2000 Words - Management Accounting - 36 hours deadline

Scenario You are the recently appointed Chief Management Accountant of SGA plc; a large quoted company. You have been invited to attend a meeting with the Finance Director, but have not been provided with any advance information about the purpose of the meeting. You have been wondering whether you have done something wrong but, as soon as the meeting starts, it becomes clear why there is so much secrecy. Here is what the Finance Director tells you. “Thanks for coming. What I am about to tell you is very confidential and must not be discussed outside this office. We are considering making a bid for a company named Ultra-Processing Limited. You may have heard of this company; it is a manufacturer in the chemical industry. As you know, we have no experience of the chemical industry; our existing business is very much concerned with both large and small building contracts. If this bid is accepted, then there will need to be some major changes throughout our company in order to ensure that the new subsidiary is successfully integrated into our business. This is particularly true for us here in the Finance Department. We have been using job costing and contract costing for many years, but you are the only member of staff with experience of the process costing that we will need to implement if the bid is successful. What I need from you is a report that critically discusses how process costing works. This report must include answers to the following specific questions: 1. How does process costing differ from job costing and contract costing? 2. Ultra-Processing Limited makes both joint products and by-products. Are these the same thing? How are they accounted for? 3. We have seen some recent management accounts from Ultra Processing Limited and these included references to “equivalent units”. What are these? Why are they needed? How are they accounted for? 4. The management accounts refer to “abnormal losses” and “abnormal gains”. They also include “normal losses” but I cannot see any evidence of any “normal gains”. Why is this? Please limit the report to 2,000 words. If you wish to include any examples to illustrate the points that you are making, then put these in an appendix.”