Management Accounting Practices Analysis

This assignment delves into the world of management accounting practices, exploring their relationship with financial accounting systems. It analyzes the influence of a consistent financial language on controllership effectiveness and investigates the role of management accounting in planning processes. Case studies and research articles shed light on how budgeting practices, beyond budgeting approaches, and strategic management accounting impact organizational performance. The assignment also touches upon environmental management accounting, social and environmental accounting, and lean manufacturing's integration with management accounting practices.

INTRODUCTION
Management accounting tools are necessary for the development of the firm and also assist the
business to have sustainable development. Now, every manufacturing concerns are aware about
that the leadership in market can be attained by two ways, via- product differentiation and the
other one is price differentiation(Kaplan and Atkinson, 2015). Product differentiation can be get
by the firm via making innovative or creative products in the market that will also make the
company to get the core competence in the market. The other is cost differentiation, this can be
achieved with the help of making the production process so smooth and eliminate the waste cost
along with reducing the cost in the manufacturing process. Now, each and every firm is trying to
have the competitive advantage over the competitors with the help of opting cost leadership
strategy. The cost leadership strategy in the firm is only achieved via effective doing
management accounting practices n the business. Mainly company is able to control the variable
cost of the product and fixed can be managed, this is remain fix. However, the firm is able to
produce the goods at large quantity then the fixed cost can optimum utilised. So company need
to look out all these issues for managing the production cost.
TASK 1
Q1.
a) Classify the above costs into Fixed, Variable and Semi-variable cost.
Cost:It is a act of beginning to get a benefit or any other assets. For example in manufacture
of a auto mobile. we sacrifice material, electricity the worth of machine life depreciation and
labour wages etc.
Costs are usually classified as follows:
Product costs are reimbursement allotted to the manufacture of trade goods and recognized for
financial reporting when sold. They consider direct materials, direct labour, factory wages,
factory depreciation, etc.
Period costs are on the hired hand are all costs other than product price. They include marketing
costs and administrative costs.
The product costs are further classified into:

1. Direct materials: The cost of the materials that can be known straight with the good at
reasonable cost. For example, cost of iron in a car.
2. Direct labour: It shows the cost of the labour time spent on that production.
3. Manufacturing overhead: Represents all manufacture costs exclude those for direct labour
and direct materials, for example the cost of business associates time in a company,
depreciation on instruments, electrical energy, fuel, etc.
The costs that can be generally known with each unit of a product are called direct product costs.
Whereas those which cannot be derived to a specific unit are indirect product costs.
Fixed cost Variable cost Semi variable cost
It is cost which remain same or
less unchanged irrespective of
the output level or sales
revenue, such as Depreciation,
Insurance,Interest,Rent,
Salaries and wages. A fixed
cost is a basic operating
expense of a enterprise that
cannot be confront, such as a
annuity in advance(DRURY,
2013). It is good to set a fixed
cost on your production and
not permit for any negotiations
if you know that the demand is
high.
Material for clothes comes in
fixed cost
variable cost is a cost that
change in relation to alteration
in the volume of activity. The
variable cost concept can be
used to model the future
financial execution of a
business organization, as well
as to set minimal price points.
Examples are, Direct material,
credit card fees. It vary with
output(Zimmerman and
Yahya-Zadeh, 2011).
Overhead is not a variable
cost since overhead cost will
be incurred, irrespective of
manufacture levels.
Fixed cost and variable cost is
called as semi-variable cost. A
particular level of output is
surpassed. semi-variable costs
may limit profitability at high
manufacture levels and erode a
institution bottom line. semi-
variable cost is also better-
known as a miscellaneous cost
and semi-fixed cost.

