Accounting for Management: Budgeting and Cost Allocation Methods

This document discusses budgeting and sensitivity analysis, indirect cost allocation methods, and activity-based costing. It includes schedules, an email to T & K, and a report to T & K.

Running head: ACCOUNTING FOR MANAGEMENT
ACCOUNTING FOR MANAGEMENT
Name of the Student:
Name of the University:
Author Note

1ACCOUNTING FOR MANAGEMENT
Table of Contents
Task A........................................................................................................................................2
Budgeting and Sensitivity analysis............................................................................................2
Schedule 1..............................................................................................................................2
Schedule 2..............................................................................................................................2
Email to T & K.......................................................................................................................3
Task B........................................................................................................................................5
Indirect Cost allocation Method.................................................................................................5
Schedule 3..............................................................................................................................5
Report to T & K.....................................................................................................................6
Introduction........................................................................................................................6
Discussion..........................................................................................................................6
Conclusion..........................................................................................................................7
Reference and Bibliography.......................................................................................................8

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Task A
Budgeting and Sensitivity analysis
Schedule 1
BUDGET 2019
Taxation Bookkeeping Advisory Total
$ $ $ $
Billable hours 3,520 2,310 3000
Chargeout rate per billable hour 263$ 137$ 280$
Professional labour rate per hour 155$ 67$ 180$
Professional labour hours 4,224 2,772 3,600
Revenue 924,000 315,315 840,000 2,079,315
Professional labour costs 652,608 185,585 648,000 1,486,193
Gross margin 271,392 129,730 192,000 593,122
Office staff wages 56,667 56,667 56,667 170,000
Rent & Utilities 20,833 20,833 20,833 62,500
Printing & stationary 7,500 7,500 7,500 22,500
IT Support 6,600 6,600 6,600 19,800
Advertising 6,667 6,667 6,667 20,000
Depreciation 3,667 3,667 3,667 11,000
Client entertainment costs 27,720 9,459 25,200 62,379
Total Support costs 129,653 111,393 127,133 368,179
Budgeted Profit before tax 141,739 18,337 64,867 224,942
2019 Master Budget for T&K Accounting Services
Schedule 2
Budget Sensitivity Analysis - Business Advisory Department
Business Advisory
Billable hours
Business Advisory
Revenue
Business Advisory
Labour hours
Business Advisory
Gross Margin
Business Advisory
Support Costs
Business Advisory
Net Profit
Business Advisory
Net Profit % Change
from Master budget
3,000 840,000 3,600 192,000 127,133 64,867 0%
2,700 756,000 3,240 172,800 124,613 48,187 26%
2,400 672,000 2,880 153,600 122,093 31,507 51%
1,800 504,000 2,160 115,200 117,053 1,853- 103%

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Email to T & K
To,
Mr Thompson and Mr Chua
T & K Accounting Services
Brisbane,
Australia
To Whom It May Concern
This letter is to notify you that I has completed my research as you have asked for to review
and analyse the budget along with that I have also performed the sensitivity analysis of the
prepare budget. As per your requirement, this analysis is prepared to provide the
recommendation about the inclusion of the advisory department in the firm. This letter also
provide the details of the necessary actions, which can be taken by the firm in respect of the
inclusion of the advisory department in the firm. This recommendation and the suggested
steps are developed in the basis of the calculation and the analysis of the calculation done by
me. Here, I have calculated the budget for the advisory department in the basis of the budget
for the existing department and the estimated budget of the new advisory department.
The proper and the extensive calculation regarding the budget of the new department helps to
understand the situation in a better way. To analyse the any project the value comparison is
also a better way to proceed and this help to understand the value of the new project that is an
advisory department here. As per the value of the budget that is calculated to understand the
project, this is observed that the company earned the profit of $ 160,120 before implementing
the advisory department and cost of the profit for the company has around $ 223,380. Here,

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the profit margin for the company has been moderate and the cost for the profit is also under
the limit of the company.
Further, the calculated budget shows that the estimated profit of the firm after implementing
the new advisory department, will be increased to $ 224,942 and the cost for this profit
increase to the $ 368,179. This comparison of the value states that the profit of the firm will
increase and even the cost of the company to generating such profit will increase too.
Although, the percentage of the change is very minor.
Hence, this analysis and the calculation of the budget shows that the profitability of the firm
will increase by implementing the advisory department in the company as the profit before
tax of the company estimated to be more compared to the before implementing the
department in the firm. This implementation will also help the other department of the firm to
perform well as this department reduce the work- load of the other department too. Even this
help to reduce the requirement of the resources of the other department. Hence, it has been
suggested to the firm to imply the new advisory department in the firm as it is beneficial for
the company and will help the company to increase the efficiency and the performance of the
company as well. This letter also provides the detailed calculation herewith, kindly go throw
that to take the further require actions regarding the implication of the advisory department in
the firm.
Thanks and Regards,
Tony John
Date: - 24th May 2019

