Management Accounting Applications

This assignment delves into the diverse applications of management accounting principles across various sectors. Students are tasked with analyzing case studies and research articles that demonstrate how management accounting techniques are employed in healthcare (e.g., cost analysis of surgeries), transportation (e.g., optimization of logistics), and finance (e.g., capital budgeting). The assignment emphasizes the practical relevance of management accounting concepts in real-world scenarios.

Management Accounting :
Costing & Budgeting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1...........................................................................................................................................1
1.2...........................................................................................................................................4
1.3...........................................................................................................................................5
1.4...........................................................................................................................................7
TASK 2............................................................................................................................................8
2.1...........................................................................................................................................8
2.2...........................................................................................................................................9
2.3.........................................................................................................................................10
TASK 3..........................................................................................................................................11
3.1.........................................................................................................................................11
3.2.........................................................................................................................................12
3.3.........................................................................................................................................12
3.4.........................................................................................................................................14
TASK 4..........................................................................................................................................16
4.1.........................................................................................................................................16
4.2.........................................................................................................................................18
4.3.........................................................................................................................................18
CONCLUSION..............................................................................................................................19
REFERENCES..............................................................................................................................20

INTRODUCTION
Effective decision making is an essential part of business unit if an organization wants to
survive in competitive and continually changing environment. For getting profits sound
judgement, information regarding economic positioning, interpretation, analysis and evaluation
of financial resources are very important aspects. With the use of financial analysis techniques
managers can control the cost of operations and can plan the business activities which can
provide optimistic outcomes to entity (Dechow and Skinner, 2000). For the present report Jeffrey
and Son's Ltd is taken into account, it produces exquisite products. Current report will discuss
the various management tools like budgeting process, cost sheet which can be beneficial for the
enterprise. Purpose of the assignment is to determine importance of management accounting and
cost budgeting in context to Jeffrey and Son's Ltd. Various calculations will be illustrated for
achieving the aim of the report by following given scenario.
TASK 1
1.1
For getting positive results corporations sacrifice resource like for the production of any
electrical product company requires electricity, raw material etc. These are the necessary
expenses for the business unit called as cost of entity. There are various types of costs are
included in the enterprise are described below:
Categorization Type of costs
Elements Material, labour and overhead costs are
included in this element.
 In Jeffrey and Son's Ltd material costs
are as raw substantial which are
necessary for producing final good and
services. Like for manufacturing of
furniture company requires timber, this
is the cost of material for the entity.
Enterprise requires to purchase fabrics
for manufacturing of cloths so this also

material cost (Kokubu and et. al, 2009).
 Employees are working in the firm like
sales team are responsible for selling
final products, labours who are
producing the products. These all
workers are getting salaries from
employer so this is labour cost for
Jeffrey and Son's.
 For operating business, company has to
pay rent of office. This includes in
overhead expenses of entity.
Function In this various costs like expenditure of
production, administration, promotion and
marketing, distribution etc. expenses can be
included (Whitecotton, Libby and Phillips,
2013).
 For manufacturing products like cloths
and furniture company has to pay office
rent, purchase of new machineries,
wages, electricity bills etc. These are
production expenditures.
 Administration includes salaries,
incentives, stationary, employees
welfare expenses.
 Marketing like advertising, organize
promotion programs, use of social
media involve in marketing of products
so that sales of final goods can be
increased. Company needs to invest in
such activities so these are incurring

high cost (Zimmerman and Yahya-
Zadeh, 2011).
 Distribution expenditures like travelling
cost, shipment expenses etc.
Nature This includes direct and indirect costs.
Company has to purchase raw material, has to
pay wages to employees etc. are necessary and
direct expenses. Whereas some expenditure are
indirect, these can not be measured in amount
like labour hours, postage, printing, lighting
etc. So these are indirect costs of the
organization.
Behaviour In this area various fixed, variable and semi
variable costs are attached.
 Some expenses are fixed and can not be
changed by changing conditions are
called as fixed expenses. Like company
has to pay building rent to owner of the
building, insurance is needed and can
not be ignored, depreciation of
machinery is fixed, salaries of peon and
watchmen are fixed (Adler, 2013).
 Variable expenditures get changed
according to size of production. Like as
per the requirement of production
company purchase raw material and
hire employees according to workload
so related wages will be given by