b) Other ways of classifying costs.
Quality of Expense: costs are categorized into raw material, labour and expenditure.
Relation to Cost Object: This categorization is supported on the relation of cost component with
the cost object. The categorization is through into direct and indirect costs. The basis is cause and
consequence relationship between cost element and cost object or ability of costs to its cost
object.
Purpose: Costs can besides be categorized into different purpose. Common functional
classification of costs are done into following:
Product
Management
Finance
Selling
Distribution
Research and Development
Quality Check etc.
Q.2
A). Computation of total cost at different production level:
The total cost of the product consisted variable and fixed cost. The variable cost is the cost which
is very with the very in the production. However, it can go to zero, when the production of
goods is also goes nil(Garrison, Noreen, Brewer and McGowan, 2010). So it is all depends on
the the production of goods. Smart look company also wants to produce their units and for that
they need to know the entire production cost of goods which have been incurred in the
production process. Here are smart look presenting their total cost performa at various units of
productions:
Material
cost (P.U)
Labour(P.U) Total
variable cost
(P.U)
Unit of
productions
in £
Total
variable cost
in £
Total fixed
cost in £
Total cost in
£
£5 £6 £11 15000 165000 50000 215000
£5 £6 £11 20000 220000 50000 270000
£5 £6 £11 25000 275000 50000 325000

Form the above table, smart look total cost of production is different at various
production level. At the initial level, company produce the 15000 units and in that case, company
total cost of production is computed £215000. which includes the total variable cost and the total
fixed cost in the production process. But when company produce 20000 units then in that case,
smart look total variable cost increase but the fixed cost is remained same. Ultimately, due the
change in the variable cost, total cost is also changed.
B). Analyse the data:
 It has been seen that the total cost of production is changed due to the change of variable
cost. Company's fixed cost is fixed and does not change with the change in the
production of goods(Davies and Crawford, 2011). Fixed cost of the company can not be
zero. But the variable cost of the company can become zero if the company did not
produce the single units. However, it has been analysed that when the production of the
firm rise the total cost per unit decreases. This is due to the constant of fixed cost. Smart
look company could make the efficiency at the point where the marginal cost= marginal
revenue. This is the point where the firm can attain the profits at an optimum level . Here,
it has been researched that the company need to produce the 25000 units so that the firm
could utilised fixed cost at maximum level. At this point, firm's per unit cost of
production is the total cost is £13 (325000/25000). but when the company producing
20000 units then the total cost per unit was £13.5 and it went up at the time when the firm
produces the 15000 units in that case, the organisation per unit total cost of production
was £14.33 (215000/15000).
Q3
1. First out (FIFO) for stock valuation is a cost movement hypothesis which tells that the
first product come in the manufacturing firm is to be sold out first(Angelakis, Theriou and
Floropoulos, 2010). FIFO method idea is a consistent one for a firm to follow,as discharging of
old goods remove the risk of obsolescence. Before going to calculate the first in first out method,

last in first out methods and average cost method, Smart look's cost accountant need to know the
closing balance first.
On January 1 opening balance of inventory was 500 units at £20 each.
On January 18 inventory purchased 800 units at £24 each.
Again on January 25 inventory purchased 700 units at £26 each.
Sold 1400 units at during the January month.
So, at the end of the month, the company's closing stock was 500+800+700-1400=600units.
Computation of inventory using First In First Out method:
Date Descriptions Units £/unit cost Value
1st January Opening
inventory
500-500=0 20 £10000-£10000
18th January Stock purchased 800-800=0 24 £19200-£19200
25th January Stock purchased 700-100=600 26 £18200-2600
(100*26)=£15600
By using first in first out method, smart look company's January closing inventory is 600
units @26 each. So the total cost of the closing stock is £15600. Through this calculation,
company sale the goods which comes first.
2. Last in first out methods: This is the method by which company would get to
know the the stock valuation(Weißenberger and Angelkort, 2011). Under last in
first out method, company out the stock which remains last and then compute the
stock valuation.
Calculation of inventory valuation through last in first out methods:
Date Descriptions Units £/unit cost Value
1st January Opening
inventory
500 20 £10000
18th January Stock purchased 800-100=100 24 £19200-
16800=2400

