Case Study of Jeffrey and Son's | Report
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Added on 2020-02-05
Case Study of Jeffrey and Son's | Report
Added on 2020-02-05
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Management Accounting
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................3TASK 1............................................................................................................................................31.1 Different types of cost classification......................................................................................31.2 Calculating unit cost and total job cost..................................................................................41.3 Calculating cost of Exquisite using absorption costing technique ........................................41.4 Analyzing cost of Exquisite...................................................................................................8TASK 2 ...........................................................................................................................................82.1 Preparing and analyzing cost report for the month of September ........................................82.2 Using performance indicators to identify areas for potential improvement........................102.3 Ways to reduce cost and enhance value, quality..................................................................10TASK 3 .........................................................................................................................................113.1 Purpose and nature of budgeting process.............................................................................113.2 Selecting appropriate budgeting methods for organization.................................................113.3 Preparation of different types of budget..............................................................................123.4 Preparation of cash budget ..................................................................................................13TASK 4 .........................................................................................................................................174.1 Calculation of variance .......................................................................................................174.2 Preparation of reconciliation operating statement .............................................................184.3 Findings to management in accordance with identified responsibility centers...................19CONCLUSION..............................................................................................................................20REFERENCES..............................................................................................................................212
Index of TablesTable 1: Unit and total job cost........................................................................................................5Table 2: Cost of Exquisite................................................................................................................5Table 3: Allocation of cost of support departments on the basis of machine hours........................8Table 4: Allocation of criteria of cost..............................................................................................8Table 5: Units to be produced..........................................................................................................8Table 6: Overhead absorption rate ..................................................................................................8Table 7: Exquisite calculation..........................................................................................................9Table 8: Calculation of absorption rate on the basis of labor hours................................................9Table 9: Calculation of Exquisite....................................................................................................9Table 10: Cost report for the month of September........................................................................10Table 11: Calculation of standard budget at 1900 units................................................................10Table 12: Production budget .........................................................................................................13Table 13: Material purchase budget...............................................................................................14Table 14: Material purchase budget of Jeffrey and Son's s make..................................................14Table 15: Cash budget of Jeffrey and Son's s................................................................................14Table 16: Computation of amount receivable from debtors..........................................................15Table 17: Computation of amount of overhead payment..............................................................15Table 18: Computation of production cost ...................................................................................15Table 19: Sales budget..................................................................................................................15Table 20: Cash budget of Jeffrey and Son's...................................................................................153
INTRODUCTIONManagement accounting is the imperative aspect for any organization as it determineorganization long run growth and success. It enables management to allocate financial resourcesfor all business activities effectively so as to achieve long as well as short term objectives.Present report is based on case study of Jeffrey and Son's which manufactures popular brandproducts as Exquisite. The cited organization want to reduce operating cost due to competitivenature of environment. In this regard cost of products and services has been calculated by takinginto account margin of profit. Furthermore, absorption of costing techniques have beenexplained. In addition to this, appropriate budgeting methods are also described.TASK 11.1 Different types of cost classificationCost are classified in different aspect and these are explained as follows-Element-It is the most important factor in allocating cost of products and services. Here,cost is classified into direct and indirect which are related to production activities or otherrelated. Further, direct cost consists of lighting, heating and material. On the other hand,examples of indirect cost are not directly related to production. It includes administrativeexpenses and salaries of higher staff etc (Cohen and Kaimenaki, 2011).Function- There are several functions performed in Jeffrey and Son's such asproduction, finance, sales and marketing. It facilitates to carry out business activities inan effectual manner. It helps to select pricing strategy effectively and increase overallflow of production in the marketplace (Jones and Clatworthy, 2006).Nature-According to nature cost is divided into three parts such as labour, overheadexpense and material. It assists corporation to differentiate all the functions effectivelyand accordingly allocate cost for each department (Kate-Riin Kont, 2012).Behavior-According to behavior cost is mainly divided into three parts such fixed, semifixed and variables (Mock, Coram and Monroe, 2011). Here, variable cost includes laborand material whereas example of semi fixed cost is telephone bill which remain constantto a particular level.4
1.2 Calculating unit cost and total job costThe unit cost of product has been calculated as follows along with total job cost.Table 1: Unit and total job costParticularsAmount Direct cost Direct material£200Direct labour£270Indirect cost Variable production overhead£180Fixed production overhead£120Cost per unit£770Units to be produced£200Total cost 770*200£154000Working note: 1Fixed production overhead = (Budgeted overhead / total direct labor hours) * Direct laborhours used in Job 444=(£80000 / 20000 hours) * 30 hours=£120After 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 techniqueTable 2: Cost of ExquisiteProductionDepartmentsService DepartmentBasisofApportioningTotalMachineShopXMachineShopYAssemblyStoresMaintenance000’sIndirectWagesAllocated36210000099500925001000060000IndirectMaterialsAreaoccupied25310000010000040000400090005
LightingHeating&AreaOccupied5010000500015000150005000RentAreaOccupied1002000010000300003000010000Insurance&MachineryBookvalueofMachinery1579474967993497596DepreciationofMachineryBookvalueofMachinery1507947049669993449675960InsuranceofBuildingAreaOccupied2550002500750075002500SalariesWorksofNo.employeesof8024000160002400080008000SubTotals103534641728763621992779964101056Re-ofservicedept.costStoresDept.39982299879995(79964)Maintenance485073233820211(101056Totals43490634996125013300Working NoteLighting&Heating:MachineryX10/50x£50000—f10000MachineryY5/50x£50000—£5000Assembly15/50x£50000—f15000Stores15/50x£50000=£15000Maintenance5/50x£50000=£15000RentMachinery X 10/50x£100000=f20000MachineryY5/50x£100000 = £10000Assembly 15/50x£100000=£30000Stores6
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