employer to workers.
 Semi variable expenses are constant but
can get changed after certain point.
Like electricity expenses are fixed but it
can be higher when level of production
is high.
1.2
Job cost sheet: It is a document which is prepared by the account department of the
company for determining total cost and per unit cost of job. Job cost sheet for Job no. 444 is
prepared below for Jeffrey and son's (Ahrens and Chapman, 2007).
Job cost sheet for Job no. 444
Particulars Total cost
Direct material 40,000£
Direct labour 54,000£
Fixed cost 24,000£
Variable cost 36,000£
Total cost 1,54,000£
Unit cost 770£
Calculation note:
Direct material = 50 kg * 4£ per kg. * 200 units
= 40,000£
Direct labour = 30 h/per unit * 9£ per hour * 200 units = 54,000£
(Labour hours= 30h * 200= 6000h)
Total Fixed cost
= Total fixed production overhead/ Total estimated labour hours * labour hours for job
= 80,000£ / 20,000

= 4 £ * 6000 hours
= 24,000£
Total variable cost
= Labour hours for job * Direct labour hours
= 6000 hrs. * 6£ per hours
= 36,000£
Total cost
= direct material + Direct labour + Variable cost + Fixed cost
=40,000£ + 54,000£ + 36,000£ + 24,000£
= 1,54,000£
1.3
Manufact
uring
Service
departme
nt
Allocation Machine
X (£)
Machine
Y (£)
Assembly
1 (£)
Stores
(£)
Maintena
nce (£)
Total
Indirect
salaries
and
monitorin
g
As given 100000 99500 92500.00 10000 60000 362000.00
Indirect
materials
Given 100000 10000 40000.00 4000 9000 253000.00
Electricity According
to uses
10000 5000 15000 15000 5000 50000.00
Rent of
building
According
to uses
20000 10000 30000.00 30000.00 10000.00 100000.00
Security
like
As per the
book value
7947.02 4966.89 993.38 496.69 596.03 15000.00

insurance
of
machinery
of
machine
Depreciati
on
As per the
book value
of
machine
7947.02 49668.87 9933.77 4966.89 5960.26 150000.00
Insurance
cover of
commerci
alized
property
According
to uses
5000 2500 7500.00 7500.00 2500.00 25000.00
Salaries Numbers
of
Employee
s
24000 16000 24000.00 8000.00 8000.00 80000.00
Total 346417 28763 219927 79964 101056 1035000
Machine shop
X(£)
Machine shop
Y(£) Assembly(£) Total(£)
Initial dispersion
346417 287636 219927
Store 39982 29987 9995 79964
Maintenance 48506.88 32337.92 20211.2 101056
Total cost 434905.88 349960.92 250133.2
Overhead Absorption Rate = Total budgeted overhead / machine hour (Brandau and et. al,
2013).
OAR for departments Calculation Result

Department X 434905.88£ /80000 5.44£
Department Y 349960.92£ /60000 £5.83
Department Assembly 250133.2£ /10000 £25.01
Total overhead cost = (0.8*5.44£) + (5.83 * 0.6) + (25.01£*0.1)
4.35£ + 3.50£ + 2.50£ = 10.35£
Total cost = Material cost + labour cost + Overhead cost
= 8£ + 15£ + (0.8*5.44£) + (5.83 * 0.6) + (25.01£*0.1)
= 33.35£
1.4
Absorption rates assist in establishing the overhead cost which are required for each unit
of production. By following related data calculations are made as below:
Calculation of OAR (Overhead absorption rate) = budgeted overhead / total labour hours
Total overhead for:
Machine X= 434905.88£
For Machine Y= 349960.92£
Assembly = 250133.2£
OAR for Calculations Results
Machine X 434905.88£ / 200000 £2.17
Machine Y 349960.92£/150000 £2.33
Assembly 250133.2£/200000 £1.25
Total overhead cost = (2.17£*2) + (1.5*2.33£) + (1*1.25£)
4.34£ + 3.50£ + 1.25£ = 9.09£
Total cost of product = Material + Overhead + Labour
8£ + 9.09£ + 15£
= 32.09£
Difference between Machine hour and labour hour

