Finance for Administrative Managers: Cost Accounting, Budgeting, and Financial Statements

Running head: FINANCE FOR ADMINISTRATIVE MANAGERS
Finance for administrative managers
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1FINANCE FOR ADMINISTRATIVE MANAGERS
Table of Contents
Activity 1....................................................................................................................................2
Cost accounting and management accounting.......................................................................2
Cost information required for taking business decisions (Scenario 1)..................................2
Decision making through cost information (Scenario 2).......................................................3
Activity 2....................................................................................................................................4
Using of budget in business...................................................................................................4
Preparation of various budgets...............................................................................................4
Budgets and budgetary control...............................................................................................5
Limitations of budget.............................................................................................................6
Activity 3....................................................................................................................................7
Financial statements prepared by Tesco Plc..........................................................................7
Ratio analysis.........................................................................................................................7
Reference....................................................................................................................................9

2FINANCE FOR ADMINISTRATIVE MANAGERS
Activity 1
Cost accounting and management accounting
Cost accounting is the technique of recording, collecting, analysing and classifying
the cost related information. On the other hand, the management accounting is the
preparation of non-financial as well as financial information for the purpose of management
use. The main purpose of cost accounting is budgeting and planning, controlling the
organizational operations, making cost related decisions, allocation of resources and
evaluating the performances. On the other hand, the main purpose of management accounting
are analyse the financial information, preparing reports, planning the future needs of the
company and motivating and directing the employees for achieving the business objectives
(Hilton and Platt 2013).
Cost information required for taking business decisions (Scenario 1)
Business decision needs clear knowledge regarding various cost concepts. Different
kinds of costs differ with regard to their nature like fixed or variable and basis of allocation.
Taking into consideration the scenario of example 1, it can be suggested that before taking
final decisions regarding shutting down the furniture division of bespoke office the below
mentioned cost information shall be considered –
 Fixed costs that will be required to be spent even after shutting down the division.
 The depreciation expenses and maintenance cost of premises and equipment
 Payment to the long service staffs (Drury 2013)
Though the cost associated with furniture division of bespoke office is high and the
profits are also falling, before shutting down the management shall consider that the fixed
cost that are to be incurred even after closing down the division will results into negative

3FINANCE FOR ADMINISTRATIVE MANAGERS
profit. Therefore, rather than closing down the division the management shall try to control
the cost, wherever possible for increasing the profit. For instance, cost of production can be
controlled with new technology of machines (Eldenburg et al. 2016).
Decision making through cost information (Scenario 2)
(i) If production of the Director desk is stopped the resultant profit will be as
below –
Particulars Executive Director Manager Total
Sales £ 25,000.00 £ - £ 30,000.00 £ 75,000.00
Variable costs £ 15,000.00 £ - £ 17,500.00 £ 45,000.00
Contribution £ 10,000.00 £ - £ 12,500.00 £ 30,000.00
Fixed Costs £ 8,500.00 £ 9,000.00 £ 10,000.00 £ 27,500.00
Profit £ 1,500.00 -£ 9,000.00 £ 2,500.00 -£ 5,000.00
It can be found that if the company stops producing ‘The Director’ desk the loss of the
company will be amounted to £ 5,000 from profit of £ 2,500. Therfeore, the company shall not stop
producing ‘The Director’ desk.
(ii) Production of ‘Team’ desk module
Particulars Executive Team Manager Total
Sales £ 25,000.00 £ 25,000.00 £ 30,000.00 £ 75,000.00
Variable costs £ 15,000.00 £ 15,000.00 £ 17,500.00 £ 45,000.00
Contribution £ 10,000.00 £ 10,000.00 £ 12,500.00 £ 30,000.00
Fixed Costs £ 8,500.00 £ 12,000.00 £ 10,000.00 £ 27,500.00
Profit £ 1,500.00 -£ 2,000.00 £ 2,500.00 £ 2,000.00
It can be observed from the above calculation that if ‘The Director’ model is stopped,
producing the ‘Team’ desk model will result into profit amounting to £ 2,000. Therefore, it
would wold be worthwhile to produce ‘Team’ desk model for the business.