TASK 11 1.1 Cost Analysis of Exquisite

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Classifying the different types of cost..............................................................................1
1.2 Calculating the unit cost and total job cost for job 444....................................................3
1.3 Calculating the cost of Exquisite by using absorption costing technique........................4
1.4 Analyzing the cost data of Exquisite by using appropriate techniques............................6
TASK 2............................................................................................................................................7
2.1 Preparation of the cost report by analyzing the variances................................................7
2.2 Using performance indicator to assess the areas for potential improvements..................8
2.3 Recommending ways to reduce costs, enhance value and quality...................................9
TASK 3............................................................................................................................................9
3.1 Stating the purpose and nature of the budgeting process to the budget holders of Jeffery &
Son's........................................................................................................................................9
3.2 Opt the suitable budgeting method for the company along with its needs.....................10
3.3 Preparation of the production and material purchase budget.........................................10
3.4 Preparation of cash budget.............................................................................................12
TASK 4..........................................................................................................................................12
4.1 Calculating variances, assessment of causes and recommending the corrective measures
..............................................................................................................................................12
4.2 Preparing the operating statement which reconcile both the budgeted and actual results14
4.3 Responsibility centers.....................................................................................................14
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Management accounting may be defined as a systematic record of business transactions
and activities which are made during the accounting year. Management accounting helps finance
manager in making effective decisions (Mongiello, 2015). It provides an idea to an organization
about their financial and statistical performance. Through this, company is able to undertake
effective measures which facilitate control over the costs that are incurred by an organization. It
helps organization in enhancing the productivity and profitability of an organization.
This project report is based upon the case scenario of Jeffery & Sons. It is most popular
manufacturing company who produces popular and branded products which are termed as
Exquisite. The present report will develop understanding about the different types of costs as
well as the use of different types of costing methods. Besides this, it will shed light on the ways
through which one can prepare or analyze the cost reports. Further, it depicts the nature and
purpose of budgeting process in the business organization.
TASK 1
1.1 Classifying the different types of cost
Cost refers to the summation of several expenses which are incurred by an organization
in order to manufacture the products or services (Alaa-Aldin, 2007).
Classification of the cost: Jeffery & Son's can classify on the different basis which are
enumerated blow:
On the basis of nature
Costs Features
Material
It consists of the cost which organization
incurs to access raw material for the production
of finished goods.
Labor
Labor cost refers to those which are highly
associated with the human resources of an
organization (Gibassier and Schaltegger,
2015). It includes the wages of worker, tax
benefits and their insurance.
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Overhead
These costs are also termed as operating cost
which is incurred by an organization to run
business activities and functions.
On the basis of changes take place in activity or volume
Costs Features
Fixed cost
It may defined as those which remain
unchanged as changes take place in the number
of unit produced. For instance: factory rent,
salary of the workers.
Semi-variable cost
In this, cost of the output remains fixed to the
certain level of production. Besides this, such
cost becomes variable when predetermined
level of output exceeds (Chan and Chan,
2004). For instance: Wages of workers,
advertisement expenses etc.
Variable cost
It refers to those which increase or decrease as
changes take place in the level of output
produced. It includes electricity expenses etc.
On the basis of functions
Costs Features
Production cost
It represents the cost which is incurred by
Jeffery & Son's in manufacturing of product.
Commercial cost Commercial cost includes administration as
well as selling and distribution cost. Such cost
refers to the operational expenses which firm
has to incur in order to run business operations
and functions in an effective manner (McLean,
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McGovern and Davie, 2015).
1.2 Calculating the unit cost and total job cost for job 444
Cost sheet and unit cost: Cost sheet is the document which provides deeper insight to the
manager about the cost which they require to incur on the different types of projects. Along with
it, job costing may be defined as a process in which producer assigns manufacturing cost to an an
individual product. Besides this, unit cost refers to the cost which is incurred by Jeffery & Son's
in order to produce one unit of product or service.
Job cost sheet for Job no. 444
Particulars Total cost
Direct material 40000
Direct Labor 54000
Fixed production overhead 24000
variable production overhead 36000
Total cost 154000
Unit cost 770
Working note:
Direct material cost
Material cost = Quantity * price per kg.
= 50kg* 4£ per kg.*200 units= 400000£
Direct labor cost
Labor cost = Total working hours * rate per hour
Labor hours = 30 hours per unit*200 Units = 6000 Hours
Overhead
Fixed overhead = Total fixed production overhead/Total budgeted labor hours*Labor hours for
job
Fixed overhead = = 80000£/20000 hours* 6000 hours
= 24000£
Variable production overhead = Total hours* rate per hour
Variable overhead = = 6£ per hour * 6000 hours
= 36000£
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Unit cost = Total cost/ number of units
= = 154000£/200 Units = 770£ cost per unit
Thus, Jeffery & Son's has to incur 770£ in order to produce per unit of product or service.
1.3 Calculating the cost of Exquisite by using absorption costing technique
a.) Allocation and apportion of overhead to the production department of machine X. Y and
assembly
Production department
Service
department
Particulars
Basis of
allocation
Total
in (£)
Machine
X (£)
Machi
ne Y
(£)
Assembly
1 (£)
Stores
(£)
Mainte
nance
(£)
Indirect wages and
supervision
362000.
00 100000.00
99500.0
0 92500.00
Indirect material
253000.
00 100000.00
100000.
00 40000.00
light and heating
Machine
hours
50000.0
0 50000.00 10000 5000 15000 15000
rent
Area
occupied
100000.
00 20000.00
10000.0
0 30000.00
30000.0
0
10000.0
0
insurance and
machinery
Book value
of
machinery
15000.0
0 3529.40 2205.90 4411.80 2205.90 2647.06
depreciation
Book value
of
machinery 15000 7947.02 4966.89 993.38 496.69 596.03
Insurance of building
Area
occupied
25000.0
0 5000.00 2500.00 7500.00 7500.00 2500.00
salaries of work
management
No. of
employees
80000.0
0 24000.00
16000.0
0 24000.00 8000.00 8000.00
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