From the above calculation it is found that by using machine hour the overhead cost for
machine X is 5.44£, for machine Y 5.83£ and for assembly is 25.01£. Whereas by using labour
hour apportion, overhead cost for machine X results 2.14£, for Y 2.3£ and for assembly results
1.25£. Total overhead cost of product under machine hour is 10.35£ whereas under labour hour
is 32.09£. So it is found that machine hour cost is higher than labour hour. Hence, cost of product
using labour hour method is comparatively low and get changed to 32.09£ from 33.35£. So it is
good apportionment for Jeffrey and Son's (House and Jackson, 2013).
TASK 2
2.1
To identify the total cost and cost per unit, cost sheet is prepared below for Jeffrey and
Son's Ltd. By identifying difference between budget and actual figures, calculations have been
done.
Budgeted Output ( 2000 Units) Actual Output ( 1900 Units)
Particular Unit per cost Total cost Unit per cost Total cost
Substantial 12 24000 12 22800
Employees 9 18000 10 19000
Fixed Overhead 15000 15000
Lighting 8000 7625
Maintenance 5000 4800
Sum of all 35 70000 36.43 69225
Substantial cost = Total cost / Units
= 24000£ /2000
= 22800£
Employees cost 10£ per unit * 1900 Units = 19000£
Semi variable cost: Lighting is included in semi variable cost
Variable cost per unit = 8000£ - 5000£/2000 Units -1200 Units
= 3000£ / 800 Units = 3.75 per unit
Fixed charges = 8000£ - (3.75£*2000 Units) = 500£

Variable electricity charges = 3.75£*1900 Units
= 7125£
Total charges of lighting = 7125£ + 500£
= 7625£
Maintenance cost = 5000£ - (1000£/500 units*100 Units) = 4800£
Cost per unit = 69225£/1900 Units = 36.43£
Calculation of Variance analysis:
It concerns with the financial performance of deviations, by this calculation company
analysis difference between flexed standards and actual results (Kurichi and et. al, 2013).
Particular Budgeted cost Real cost Variance
Substantial 24000 22800 1200
Employees 18000 19000 -1000
Fixed Overhead 15000 15000 0
Lighting 8000 7625 375
Maintenance 5000 4800 200
Total 70000 69225 775
Interpretation: Substantial variance indicates that Jeffrey and Son's Ltd. Actual cost is lower
than budgeted cost. So price variance of material is zero because it is same to 12£. Labour
variance shows that it is higher than budgeted cost. It increased due to the higher labour rate
which is 10£ per unit. As lighting budgeted cost was 8000 but it is getting declined to 7625. So
there is positive variance that is 375. Because of lower production maintenance rate get affected.
Budgeted cost of maintenance was 5000 but actual was 4800 so variance arises to 200£. As fixed
cost remains same therefore fixed cost variance also remains same under the output of 2000 and
1900 Units. Thus, it may be said that labour cost variance, labour rate and material cost variance
impact negatively on business unit. It reduces the profitability margin of the company to the
great extend. For making good profits Jeffrey and Son's has to search alternatives so that these
negative areas can be decreased and enterprise get high profit (Johnson, Pfeiffer and Schneider,
2013).

2.2
So many indicators used by the business entities for identifying the actual performance of
corporation. In context to Jeffrey and Son's, it uses various indicators, these are as below: Increasing sales: It is the important tool, by improving in sales and enhancing sales of
the products organizations can enhance its profit to great extend. It will affect the overall
revenue of company. For increasing sales of the entity, Jeffrey and Son's has to provide
quality good to consumers at affordable rates. By using several marketing techniques like
promotional activities, advertising, enterprise can achieve its target. Sales promotions and
after sales services can assist in increasing sales of the products. For providing quality
products, company has to adopt advanced technologies so that production may give
quality (Robbins and Simonsen, 2012). Financial statements: By preparing financial statements company can analysed the
performance of the enterprise. By this way accountant can analysis improving areas and
areas where cost can be minimized. By this way profit of the firm will get increased.
These records assist in knowing actual position of competitor. By comparing statements
with rivals enterprise can know sales and profit of respective entity. Customers feed back: By getting consumers feed backs company can identify the actual
point of view of service uses towards the business unit. Satisfy end users increases sales
of the firm. Delivery timing: It is an important tool, by reducing waiting time through delivering
products to consumers soon Jeffrey and Son's can enhance its performance and
profitability. Market share of Jeffrey and Son's: Market share of business unit assists in analysing
actual performance of the company.
 Utilization of available resource: By utilizing resources effectively company can
increase its profits because by this way operation cost will be reduces. Thus, business will
earn high profits (Wyatt, 2012).
2.3
For achieving the business goal every organization require to reduce cost and to enhance
value of the company. For Jeffrey and Son's also it is important to look upon cost and quality for
getting positive results.