25th January Stock purchased 700-700=0 26 £18200-18200
Under LIFO method, company calculate the stock valuation. Company is required out the stock
which is in the last. Here, it has been shown that the firm will only have 600 units at the end of
the month and it has been left from the 100*24= £2400, and opening balance units. I.e 500units
@20= £10000. hence, the total stock valuation is £10000+2400= £12400.
3. Under average inventory method, company able to sell all the stocks. This
methodologies are used in the businesses where stock of the companies are mixed
off and they are not able to differentiated.
Calculation of average cost of inventory:
Date Descriptions Units £/unit cost Value
1st January Opening
inventory
500 20 £10000
18th January Stock purchased 800 24 £19200
25th January Stock purchased 700 26 £18200
Total 2000 £47400
The average cost of inventory is calculated via £47400/2000=23.7 and the closing stock of the
company is 600 units which are to be valued @23.7. so the valuation of the stock is
600*23.7=£14220.
Q.4
Stock is the thing which is buy for the purpose of selling to the consumers. The cost of the goods
or products which have not been sold but remain in the company, are classified as stock of the
company.
Cost of goods sold under FIFO method is calculated as the closing inventory of January
is 600 units which cost of goods sold are £18200. firm through this method, sold the opening
stock, inventory purchased on 18th January and also 100 units from the stock purchased on 25th
January. So that the remaining units of the company is also from the stock which had been
purchased on 25th January.

Under LIFO method, company always consider the last stock for selling purpose. The
sale first to be set off from the last inventory and then come to the another one if remains(Hope
and Fraser, 2013). As per company's calculation, the inventory purchased on the 25th January is
firstly utilized for the selling purposes. After that the accountant takes the 18th march inventory.
From 15th January inventory, company consider 700 units from 800 units for the selling purpose.
The opening inventory and 100 units from the inventory purchased is totally left for the
company's valuation purposes(King, Clarkson and Wallace, 2010). Hence the cost of goods sold
is £12400. this is calculated via (500*20+100*24)
Through average cost methods company's cost of goods sold is calculated by dividing the
whole units of the firm with the entire cost of such units so that firm is able to make per unit cost
of production and then multiply the such per unit cost of production with the closing balance of
stock. Here, there are 600 units are the closing inventory and the average cost of the company is
computed by multiplying 600 units to per unit average cost of production 23.7. So, the average
cost of the company is 600*23.7=14220.
Q5.a) TWO critical success factors and related key
Performance Indicators.
client experience: By the help of the quality of production we can analyse the experience
of client by taking the feed back of the product which we have render to them by the sampling of
the product(Baldvinsdottir, Mitchell and Nørreklit, 2010). According to the feed back of the
client we can change strategy of making the product if the product is better then we have to gave
some varieties if the product.
Supplier and product quality: If supplier send the product on time than the client which is
going to purchase the product will be use our product frequently and it may rays the sale of the
product. If the quality of product is better than the client highly appreciate your product and will
raise demand is the market. Through the advertisement on the television or on social sites it will
increases the sales of the product. The provider occurrence of working with the buying Smart
Looks Limited must be reasoned in the judgement, as it might be the case that they are facing
unneeded obstruction or handling with difficult grouping.
Operations Efficiency: The upper administration of the company do their work better it
will maximise the profit of the production material. It may help to generate more and more

clients in the market through it company get better goodwill in the market(Frezatti, Aguiar,
Guerreiro and Gouvea, 2011). Determination a balance between reduction the reimbursement of
running your business Smart Looks Limited and generating income is the key to entrepreneurial
prosperity. While many undeveloped business man focusing the number of their physical
phenomenon on bringing in sales, do not bury that making your business Smart Looks Limited as
efficient as possible is just as or even more crucial in the long-run as it makes your project
sustainable.
Reducing Maintenance Spending: Facility administration program survive in all public
works social group. In easy terms it is null more than the decision-making procedure. However,
the decision-making method selected in large part, determine prosperity or non achievement.
Effective installation repair social control requires the use and power of large amounts of info.
This consider trailing incoming requests for facilities repair work, programming preventative
maintenance, preparing budget approximation, projected facilities repair necessitate and
determining assets apportion(Parker, 2012). Predictive testing can cut down facilities repair costs
and improve accessibility by facultative just-in-time upkeep of facilities systems and related
equipment. Predictive testing monitors the stipulation or operating parameters of facilities system
components to observe trends or conditions that betoken excessive wear or impending failure.
This permits initiation of timely repair activity. It is for safely working in the firm or in an
organisation.
Cost reduction and profitability increase: If you uses high techniques in the Smart Looks Limited
you will produce large amount of goods. Addition productiveness of your staff value and reward
staff effort with staff execution reviews, and teach them sales skills and how to up sell products
so clients make multiple purchases at one time Create new product lines survey your custom-
made about products and clients can help grow up your business Smart Looks Limited use
market research to find out if you could spread out your enterprise into new areas. client service
amend your client work and develop a staff training program in an organisation(Østergren and
Stensaker, 2011). Addition your cost check if you have priced your products and work correctly
and if you could maximise prices without reduction gross sales. price discounts and promotions
to addition your client base.
Alteration inventory stock control is a good way to contour your enterprise. Lessening direct cost
sort certain you have the right provider for your business concern and discuss for finer prices or

