Preparation of Budgets and Ethics in Cost Accounting

The study is based on preparation of budgets for carrying N Go for the first quarter of 2019. It includes production budget in units, direct labour budget in hours, direct materials budget, sales budget, and budgeted contribution for the first quarter of 2019. The study also shows the significance of ethics in cost accounting to ensure the overall accuracy of cost information. It analyses actions of Erica and on the basis of analysis actions to be taken by marketing managers, production managers and division controlled on the basis to ethics to be applied for cost accounting.

ASSIGNMENT 2104AFE
TRIMESTER 2, 2018
Management accounting

TABLE OF CONTENTS
Introduction................................................................................................................................3
Part 1..........................................................................................................................................3
Production budget in units.....................................................................................................3
Direct labour budget in hours.................................................................................................3
Direct materials budget..........................................................................................................3
Sales budget...........................................................................................................................4
Part 2..........................................................................................................................................4
Part 3..........................................................................................................................................5
(i)............................................................................................................................................5
(ii)...........................................................................................................................................5
(iii)..........................................................................................................................................6
Conclusion..................................................................................................................................7
References..................................................................................................................................8

INTRODUCTION
The present study is based on preparation of budgets for carrying N Go for the first quarter of
2019. Provided budgets will be supported by proper calculations and working for better
understanding and presentation. On the basis of prepared budgets, total budgeted contribution
margin has been computed. Next part of the study analyses actions of Erica and on the basis
of analysis actions to be taken by marketing managers, production managers and division
controlled on the basis to ethics to be applied for cost accounting.
PART 1
Production budget in units
Particulars January February March
(A) Opening Stock 10,000 12,000 8,000
(B) Sales 20,000 24,000 16,000
(C) Closing Stock 12,000 8,000 9,000
(D)
Production in Units
(B+C-A) 22,000 20,000 17,000
Direct labour budget in hours
Particulars January February March
(A) Production in unis 22,000 20,000 17,000
(B) Direct Labour Hours Per Unit 4 4 3.5
(C) Projected Direct Labour Hours (A*B) 88,000 80,000 59,500
Direct materials budget
Particulars January February March
(A) Production in unis 22,000 20,000 17,000
(B) Direct Material Cost Per Unit $10.00 $10.00 $10.00

(C) Projected Direct Material Cost $220,000 $200,000 $170,000
Sales budget
Particulars January February March
(A) Sales in Units 20,000 24,000 16,000
(B) Sales Price Per Unit $80.00 $80.00 $75.00
(C) Budgeted Sales $1,600,000 $1,920,000 $1,200,000
PART 2
Budgeted Contribution for the First Quarter of 2019
Particulars January February March
Sales Revenue $1600000 $1920000 $1200000
(+) Closing Stock (Working Note 2) $840000 $560000 $594000
(-) Direct Material Cost $220000 $200000 $170000
(-) Direct Labour Cost (Working Note 1) $1320000 $1200000 $952000
Budgeted Contribution $900000 $1080000 $672000
Working notes
1. Direct Labour Cost
Particulars January February March
A Production in units 22000 20000 17000
B Direct Labour Hours per Unit 4 4 3.5
C Direct Labour Hourly Rate $15 $15 $16
D Direct Labour Cost $1,320,000 $1,200,000 $952,000
2. Closing Stock
Cost of Production/ Unit
Particulars January February March
1 Direct Material Cost / Unit $10 10 10
2 Direct Labour Cost/ Unit $60 60 56
3 Total Cost/ Unit $70 70 66
4 Closing Stock in units 12,000 8,000 9,000
5 Valuation of Closing Stock $840,000 $560,000 $594,000

PART 3
(i)
As per the given case situation, to attain the bonus Erika is planning to overestimate expenses
and underestimate revenues to achieve the target required to receive a bonus. This behaviour
is not ethical as the accuracy of information is compromised, and consequently, financial
information will not show a true and fair view of the business. Deferring inventories to assure
bonus in next year is also not justifiable as, without actual sales, revenues of business will be
uplifted. The objective of bonus strategy is to ensure efficiency and performance of the
business is improvised so that overall profitability can be increased (Otley, 2016). However,
the actions of Erika are completely contrary to this as she is claiming for the bonus without
enhancing the efficiency of the business. Actions of Erica also are in conflict with the interest
of business and with this overall profitability will be suffered.
(ii)
Accounting professional and Ethical standards boards limited (APESB) has been developed
in Australia to develop professional accounting standards to ensure ethics in the behaviour of
the profession. By this regulatory body, APES 110 code of ethics has been issued to ensure
that accountants and another related profession to this job post are working in the public
interest (Langfield-Smith et al. 2017). In the cited standard there are five primary principles
related to the ethics which are as follows:
 Confidentiality
 Integrity
 Objectivity
 Professional competence and due care
 The professional behaviour.
By application of above-described principles, it can be said that professionals are required to
honest while financial reporting and maintaining business relationships. Further, the actions
taken by the accountant and professionals must not be biased and not to be influenced by
unethical aspects or should lead to a conflict of interest (Wouters et al. 2018). This standard
imposes an obligation on professionals to make use of professional judgment while following
orders. Further, in a situation, if they identify any threat, then it should be either eliminated or
to be reduced to the maximum possible extent.