 Advanced technology: For manufacturing products like cloths, furniture Jeffrey and Son's
has to use upgraded technologies. By this way company will be able to provide quality
and unique products to consumers. Reducing expenses: By cutting off the expenditures an enterprise can reduce its
operational cost (Yuan and et. al, 2014). Effective utilization of resources and recycling of wastage: By utilizing effectively to
available resource company can reduce its operational cost. Recycling of wastage is good
technique of using resources significantly. Large production: Through large production, cost per unit of goods get decreased. Thus,
it gives benefit to entity. Recruitment of skilled persons: By hiring talented people in the workplace company can
enhance its quality and can provide effective services to consumers. Jeffrey and Son's
must consider that it offers wages to workers which are reasonable for firm. It should not
offer higher salaries to employees (Bierman and Smidt, 2014).
 Increase sales: By enhancing sales of organization value can be increased. It will give
more benefit to stakeholders by this way.
Jeffrey and Son's can implement various suggestion for improving value like it
can increase market share, competitive advantage, business expansion are some techniques. By
providing variety of products at affordable rates Jeffrey and Son's can enhance its value and can
gain competitive advantage. By providing significant services to consumers, company can satisfy
its end users this will help in increasing the value of entity. By using quality raw materials and
advanced technologies' organization can improve its quality of goods and can satisfy its
customers. These are some positive ways through which Jeffrey and Son's can increase sales and
can grow well. By this way sustainability of the entity will get increased.
TASK 3
3.1
Purpose of Budgeting Process
Budgeting process is the estimation of expenses and incomes for future period. In case of
Jeffrey and Son's manager determine the actual cash balance. By this way manager can analysed
the difference between actual and budgeted figures. Min purpose of budgeting process is to

identify the variances and if these are negative then owner can take suitable measures to make it
positive (Luby, 2012). It assists in taking appropriate decisions for the business unit so that
company can grow well. By analysing budgeting manager of Jeffrey and Son's remove negative
business variances. Purpose of budgeting is to correct allocation of financial and other resources
so that operations can be done effectively. Rational behind preparing budget is that managers of
Jeffrey and Son's can identify the expenses and can control the cost of various expenditure.
Management prepares various statements like sales budget, purchase budget, production budget,
cash budget etc. By monitoring all these reports effective decision regarding cost can be taken by
the higher authorities. It supports to eliminate the negative variances. Cash availability can be
easily analysed by managers (Yuan and et. al, 2014).

Nature of Budgeting process
It is essential to estimate the total cash inflow and outflow in business unit. Under the
cash inflow, Jeffrey and Son's can identify the income and sales of the company. Where in cash
outflow, forecasting of expenses may be easily done. Expenditures like wages, machinery
purchasing cost, rent etc. all can easily be identified. By analysing total inflow and outflow of
cash Jeffrey and Son's can calculate the cash payment. By subtracting total expenses from
income, available cash calculate by manager. This procedure supports in knowing surplus or
deficit in the workplace (Derkinderen and Crum, 2012).
3.2
Currently Jeffrey and Son's is following the incremental budgeting system whereas
company should follow Zero based budgeting system for getting appropriate results. Main
advantage of this budget is that it is prepared through considering the market changes. This
method assists in managing cash flow effectively by this way profitability of business unit may
get increased. By using Zero based budgeting system company can compare various alternatives
and can select the most suitable option for the entity (Luby, 2012). By this way allocation of
resource can be done significantly which can support in reducing cost of operations of the
business unit. This gives high returns and growth to enterprise.
Advantage of this budget system is that it executes the operation in disciplined manner.
Process focuses more on justifying the operational expenses and consider the most suitable are of
company which can generate higher revenues to enterprise. It supports in finding ways for
completing the task in more efficient manner. Priorities of tasks can be identified easily with the
use of this technique. It makes changes in previous budget and find alternatives so that more
accurate results can come by using this budging process. It is most cost effective technique
(Luby, 2012). It removes all unproductive activities from the operations and make it more
significant. Incremental budgeting is having problem of budget inflation but this process
overcome the weakness of incremental budgeting. This is very beneficial method in making
coordination between various departments and motivate all employees effectively. This system
involves all workers in decision making process so that strength and weakness can be identified
thus signifiant results can come.

