Analyzing Accounting and Management Techniques

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Different type of cost classification.......................................................................................1
1.2 Calculation of Unit cost and total job cost.............................................................................2
1.3 Calculating cost of Exquisite using absorption costing.........................................................2
1.4 Analyzing cost of Exquisite...................................................................................................6
TASK 2............................................................................................................................................7
2.1 Preparing and analyzing cost report for the month of September.........................................7
2.2 Various performance indicators to identify area for improvement.......................................9
2.3 Ways to reduce cost and enhance quality..............................................................................9
TASK 3..........................................................................................................................................10
3.1 Purpose and nature of budgeting process............................................................................10
3.2 Appropriate budgeting method for organization.................................................................10
3.3 Preparing different type of budgets.....................................................................................11
3.4 Preparing cash budget..........................................................................................................12
TASK 4..........................................................................................................................................16
4.1 Calculating variance and identifying causes........................................................................16
4.2 Preparing operating statement reconciling budgeted...........................................................18
4.3 Findings to the board of directors........................................................................................19
CONCLUSION..............................................................................................................................19
REFERENCES..............................................................................................................................20

INTRODUCTION
Management accounting is associated with the field of accounting through which it is
possible for business to combine norms of budgeting along with cost. By considering different
techniques it is possible for organization to calculate actual cost of production along with
operational activities so that decisions can be taken accordingly. Further, it has become
necessary for enterprise to record actual cost and expenses by considering different methods of
costing (Adler, 2013). Through, this it is possible for company to reduce the level of cost and
profitability level can be enhanced easily. Apart from this every organization has indulged into
practices of maintaining different type of accounts so that overall performance in the market can
be known easily and corrective actions can be taken on the basis of same. For conducting the
present study, organization chosen is Jeffrey and Sons which manufactures many branded
products called Exquisite. Further, business has many departments where major one is service
and production. Various tasks have been covered in the report which involves different type of
cost classification, calculation of job costing etc.
TASK 1
1.1 Different type of cost classification
Cost is considered as the expenses which are incurred by company for conducting overall
operations. Further, main costs associated with the business are segregated into:
 Element: As per this factor cost is divided into direct and indirect. Direct cost are
incurred for carrying out the manufacturing process. Further, main examples of this type
of cost are heating, lightning etc (Young, 2008). Whereas indirect costs are not linked
with the production process and its key example are small tools etc.
 Function: On the basis of function cost can be divided into different type such as
distribution, production, quality check etc.
 Nature: As per the nature of the cost it can be divided into material, labor and overhead.
Material as a cost represents the cost incurred for carrying out manufacturing process.
Labor is associated with wages given to workforce and overhead is associated with cost
of company (Holtzman, 2013).
 Behavior: On the basis of behavior cost can be segregated into fixed, variable and semi
variable. Fixed cost does not change with the level of output, variable keeps on changing
and semi variable contains features of both fixed and variable.
1

1.2 Calculation of Unit cost and total job cost
Job cost is considered as one of the most appropriate method through which cost is
calculated in condition where each job is different from other (Steffan, 2008). Further, this
method is developed of undertaking an account where direct along with indirect cost are
undertaken. Computation of unit cost along with total cost of job 444 has been shown below:
Particulars Amount (£)
Direct cost
Direct material 200
Direct labour 270
Indirect cost
Variable production overhead 180
Fixed production overhead 120
Cost per unit 770
Units to be produced 200
Total cost 770*200 154000
Working note
Fixed production overhead (Budgeted overhead / total direct labor hours)
* Direct labor hours used in Job 444
=(£80000 / 20000 hours) * 30 hours
=£120
After doing the above calculations it can be said that per unit cost of job 444 is £3.85 and
total cost of this job will be £770.
1.3 Calculating cost of Exquisite using absorption costing
Production Departments Service Department
Basis of Total Machine Machine Assembly Stores Maintena
nceApportioning Shop X Shop Y
000’s
2

Indirect
Wages
Allocated 362 100,000 99,500 92,500 10,000 60,000
Indirect
Materials
Area
occupied
253 100,000 100,000 40,000 4,000 9,000
Lighting
Heating
& Area
Occupied
50 10,000 5,000 15,000 15,000 5,000
Rent Area
Occupied
100 20,000 10,000 30,000 30,000 10,000
Insurance &
Machinery
Book value
of Machinery
15 7,947 4,967 993 497 596
Depreciation
of Machinery
Book value
of Machinery
150 79,470 49,669 9,934 4,967 5,960
Insurance of
Building
Area
Occupied
25 5,000 2,500 7,500
7,500
2,500
Salaries
Works
of No.
employees
of 80 24,000 16,000 24,000 8,000 8,000
Sub Totals 1,035 346,417 287,636 219,927 79,964 101,056
Re-
of service
Stores Dept. 39,982 29,987 9,995 (79,964)
Maintenance 48,507 32,338 20,211 (101,05
Totals 434,906 349,961 250,133 0 0
Working Note
Lighting & Heating: Machinery X 10/50 x £50,000 — f10,000
Machinery Y 5/50 x £50,000 — £5,000
Assembly 15/50 x £50,000 — f 15,000
Stores 15/50 x £50,000 = £15,000
Maintenance 5/50 x £50,000 = £15,000
3

Rent Machinery X 10/50 x £100,000 = f20,000 Machinery Y 5/50 x £100,000 =
£10,000 Assembly 15/50 x £100,000 = £30,000 Stores 15/50 x £100,000= £30,000
Maintenance 5/50 x £100,000 = £10,000
Insurance & Machinery Machinery X 800/1510 x £15,000 = £7,964
Machinery Y 500/1510 x £15,000 — £4,966 Assembly 100/1510 x :E15,000 — £994 Stores
50/1510 x £15,000= f 497 Maintenance 5/1510 x f15,000= £596
Depreciation of Machinery Machinery X 800/1510 x £150,000 = £79,470
Machinery Y 500/1510 x £150,000 = £49,669 Assembly 100/1510 x £150,000 = £9,934 Stores
50/1510 x £150,000 — £497 Maintenance 60/1510 x £150,000 =
£596
Insurance of Buildings Machinery X 15/50 x £25,000 — £5,000
Machinery Y 5/50 x £25,000 = £2,500 Assembly 15/50 x £25,000 = f7,500 Stores 15/50 x
£25,000 — £7,500 Maintenance 5/50 x £25,000 = £2,500
Salaries of works mgmt. Machinery X 3/10 x £80,000 = £24,000
Machinery Y 2/10 x :E80,000 = £16,000 Assembly 3/10 x £80,000 = £24,000 Stores 1/10 x
£80,000 — £8,000 Maintenance1/10 x £80,000 = £8,000
Reappointing workings: based on material issues
Machinery X 400/800* £79,964 = £39,982
Machinery Y 300/800 * £79,964 = £29,987
Assembly 100/800 * £79,964 = £9,9995
Based on time spent
Machinery x 12/25 * £101,056 = £48,507
Machinery y 8/25 * £101,056 = £32,338
Assembly 5/25 * £101,056 = £20,211
Overhead absorption rate workings
Departments = Total / actual machine hours per dept
Machinery X = £ 434,906/ 80,000 = £5.44
4