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Task B
Indirect Cost allocation Method
Schedule 3
ACT IVIT Y BAS E D COS T ING AL L OCAT ION OF OVE RHE AD COS T S
Activity Total Cost Activity driver Total activity Cost per activity Tax Bookkeeping Advisory
Rent, Utilities 62,500$ Floor Space (sqm) 380 164.47$ 21,382 9,046 32,072
IT Support 19,800$ # of IT requests 136 145.59$ 6,697 2,184 10,919
Support Staff, Printing & Stationery,
Depreciation 203,500$ Billable Hours 8,830 23.05$ 81,123 53,237 69,139
Advertising, client entertainment 82,379$ # Clients 200 411.90$ 30,068 7,826 44,485
368,179$ 139,271$ 72,293$ 156,616$
Activity by service

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Allocated Support costs $ Allocated Support Costs $
Tax 129,653$ Tax 139,271$
Bookkeeping 111,393$ Bookkeeping 72,293$
Advisory 127,133$ Advisory 156,616$
Net Profit $ Net Profit $
Tax 141,739$ Tax 132,121$
Bookkeeping 18,337$ Bookkeeping 57,436$
Advisory 64,867$ Advisory 35,384$
Existing Allocation of Support Costs ABC Allocation of Support Costs
Budgeted Profit by Service - existing allocation Budgeted Profit by Service - ABC allocation
Report to T & K
Introduction
This report is prepared to provide the clear idea about the process of costing that help
the firm to increase its performance. The T & K has their own existing cost allocation process
and the firm is looking for another new process of allocating cost that can improve the
performance of the company being profitable. Hence, this report provides the detailed
analysis that whether the firm should continue their existing accounting process or should
adopt the Activity Based Costing method in respect of the cost allocation for the firm. For
this, the report analyse the relationship between the two methods, which can help the
company to increase its efficiency of the firm and more suitable for the development of the
firm.

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Discussion
The Activity Based Costing is a new tool that allocates the direct cost of production to
the products in a prescribed manner. This tool allocates the cost of production in the basis of
the dependent hours of the product (Childress et al, 2015). The activity based costing initially
allocates the production cost to the operations as the operations of the company is the main
reason behind the production cost. The activity cost of the firm is allocated to the products in
the basis of the level of demand made by the product for the activity process. Currently, the
firm is using the conventional costing process in production process. The comparison of the
current cost of production for the firm and the profit in existing cost process and the
estimated cost of production and the profit under the activity based costing. This comparison
will help the company to understand that whether the existing costing method is profitable or
the activity based costing is more profitable for the firm (Iswahyudi, Azis & Santosa, 2017).
In the existing method of the costing, the firm incurred the $ 129,653, $ 111,293 and $
127,133 for three departments and profit of the same departments was $ 141,739, $ 18,337
and $ 64,867. On other hand, it is estimated that the cost of the company will become $
139,271, $ 72,293 and $ 156,616 and the profit of the department will increase to $ 132,121,
$ 57,436 and $ 35,384 for the three department in the activity based accounting.
In the basis of the above comprising, this report recommends the firm to adopt the
activity based costing to allocate the cost of the production among the products. As in this
process the cost of the production will decreased and the profit of the firm will increase as per
the expected value.
Conclusion
The report concludes that the T & K firm follows the conventional method for
allocating the cost of production among the products and looking for the new efficient
method of allocating the cost that can increase the performance of the firm. This report

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compare the cost of production under the existing method of the firm and the cost and profit
of the firm under activity based costing to recommend the best method of the costing to the
firm. Lastly, this report recommends the activity based costing to the T & K as in this process
the profit of the firm is more than the existing method of costing.

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Reference and Bibliography
Holzer, M., Mullins, L. B., Ferreira, M., & Hoontis, P. (2016). Implementing performance
budgeting at the state level: Lessons learned from New Jersey. International Journal
of Public Administration, 39(2), 95-106.
Henttu-Aho, T. (2016). Enabling characteristics of new budgeting practice and the role of
controller. Qualitative Research in Accounting & Management, 13(1), 31-56.
Childress, S., Nichols, B., Charlton, B., & Coe, S. (2015). Using an activity-based model to
explore the potential impacts of automated vehicles. Transportation Research
Record, 2493(1), 99-106
Iswahyudi, B. E., Azis, S., & Santosa, A. A. (2017). Analysis of Contruction Cost Efficiency
Between Precast Method and Conventional Method in Building Project. International
Journal of Technology and Sciences, 1(1).