discounts for buying in volume. Change indirect costs try to minimise waste material and
mistake in your enterprise by training staff, or reduce selling costs by using low-priced selling
method.
Costs can be decreased.
Reducing costs is not merely effort to cut any and all expenditure disorganized. The owner-
manager must realize the quality of expenditure and how expenditure inter-relate with gross
sales, cost of goods oversubscribed, gross profits, and net profits. To Cut down reimbursement
does not mean only the decrease of specific expenditure(Christ and Burritt, 2013). You can
accomplish greater income through more economic use of the disbursal dollar. Many of the
structure you do this are by acceleration the average sale per client, by in effect using display
space and thereby accelerative sales volume per square foot, by getting a bigger return for your
publicity and sales promotion by rising your interior methods and process.
Value and quality can be increased
Managing director can display worker how to work hard. They should be prepared and capable
to do the activity being which is done by staff. Be expert in these jobs so that if the worker has a
inquiry or uncertainty something, the managing director is able to put those concern to rest. If the
managing director is doubtful about anything that is occurrence, this will bilobate the disarray for
the worker. Confused force are generally disgruntled and will not do their work right. By
respondent queries and inform trouble, managing director gain the honer of the group working
for them.
Q6.
a)Define Budget:
Budget is a set of interconnect plans that quantifiable report an entity's proposed future
operations. Budget is utilized as a yard measure against which to measuring actualized
operational output, for the allotment of financial support, and as a plan for coming business
activity. The budget is done by the senior management they have right to make the rules and
regulation. In this budget all budget are included such as: sales budget, direct budget,
manufacturing budget etc. All of these program roll up into the master budget, which comprise a
budgeted financial statement, balance sheet, and cash forecasting. There may also be a funding

budget in which is component the debt and equity make-up required to check that the cash
necessitate of the budget.
b) Purposes of Budget.
It will helpful in making the policies through the budget. In Smart Looks Limited it is
making for the short time period(Cinquini and Tenucci, 2010). It is necessary to make budget by
it we can achieve the target easily.
The budget should be making on a regular basis end-to-end the year, every quarter, every
month, or even weekly. Revaluation the budget will assist you determine difficulty earlier they
cost the business Smart Looks Limited so much time or wealth.
As Smart Looks Limited or government puts in point to help guarantee quality and
righteousness in its budget. Budgetary control may set content for anticipated income or planned
expenditures. It about ever includes a system to proctor compliance over a period of time.
A budget gives standard by which to measure business concern units, departments and
even one-on-one manager. In another language a budget could be exploited as a basis for
surroundings performance standardised and rewards, in form of incentive, status or increased
promotion potential which are frequently tied to budget accomplishment. Nevertheless,
organizations are analysable, undertaking are mutually beneficial and there are many another
attribute of execution and these are not all easily quantified and surely not in fiscal condition.
Cost and revenue are the two least important component in determinant the happening of
your business organization(Contrafatto and Burns, 2013). A enterprise can have advanced
income, but if the reimbursement are high, it will display no net income and is bound to go out of
enterprise when accessible working capital score out. Managing costs and income to increase
profit is central for any businessperson.
Operating budgets render the program against which bidding can measurement public
presentation, analyse variant, and make correct, as essential. By using commands can assure
effective and efficient administration of beginning at the localized level. Operating budgets are
leading tool for acquire, managing and accounting origin for operating commands, units, and
divisions.

