventory = 8000 * 3,5 = 28,000
Cost of good sold
Gross margin = Revenue – Cost of good sold = 160,000 – 112,000

112,000
48,000 – 10,000

Fixed selling = 10,000
Operating income

38,000


 Profits = Revenue – Cost of good sold – Fixed selling = 160,000 - 112,000 – 10,000 =
38,000
- Marginal costing:
In other ways, marginal costing is an alternative costing approach to loss absorption. The
marginal cost is the expense of a product or service unit that would be reduced if this unit
were not manufactured. In marginal costing, only VC is charged as a cost of sale which
stands for variable cost. The fixed cost is viewed as a expense of the time.
Variable
manufacturing cost

Direct material cost
Direct labor cost
Variable production cost

per unit produced
Total manufacturing cost
Total inventoriable cost

1,5
1
0,5
3
3

- Income statement:
By using the marginal costing, the table below will show the Income Statement for
Division X:
Revenue
Beginning inventory


32,000 * 5 = 160,000
40,000
8


Variable manufacturing

40,000 * 3 = 120,000

Cost of good available for sale = 120,000

120,000 – 24,000

Deduct ending inventory = 8000 * 3 = 24,000
Cost of good sold
Contribution margin = Revenue – Cost of good sold

96,000
(160,000 – 96,000) – 30,000

Fixed selling + Fixed manufacturing cost = 10,000 + 20,000
Operating income

34,000

 Profits = Revenue – Cost of good sold – Fixed selling = 160,000 - 96,000 – 30,000 =
34,000
2. The quantity Division X should produce and sell to get breakeven

Breakeven quantity is the production point at which profits are only adequate to cover all

expenses including fixed costs and variable costs. Which means the producer does not
make a profit at the breakeven quantity but he also does not lose. In other words, this is
the production level situated at the company's breakeven point.
Breakeven Q = = = 15,000 kg
Inventory = 8,000 kg
 Division X should produce 15,000 – 8,000 = 7,000 kg
3. The selling price for 1 kg of catfish fillet and profit of Division X

- In this case, we assume that Division X will use absorption costing and set the selling
price for one kg of catfish fillet. Division X’s profit is also measured and then an
financial statement is prepared as well.
 The selling price for one kg of catfish fillet = Total inventoriable cost + 35% mark up =
3,5 + 35% * 3,5 = $4,725
- Income statement:
Revenue = 32,000 * 4,725 = 151,000

151,200 – 112,000

Cost of good sold
Gross margin = 39,200

39,200 – 10,000

Fixed selling = 10,000
Operating income

29,200
9



4. The cost of goods sold and profit of Division Z in March 2020

Since the over allocated/under allocated overhead is counted in the cost of sale (of Job
201), this report will calculate the figures based on Job 201.
Production cost for Job 201
 Direct materials = $10,000
 Direct labor = $8,000
 Applied overhead = 8,000 * 150% = 12,000 $ = Budgeted overhead
 Total production cost for Job 201 = 21,000
 Applied overheads = (6,000 + 4,000 + 8,000) * 150% = 27,000
 The overall located overhead is counted in the cost of good sold = 28,000 –
27,000 = 1,000
 Total cost of good sold = 21,000 + 1,000 = 22,000
5. Closing balance for inventories of Division Y on March 31, 2020

Date

Opening inventory

Purchase

Unit Per

Unit Per

Amount

unit
1/3/2020
3/3/2020

13/2/2020

20/3/2020
26/3/2020

Amount

Ending inventory

Unit Per

unit

Amount

50,000

0

0

0

0

0

0

100


500

50,000

400

505

202,000

0

0

0

100

500

0

0

0

100

500


50,000

50,000

Amount

unit

500

202,000

Unit Per

unit

100

505
18/3/2020

Sell

100

500

50,000


500
500

505

252,000

200

505

101,000

252,000

200

505

101,000

0

0

0

200

505


101,000

0

0

0

0

0

0

300

510

153,000

0

0

0

300

510


153,000

300

510

153,000

0

0

0

280

510

142,000

20

510

10,200

It is obviously that at the beginning, the minimum reservation is 100 tons but the real
ending inventory is 20 tons. Accordingly, this leads to the stock out issue in Division Y as
10



the ending inventory’s units number in under the same figure that has been predicted in
the beginning. There is a decline in inventory under stocking. The lead time factor is very
critical in terms of buying and providing. In most situations, early demand is encouraged
by the buying division because the delivery is an unpredictable buffer and the lead time
delays. The potential loss of stock is affected by differences in the time of use and by the
late payment of the purchase order from the customer department while time is the
standard in delivery. When any supply arrives too late, the departments' work at institutes
will be slowed down, and the research will not continue smoothly. Stocking out creates a
lack of credibility due to the failure to produce or late deliveries, which also obscures
overhead retail costs. Expenditure would result in high costs due, for example, to delays
in construction at the Kenyan forest research institution. This will be represented in
monthly figures when the stock costs are calculated, in order to be consistent with
purchase and maintenance costs. Production costs in product models are difficult to
calculate or to use. Subsequently, stocks in the manufacturing and user departments could
lead to work stoppage and production slowing down. The source of the products sold is
not gone, management needs to clear the data and the surplus amounts, invest in the
growth of risk management teams and avoid situations where the qualified departments
can not manage them. Specific details reports for each division 's goods, estimates, and
inventories strictly eliminate errors and always deliver a report in good time. To replace it
quickly, establish emergency managers for out-of-sale information. Furthermore,
establishing sustainable ties with multiple suppliers of goods would ensure versatility and
abundance of supplies, can be easily modified as needed, and will avoid dependence on
one supplier.

11


III. CONCLUSION

Finally, to summarize this research, I have mentioned management accounting and the
necessary requirements in order to apply various kinds of management accounting
systems. Different ways to do the management accounting reports were also figured out.
All of this was specifically analyzed and explained in the case of the Paradise Group Ltd.
in each Division as well as by the firm. Moreover, suitable techniques of cost analysis
were also used to calculate and prepare the income statement for each Division in
different situations by using marginal and absorption costs.

12


REFERENCE LIST
Anthony, L 2019, ‘What is market-based pricing strategy?’ Small Business - Chron.com.
Available at < />fbclid=IwAR0AfZpm9isi8LbxswHtt8tWDyndSCSIgyMQ_6A8lGZJjUPHiTWDZzQKHM> [Accessed 9 May 2020]
Bragg, S 2018, ‘Process costing system’, Accounting Tools 09 February. Available at:
< />[Accessed 9 May 2020]
Bragg, S., 2020. The Job Costing System — Accountingtools. [online] AccountingTools.
Available at: < [Accessed 9 May 2020]

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FreshBooks. n.d. What Is Management Accounting? | Freshbooks. [online] Available at:
< [Accessed 9
May 2020].
Horngrn, C. T., Datar, S. M. & Rajan, M. V., 2015. Cost Accounting. 15th ed. s.l.:s.n
Nagle, T. and Müller, G., 2018. The Strategy And Tactics Of Pricing. New York:
Routledge.
Pontius, N., 2020. What Is An Inventory Management System? – Camcode. [online]
Camcode. Available at: < [Accessed 9 May 2020].

Sharma, V., n.d. Functions Of Management Accounting (4 Functions ). [online] Your
Article Library. Available at:
< [Accessed 9 May 2020].

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