Management Accounting Research & Analysis
Added on 2020-01-15
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MANAGEMENTACCOUNTING
Table of ContentsINTRODUCTION ..........................................................................................................................3TASK 1 ...........................................................................................................................................31.1 Different type of cost classification ......................................................................................31.2 Calculation of Unit cost and total job cost .....................................................................41.3 Calculating cost of Exquisite using absorption costing technique ........................................51.4 Analyzing cost of Exquisite ..................................................................................................6TASK 2 ...........................................................................................................................................72.1 Preparing and analyzing cost report for the month of September ........................................72.2 Use of performance indicators to identify areas for potential improvement .......................92.3 Ways to reduce cost and enhance value, quality ................................................................10TASK 3 .........................................................................................................................................113.1 Purpose and nature of budgeting process ............................................................................113.2 Selection of appropriate budgeting methods for organization ..........................................113.3 Preparation of different types of budget ............................................................................123.4 Preparation of cash budget .................................................................................................13TASK 4 .........................................................................................................................................144.1 Calculation of variance .......................................................................................................144.2 Preparation of reconciliation operating statement .............................................................154.3 Findings to management in accordance with identified responsibility centers...................16CONCLUSION..............................................................................................................................17REFERENCES .............................................................................................................................18
INTRODUCTION Management accounting is regarded as the main field of accounting which supports incombining norms of budgeting along with cost. With the help of undertaking different type ofmethods, it is possible for business enterprise to determine the actual cost of production alongwith 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 undertakingdifferent effective methods of costing (Chapman, 2008). All these methods support businessenterprise in reducing overall cost with the motive to enhance profitability level. Moreover, it iswell known fact that every business enterprise prepares different type of accounts along withreports so as to assess its overall performance in the market and corrective actions are taken ifbusiness is not performing as per expectations. Statements such as annual report etc are fruitfulfor business with the help of which information is shared with external shareholders of thecompany and through this it is possible for them to satisfy need of parties associated with thefirm. The present report being carried out is based on organization named Jeffrey and Sonswhere business is manufacturing branded products like Exquisite. Organization has mainly twodepartments namely production and service. Various tasks have been covered in the study whichis 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 enterprisefor conducting major activities of the business. Cost of organization can be divided on the basisof following elements which are: Element: This factor supports in dividing cost into direct and indirect one. Further, direct costsare those which are incurred for carrying out the production process. Main examples of directcost are labor, material, lightning, heating etc (Jiambalvo, 2001). On the other hand indirect costsare those which are being required for carrying out manufacturing in appropriate manner. Mainexamples 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, researchand development, quality check etc. 3
Nature: Considering the nature of different costs it can be divided into material, labor andoverhead expense. Material expense are being incurred for carrying out the production processwhere materials are purchased, labor expense is associated with payment of wages to differentworkers and overhead expenses are linked with cost of business enterprise. Hence, in this waynature of every cost differs from each other which business has to consider for carrying outoverall operations in effective manner (Keown, 2005). Behavior: By undertaking, behavior as a factor it is possible to segregate cost into fixed, variableand semi variable. Further, fixed cost is considered as the cost which does not changes with thechange in level of output. On the other hand, variable cost alters with the change in productionunit. 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 costJob costing is regarded as the effective technique with the help of which cost isdetermined in condition where each job differs from one another in terms of nature and is carriedout as per the provided specifications by the target market (Kont, 2013). This technique iscomprised of undertaking an account by considering indirect and direct cost associated with thejob. Calculation of Unit cost along with total job cost of job 444 has been shown below: ParticularsAmount (£)Direct cost Direct material200Direct labour270Indirect cost Variable production overhead180Fixed production overhead120Cost per unit770Units to be produced200Total cost 770*200154000Working note Fixed production overhead= (Budgeted overhead / total direct labor hours) * Direct labor hoursused in Job 444=(£80000 / 20000 hours) * 30 hours=£1204
After doing the above calculations it can be said that per unit cost of job 444 is £3.85 andtotal cost of this job will be £770.1.3 Calculating cost of Exquisite using absorption costing technique ProductionDepartmentsServiceDepartmentBasisofTotalMachineMachineAssemblyStoresMaintenanceApportioningShopXShopY000’sIndirectWagesAllocated362100,00099,50092,50010,00060,000IndirectMaterialsAreaoccupied253100,000100,00040,0004,0009,000LightingHeating&AreaOccupied5010,0005,00015,00015,0005,000RentAreaOccupied10020,00010,00030,00030,00010,000Insurance&MachineryBookvalueofMachinery157,9474,967993497596DepreciationofMachineryBookvalueofMachinery15079,47049,6699,9344,9675,960InsuranceofBuildingAreaOccupied255,0002,5007,5007,5002,500SalariesWorksofNo.employeesof8024,00016,00024,0008,0008,000SubTotals1,035346,417287,636219,92779,964101,056Re-ofserviceStoresDept.39,98229,9879,995(79,964)Maintenance48,50732,33820,211(101,056)Totals434,906349,961250,13300Working Note5
Lighting&Heating:MachineryX10/50x£50,000—f10,000MachineryY5/50x£50,000—£5,000Assembly15/50x£50,000—f15,000Stores15/50x£50,000=£15,000Maintenance5/50x£50,000=£15,000RentMachinery X 10/50x£100,000=f20,000MachineryY5/50x£100,000 = £10,000Assembly 15/50x£100,000=£30,000Stores15/50x£100,000=£30,000Maintenance5/50x£100,000=£10,000Insurance&MachineryMachineryX800/1510x£15,000=£7,964MachineryY500/1510x£15,000—£4,966Assembly 100/1510 x :E15,000 —£994Stores50/1510 x £15,000= f497Maintenance 5/1510 x f15,000= £596Depreciation of Machinery MachineryX800/1510x£150,000=£79,470Machinery Y 500/1510 x £150,000 =£49,669Assembly100/1510x£150,000=£9,934Stores50/1510x£150,000—£497Maintenance60/1510 x £150,000=£596InsuranceofBuildingsMachineryX15/50x£25,000—£5,000MachineryY5/50x£25,000=£2,500Assembly15/50x£25,000=f7,500Stores15/50x£25,000—£7,500Maintenance5/50x£25,000=£2,5006
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