5998 management accounting

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Different type of cost classification.......................................................................................1
1.2 Calculation of Unit cost and total job cost.............................................................................2
1.3 Calculating cost of Exquisite using absorption costing technique........................................3
1.4 Analyzing cost of Exquisite...................................................................................................5
TASK 2............................................................................................................................................6
2.1 Preparing and analyzing cost report for the month of September.........................................6
2.2 Use of performance indicators to identify areas for potential improvement.........................8
2.3 Ways to reduce cost and enhance value, quality...................................................................9
TASK 3............................................................................................................................................9
3.1 Purpose and nature of budgeting process..............................................................................9
3.2 Selection of appropriate budgeting methods for organization.............................................10
3.3 Preparation of different types of budget..............................................................................11
3.4 Preparation of cash budget...................................................................................................12
TASK 4..........................................................................................................................................14
4.1 Calculation of variance........................................................................................................14
4.2 Preparation of reconciliation operating statement...............................................................15
4.3 Findings to management in accordance with identified responsibility centers...................16
CONCLUSION..............................................................................................................................17
REFERENCES..............................................................................................................................18

INTRODUCTION
Management accounting is regarded as the main field of accounting which supports in
combining norms of budgeting along with cost. With the help of undertaking different type of
methods, it is possible for business enterprise to determine the actual cost of production along
with the operational tasks so as to take large number of decisions in favor of the business.
Further, for this aspect it is necessary to record cost along with major expenses by undertaking
different effective methods of costing (Chapman, 2008). All these methods support business
enterprise in reducing overall cost with the motive to enhance profitability level. Moreover, it is
well known fact that every business enterprise prepares different type of accounts along with
reports so as to assess its overall performance in the market and corrective actions are taken if
business is not performing as per expectations. Statements such as annual report etc are fruitful
for business with the help of which information is shared with external shareholders of the
company and through this it is possible for them to satisfy need of parties associated with the
firm. The present report being carried out is based on organization named Jeffrey and Sons
where business is manufacturing branded products like Exquisite. Organization has mainly two
departments namely production and service. Various tasks have been covered in the study which
is different type of cost classification, calculation of unit cost etc.
TASK 1
1.1 Different type of cost classification
Cost is regarded as the overall expense which is being incurred by the business enterprise
for conducting major activities of the business. Cost of organization can be divided on the basis
of following elements which are:
Element: This factor supports in dividing cost into direct and indirect one. Further, direct costs
are those which are incurred for carrying out the production process. Main examples of direct
cost are labor, material, lightning, heating etc (Jiambalvo, 2001). On the other hand indirect costs
are those which are being required for carrying out manufacturing in appropriate manner. Main
examples of indirect cost are small tools etc.
Function: It is possible to classify the major costs on the basis of function along with activities.
Costs can be classified into different types which are finance, production, distribution, research
and development, quality check etc.
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Nature: Considering the nature of different costs it can be divided into material, labor and
overhead expense. Material expense are being incurred for carrying out the production process
where materials are purchased, labor expense is associated with payment of wages to different
workers and overhead expenses are linked with cost of business enterprise. Hence, in this way
nature of every cost differs from each other which business has to consider for carrying out
overall operations in effective manner (Keown, 2005).
Behavior: By undertaking, behavior as a factor it is possible to segregate cost into fixed, variable
and semi variable. Further, fixed cost is considered as the cost which does not changes with the
change in level of output. On the other hand, variable cost alters with the change in production
unit. Apart from this, semi variable cost contains features of both fixed and variable cost.
Therefore, in this way behavior of every cost differs from one another.
1.2 Calculation of Unit cost and total job cost
Job costing is regarded as the effective technique with the help of which cost is
determined in condition where each job differs from one another in terms of nature and is carried
out as per the provided specifications by the target market (Kont, 2013). This technique is
comprised of undertaking an account by considering indirect and direct cost associated with the
job. Calculation of Unit cost along with total job cost of job 444 has been shown below:
Particulars Amount (£)
Direct cost
Direct material 200
Direct labour 270
Indirect cost
Variable production overhead 180
Fixed production overhead 120
Cost per unit 770
Units to be produced 200
Total cost 770*200 154000
Working note
Fixed production overhead= (Budgeted overhead / total direct labor hours) * Direct labor hours
used in Job 444
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