Therefore, by considering the above-described provisions, as a marketing manager, I will
report to seniors by describing the action of Erica. Justification of this action is to report the
unethical behaviour of Erica. This approach might adversely affect my working relations with
the Erica but the as a professional I have a responsibility towards the business and APES 110
code of ethics also states that first priority is to be provided to the interest of the company to
ensure sustainable growth.
(iii)
As a production manager, it is my responsibility to consider the interest of employees as well
as companies. If I am aware of the fact that division managers are engaged in the padding of
budgets, and it is common practices for them, then on the primary basis I will modify the
bonus plan. I will apply the following factors in developing bonus plan:
Modified sales bonus
Sales bonus simply refers to the receiving financial incentive at that when the seller meet up
or surpluses that are pre-definite goals (Madhav, Horngren and Datar, 2015). It may be
measured as a per cent of cumulative revenue milestone- i.e. a dollar amount is rewarded just
the once a rep carries in a definite revenue amount for a specific period. For example, an
individual rep may get a $1000 sales in a situation where they attain revenue of $10,000 for
the quarter, but this is competent as seen in the present case. Therefore Bonuses are to be
linked with the accomplishments, and it should not only be directly related to revenue. For
instance, bonuses might be rewarded on the number of units that are sold, how many
agreements are signed newly or how rapidly fresh customers are stirred towards the sales
cycle.
Improvisation in communication coordination
Improved communication inside an organization can help to increase productivity. While the
information is received from one section to the other is done rapidly and correctly, then it can
improvise the speed upon which the organization works and make sure that every required
party receive the information that is required to be productive (Klychova et al. 2015). The
production manager is accountable to ensure that the elements are necessary to assist efficient
communication in an organization. For instance, the arrangements of enough computer
accounting system, which computes the current inventory and pass this information to the
manufacturing department so as to keep up the level of products for, fulfilling the orders.

Training Programs
Production managers can also implement a training program for employees to enhance
overall efficiency by making improvisation in methods and strategies used. For this, initially,
production managers are required to analyse the work functions of operational managers so
that appropriate steps can be taken to maximise productivity.
The whole point of offering sales bonuses or commissions is to incentivize the team to work
towards the goals that matter most (Phibbs, Barnett and Fan, 2015). Sales bonus must be
structured by considering specific objectives such as making an increase in cash flows,
increase in departmental profits and it should be supported by scheduling a certain number of
meetings to monitor the performance of division managers and their actions to attain the
developed goals.
Apart from the above-described aspects, I will impose a penalty on the division managers
engaged in unethical practices. This action is justified because it is a set an example for all
division managers in the future not to get engaged in such practices. Further, the practice of
regular feedbacks and recommendations from managers of all divisions will be implemented
to take the viewpoint of all managers. This approach will ensure that managers will enhance
overall efficiency without adopting unethical practices to earn a bonus in a fair manner.
(iv)
By considering the above-described code of ethics, if I will be in the position of division
controller and get the command of accelerating the recognition of expenses which does not
belong to a current financial year, then I will ask for justification for such accounting in
writing. This approach will provide written evidence of the action of the division manager.
Further, I will report to the department head about such instruction provided by the division
manager so that the authority can take appropriate actions.
CONCLUSION
In accordance with the present study, the conclusion can be drawn that it is significant for the
business to record cost in an accurate manner to make viable decisions for better growth and
profitability of the business. Further, the study also shows the significance of ethics in cost
accounting to ensure the overall accuracy of cost information. Analysis of the case study
shows that the existing bonus plan is not viable due to which division managers such as Erica

are engaged in unethical aspects. Therefore, businesses are required to adopt viable practices
to improvise an overall bonus strategy and to attain business objectives in a sustainable
manner.

REFERENCES
Klychova, G.S., Zakirova, A.R., Zakirov, Z.R. and Valieva, G.R., 2015. Management aspects
of production cost accounting in horse breeding. Asian Social Science, 11(11), p.308.
Langfield-Smith, K., Smith, D., Andon, P., Hilton, R. and Thorne, H., 2017. Management
Accounting: Information for creating and managing value. McGraw-Hill Education
Australia.
Madhav, R., Horngren, C. and Datar, S., 2015. Cost Accounting: A Managerial Emphasis,
15. Auflage, Edinburgh.
Otley, D., 2016. The contingency theory of management accounting and control: 1980–
2014. Management accounting research, 31, pp.45-62.
Phibbs, C.S., Barnett, P.B. and Fan, A., 2015. Research Guide to the Managerial Cost
Accounting National Cost Extracts. Guidebook.
Wouters, M., Selto, F.H., Hilton, R.W. and Maher, M.W., 2018. T Course: Management
Accounting 1 [T-WIWI-102800]. Module Handbook Industrial Engineering and
Management (B. Sc.).