3.3
Production Budget: For determining the quantity of product it is prepared. Production budget for
Jeffrey and Son's is as below:
Sales of goods 105000 90000 105000
Less: Op. Stock 11000 13500 15750
94000 76500 89250
Add: Closing stock 13500 15750 16500
Overall Production 107500 92250 105750
Necessary calculations: It is required equal to 15% of the next year sales
Closing stock for months Calculations Results in Units
July 90000 * 15% 13500 units
August 105000 * 15% 15750 units
September 110000 * 15% 16500 units
Material purchase Budget: For determining the quantity of material it is prepared.
Material Require (2 per kg) 215000 184500 211500
Less- Opening stock 52000 46125 52875
Total 163000 139500 159000
Add- Closing stock 46125 52875 54250
Purchase 209125 191250 212875
Necessary calculation: Material required = Production * per unit material required
Material required for months Calculations Results
July 107500 * 2 215000 Kg
August 92250 * 2 184500 kg

September 105750 * 2 211500 kg
Closing stock is required 25% of the next month requirements (Rikhardsson and et. al, 2012).
Closing stock for months Calculations Results
July 92250 Units*2 Kg*25% 46125 Kg
August 105750 units*2kg *25% 52875 Kg
September 108500 Units*2Kg*25% 54250 Kg
3.4
Cash budget: It is the estimated cash inflow and outflow budget, which is required for near
future. Cash budget for Jeffrey and Son's is as below:
Particular July August September
Cash balance 16000 44031 67993
Cash Income
Cash sales 900000 821250 864000
Total cash Income 916000 865281 931993
Cash Expenses
Cost of material
Purchase 365969 334688 372531
Direct salaries 322500 276750 317250
Variable overhead 108500 98350 100350
Fixed Overhead 75000 87500 87500
Overall cash
expenditure 871969 797288 877631

Cash balance 44031 67993 54362
Calculations of sales:
May June July August September
Sales units 95000 110000 105000 90000 105000
Sales prices 9 9 9 9 9
Gross sales 855000 990000 945000 810000 945000
60% in similar
month 513000 594000 567000 486000 567000
25% in the
upcoming
calendar
month 213750 247500 236250 202500 236250
10% after two
months 85500 99000 94500 81000 94500
5% bad debs 42750 49500 47250 40500 47250
Sales for various calendar months:
July August September
60% of monthly sales 567000 486000 567000
25% of early sales 247500 236250 202500
10% of Sales before two months 85500 99000 94500
Total 900000 821250 864000
Purchase of raw materials:
Month Calculation Result

July 209125 kg * 1.75 365969
August 191250 kg * 1.75 334688
September 212875 kg * 1.75 372531
Labour expenses for various months:
Month Calculation Result
July 107500 * 3 322500
August 92250 * 3 276750
September 105750 * 3 317250
Variable overhead:
June July August September
Units 110000 107500 92250 105750
Variable cost per
unit 1 1 1 1
Total variable
overhead 110000 107500 92250 105750
60% in Similar
month 66000 64500 55350 63450
40% in the
upcoming
calendar month 44000 43000 36900
Total 108500 98350 100350
From the above calculation it is found that Jeffrey and Son's posses positive cash balance
at the end of period (Mongiello, M., 2015).