c)Methods of preparing budgets (zero-based, fixed and variable)
2. Zero-based budget is a performing of budgeting in which all disbursement must be even
for each new time period. Zero-based budgeting starts from a zero base and all role inside
an administration is analysed for its necessarily and reimbursement.
3. The budget planned to stay changeless, careless of the act level reached is Fixed Budget.
4. The monetary fund premeditated to alteration with the occurrence in the action levels is
Flexible Budget.
TASK.2
Q.7
a).Sales budget of smart look limited:
Months April May June Total
Forecasted sales
in units
2000 1500 2500 6000
sales per unit 30 30 30 30
Total sales £60000 £45000 £75000 £180000
b).Production budget of smart look limited:
Months April May June Total
Estimated sales 2000 1500 2500 6000
Estimated closing
stock
750 1000 1200
Total
consumption
2750 2500 3700 8950
Less-opening
stock
500 750 1000 2250

Units to be
manufactured
2250 1750 2700 6700
c) Raw material budget of smart look limited:
when the level of production has been calculated, Raw material budget has been designed to
display the amount of material would be needed and how much material will need to buy in
order to meet the production requirements. In the production budget of the firm, units to be
manufactured has been shown(Fullerton, Kennedy and Widener, 2014 ) . In April 2250 units to
be produced, 2700 in may and 6700 to be produced in June. And raw material per unit cost is
£7.5. So raw material budget cost April, May and June are 16875, £13125 and £20250.
d) Labour budget of smart look limited:
Months April May June Total
Units to be
produced
2250 1750 2700 6700
Direct labour hour
per unit
*1.5 *1.5 *1.5
Total hours 3375 2625 4050 10050
Direct labour cost
per hour
6 6 6
Total direct
labour cost
£20250 £15750 £24300 £60300
e) Firm total overhead budget:
Months April May June Total
Budgeted direct
labour hours
3375 2625 4050 10050
Variable
overheads rate
*3 *3 *3 *3

Variable
budgeted
overheads
£10125 £7875 £12150 £30150
fixed budgeted
overheads
£2000 £2000 £2000 £6000
Total budgeted
overheads
£12125 £9875 £14150 £36150
Q.8Cash budget of firm:
Months April May June
Receipts
Cash sales £60000 (2000*30) £45000 (1500*30) £75000 (2500*30)
Total receipts £60000 £45000 £75000
Payments
Material purchases £16875 £13125 £20250
Total labour cost £18000 £13500 £22500
Total variable cost £9000 £6750 £11250
Fixed over heads £2000 £2000 £2000
Total payments £45875 £35375 £56000

Net cash flow £14125 £9625 £19000
TASK.3
Q.9
Computation of budgeted income statements for march 2017
Particulars Amount
Cost of direct
material 30
Cost of direct labor 18
Per unit variable
cost 48
No. of units 5000
Total variable cost 240000
Total Fixed cost 12500
Total cost 252500
Particulars Amount
S.P. per unit 63.23
Total revenue 316150
Total budgeted
profit 63650
Particulars Amount
Direct material 141360
Direct labor 99000
Total variable cost 240360
Total Fixed cost 12500
Total cost 252860
S.P. per unit 63.23
No. of units 4800
Total revenue 303504
Actual profit 50644
Particulars Budgeted Actual Variances

Amount Amount
Total variable cost 240000 240360 -360
Total Fixed cost 12500 12500 0
Total cost 252500 252860 -360
Total revenue 316150 303504 12646
Total budgeted profit 63650 50644 13006
Q.10. Identify that the actualized profit was fewer than the budgeted net income
As time passes, existent disbursement and revenues get into the list to comparison with
first budget figures. Where budget and actual material body differ, the variation is called a
variance(Dillard and Roslender, 2011). As per the statement managing director had saw that the
actual profit was less than the budgeted profit because the strategy of a Smart Looks Limited is
not better the employees and the labour who are working in the organisation not doing their work
properly the managing director should analyse the situation of the firm and take some decision
by it actual profit will go high then the budgeted net income.
CONCLUSIONS
The social control system of Smart Looks Limited capability to set transaction is useful
for handling with changing and multifaceted conditions, but it prevent the quality of budget
expert and planners to evaluate future imagination necessitate. Because assets necessitate cannot
be faithfully figuring in advance of when they mental faculty be used on the basis of past
tendency or using a officially specified applied mathematics model, amended data and other
conceptualization are required to better approximation.

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Online

marginal cost. 2017. [online]. Available
through :<http://www.businessdictionary.com/definition/marginal-cost.html>.Accessed
on [18th April 2017]