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Budget Statements of Smart Looks Limited- Report

   

Added on  2020-02-17

23 Pages4865 Words64 Views
MANAGEMENTACCOUNTING

TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1TASK 1............................................................................................................................................11.1 Separation of expenses on the basis of different criteria..................................................11.2 Computation of total and per unit cost of production.......................................................21.3 Analysis of cost data.........................................................................................................31.4 Stock valuation methods for costing................................................................................51. FIFO...................................................................................................................................52. LIFO...................................................................................................................................53. Weighted Average Method.................................................................................................6TASK 2............................................................................................................................................62.1 Report of COGS using three stock valuation methods.....................................................62.2 Use of KPI for analysing business performance..............................................................82.3 Strategies which are helpful for reduce expenses and enhance quality..........................10TASK 3..........................................................................................................................................103.1 Budget and its importance for Smart Looks Limited.....................................................103.2 Different techniques for preparing budget.....................................................................113.3 Various budget statements for Smart Looks Limited.....................................................123.4 Cash budget for chosen firm...........................................................................................14TASK 4..........................................................................................................................................154.1 and 4.2 Use of marginal costing method to compute selling price and Calculatingestimated as well as actual margin.......................................................................................154.3 Report to board of directors on the basis of budget........................................................17CONCLUSION..............................................................................................................................18REFERENCES..............................................................................................................................20

INTRODUCTIONIn the firm management plays an integral role whether it is related to financial or nonfinancial aspects. By using different management techniques the company able to achieve itsvarious numbers of goals and objectives in very effectual and smooth way. In the current studythere is Smart Looks Limited firm is selected which operates and run its business in the textileindustry. It produces and prepare cloths and garments for the retail stores and shops. The presentstudy describes about the different criteria of costing which helps to segregate number ofexpenses. It shows about the budget and its significant in the firm for estimating future data andtaking highly effectual business decisions. On the basis of current report, the reader is able toknow different budget statements of Smart Looks Limited.TASK 11.1 Separation of expenses on the basis of different criteriaFixed costVariable costsSemi-variable costsFactory rentMaterial for clothsFactory supervisor's wagesOffice ratesPower for sewing machineryTelephoneFactory heatingPackaging materialDelivery drivers payFixed costs- Cost incurred in an entity which is unaffected with the changes in the sales units ofan entity as this will not increase or decreases with the time (Bowling, 2014). Fixed costs isalways remained constant throughout the making of product as it is occurred in the business.Variable costs- This cost is fluctuating in nature as this gets changed with a minute changestakes places in the overall sales unit of an entity like smart Looks Ltd. It has parallel relationshipbetween sales unit of an entity and the variable cost incurred. Material cost is variable costswhich gets changes with various sales units included in the business.Semi-variable costs- It is that kind of costs which has both characteristics of variable and fixednature of costs in order to give the status of semi-variable costs in the business enterprise.Delivery dealer's pay comes under this particular category as fixed amount of dealer's rates alongwith changes takes places in the future in the rates. Factory bill fall under this stream in whichamount is fixed but the units used by the firm will increases the utility bill of the factory.Other ways to classify costs1

Direct costs- It is regarded as that type of costs which is directly attributable to a product as thiscosts is included in the making of a product. For example raw material required formanufacturing different products.Indirect costs- Costs spend by an individual are indirectly related to a specific product willcontribute indirectly in a product. For instance, maintenance costs incurred in an entity such asoiling and lubricating used in improving the current conditions of machines. Indirect costs willinclude maintenance of oil which helps in boosting the current machinery in order to generatehigher outcomes in the near future as this is beneficial for an enterprise.Opportunity costs- It is that type of costs incurred in an entity which states that one alternativesacrificed for taking the next best alternative in an enterprise It is incurred in the firm which isincurred in a firm where an entity owner sacrificed one cost for next best alternative are regardedas the opportunity costs for the business.1.2 Computation of total and per unit cost of productionIn the total cost those all the expenses used and added which incur in the firm in direct orindirect manner. Furthermore, unit cost helps to the firm to analyse that for producing each clothhow many expenses are comes into consideration. On the basis of various expenses total and unitcost computed as below:2

Less Variable Cost(units)15,00020,00025,000Material@ £5 £75,000.00 £100,000.00 £125,000.00 Labour@ £6 £90,000.00 £120,000.00 £150,000.00 Total Variable Cost £165,000.00 £220,000.00 £275,000.00 Fixed Cost £50,000.00 £50,000.00 £50,000.00 Total Cost £215,000.00 £270,000.00 £325,000.00 Unit Cost £14.33 £13.50 £13.00 From the above table it can be interpreted that to produce total 15000, 20000 and 25000number of units total cost of production incur is worth of 215000, 270000 and 325000respectively. In the total cost variable expenses (material and labour) and fixed charges areincluded and determined.In addition to this, unit cost of 15000, 20000 and 25000 production items is worth of14.33, 13.50 and 13.00 GBP respectively. On the basis of such all the cost of one unit the SmartLooks Company is able to determine and take decision of selling price.1.3 Analysis of cost dataFor producing number of units and cloths there are different cost incur which are such asvariable, fixed, semi-variable etc. In the current scenario different costs are shown with the helpof graphical presentation are as below:Total variable costs:1500020000250000500001000001500002000002500003000001650002200002750003

It can be analysed from the above graph that to produce 15000, 20000 as well as 25000cloths total variable cost comes into consideration are like as 165000, 220000 and 275000 GBPrespectively. On the basis of such kinds of expenses Smart Looks able to calculate overall cost ofthe production.Fixed costs:1500020000250000100002000030000400005000060000500005000050000In order to manufacture and stitch 15000 units fixed cost incur is worth of 50000 GBP.Apart from this, when the production units increases such as 20000 as well as 25000 cloths costremain same and constant which is 50000 GBP (Macintosh and Quattrone, 2010). The reason isthat to fixed cost has nature of constant and not changes as number of products and services.Total cost of production:4

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