TASK 4
4.1
Calculations of budgeted cost for 4000 units:
Particular Per unit cost Budgeted
Sales 4 16000
Substantial 0.96 3840
Employees 0.8 3200
Fixed Overhead 4800
Total Cost 2.96 11840
Profit (Sales-total cost) 1.04 4160
Calculations:
Sales = 4000 * 4£
= 16000£
Material cost = 0.4kg*2.40£*4000
= 3840£
Labour cost = 8£*6/60*4000
= 3200£
Fixed overhead = 4800£
variance's computation:
Particular Budgeted Fixed Actual
Sales 16000 14000 13820
Substantial 3840 3360 3420
Employees 3200 2800 2690
Fixed overhead 4800 4800 4900
Profit 4160 3040 2810
Sales variance computation:
Particulars Variance
Sales volume variance ( 4160 - 3040) 1120 (A)

Sales cost variance ( 14000 - 13820) 180 (A)
Particulars Mathematical
statement
Calculation Net variance
Substantial price
variance
AQ*(SP-AP) 1425(2.4£ - 2.4£) Zero
Material usage
variance
(SQ-AQ)*SP [( 3500 *0.4)-(1425)*
(2.40)]
60(Adverse)
Total 60 (Adverse)
Labour variance computation:
Particulars Mathematical
statement
Variance Net variance
Labour rate variance (SR-AR)*SH [(8£-7.8£)*350] 70 (f)
Labour efficiency
variance
(SH-AH)*SR [(3500*0.1)-(345)]*8£ 40(f)
Fixed overhead variance computation:
Particulars Variance Net variance
Budgeted fixed
production overhead
4800
Actual fixed overhead 4900
Fixed overhead
expenditure variance
Budgeted -Actual 4800 - 4900 100 (A)
Possible reasons and actions to overcome those: Amount of sales shows that in Jeffrey and
Son's there is negative variance (Mongiello, M., 2015). This is because per unit sales is

decreasing. To improve it company can take measure of marketing so that sales can be increased.
By advertising products organization can improve its number of selling. Various promotional
camps can assist in achieving the goal. Material price is increasing to 0.97. It makes difference
between actual and budgeted material quantity. For resolving such issue enterprise must
purchase raw material from other reliable sources so that price of material can be reduced
(Jackson and et. al, 2014). As calculation shows that there is huge difference between actual and
budgeted labour variance so firm should concentrate on improving efficiency of labour so that
both can be matched (Mongiello, M., 2015).
4.2
Particular Per unit Budgeted(4000 Units) Per unit Actual(3500) Variance
Sales 4 16000 3.94 13820 -2180
Substantial 0.96 3840 0.97 3420 420
Employees 0.8 3200 0.77 2690 510
Fixed
Overhead 4800 4900 -100
Total 2.96 11840 3.14 11010 830
Operating
profit 1.04 4160 0.8 2810 1350
4.3
Jeffrey and Son's has various departments which are purchase, sales, production
departments. By using variances all sections can take their own decisions. Purchase team has to
look upon the quantity and rates of materials. Whereas sales team in responsible to increase sales
of the products so that high revenues can be generated by the organizations. As per the
calculations and given informations Jeffrey and Son's Ltd. Has not meet with the budgeted value
for improving this, company requires to use effective marketing plans so that sales can get
increased and it can meet with the actual requirements (Rumble, 2012). Production department is
responsible for maintaining the quality of goods. As per the market requirement production team
has to produce adequate amount of quantity products.

As in Jeffrey and Son's there is high rate of purchasing raw materials, high wages given
by employer to workers thus operation cost is increasing. Sales of company is very low,
enterprise has to improve on these points. Like sales can be increased by using various marketing
activities and by improving efficiency of employees. Operational cost can be in control if
organization purchase raw materials from other cheaper sources (Drury, 2013).
CONCLUSION
From the above report it can be concluded that by adopting various management
accounting techniques company can achieve its targets. These cost and budget statements assist
in gaining competitive advantage, by this way market share may get enhanced. By increasing
marketing activities enterprise can enhance its sales and can compete with competitors. This aids
in reducing operational cost of business unit. By this way organization will be able to survive in
complex market fir longer period.