Introduction to Management Accounting

Introduction to
Management
Accounting

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
QUESTION 1..................................................................................................................................1
Preparation of the Cash Budget for Woodrock Limited the first six months of trade.................1
Comment on the cash position within the business, analysing what Woodrock Limited could
do to improve cash flow..............................................................................................................3
Critical examination those issues of relevance in behavioural aspects of budgeting which may
lead to problems in a business entity...........................................................................................3
QUESTION 2..................................................................................................................................4
A. Contribution that each electric kettle makes towards covering fixed costs if it is sold for
£13...............................................................................................................................................4
B. Calculation of BEP and margin of safety in revenues and units.............................................4
C. Calculation of profit Plaistead Plc makes if it produces and sells 53,000 electric kettles at
£13 per kettle...............................................................................................................................5
D. Calculation of sales at profit of 90000....................................................................................6
E. Calculation of price of units if 90000 profits is desired by selling 53000 units.....................6
F. Analysis of suitability of strategy to the organisation.............................................................6
G. Brief discussion of the underpinning assumptions attached to the break-even model...........7
QUESTION 4..................................................................................................................................7
A. Prepare a columnar statement showing, by element of cost...................................................7
B Variances for direct material and direct labour........................................................................8
C Discuss the purposes of standard costing, highlighting some of the key values and
limitations associated with the use of variance analysis............................................................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting could be defined as the technique which is used to determine
performance of the organisation so that strategic decisions for future could be formulated. If an
entity will not be focused with it then it may result in unachieved objectives of business. Apart
from this, all the reports that are generated under this approach are provided to internal
stakeholders so that they can determine that business is progressing or not (Abednazari, 2018).
Present report is based upon analysis of different techniques of management accounting. The
questions that are selected to cover under this report are 1, 2 and 4. Different topics that are
covered under this assignment are formulation of cash budget, discussion and calculation of
BEP, contribution, margin of safety etc. Apart from this, columnar statement is also formulated
along with calculation of variances are also covered under this assignment.
QUESTION 1
Preparation of the Cash Budget for Woodrock Limited the first six months of trade
Cash budget: It could be defined as the statement in which details of all the cash
transactions of the organisation are mentioned. With the help of it, actual liquidity of the
business could be determined. If the entity will not be able to generate it systematically then it
can help to analyse actual cash which is available to business (Leotta, Rizza and Ruggeri, 2016).
The cash budget for Woodrock Limited is as follows:
Particulars Month 1 Month 2 Month 3 Month 4 Month 5 Month 6
Opening balance Nil Nil Nil -31914 -24430 -23156
Receipts
Receipts from clients Nil Nil Nil 41000 30000 35500
Total A 0 0 0 9086 5570 12344
Payments
Payments to suppliers Nil Nil 11800 8600 10200 12800
Rent 12000 12000 12000 12000 12000 Nil
Payment of lease for machinery 2500 2500 2500 2500 2500 2500
1

Marketing and advertising 8000 8000 8000 8000 Nil Nil
Salary to manager 3000 3000 3000 3000 3000 3000
Insurance 4000 Nil Nil Nil Nil Nil
Payment to labour 7416 5412 6414 8016 11226 13032
Total B 36916 30912 31914 33516 28726 18532
Closing balance (A-B) -36916 -30912 -31914 -24430 -23156 -6188
Working notes:
Calculation of receipts from customers
Particulars Month 1 Month 2 Month 3 Month 4 Month 5 Month 6
Desk (30 per
unit) 21000 15000 18000 24000 30000 33000
Cabinet (50 per
unit) 20000 15000 17500 20000 32500 40000
Total receipts 41000 30000 35500 44000 62500 73000
Calculation of payment to supplier
Particulars Month 1 Month 2 Month 3 Month 4 Month 5 Month 6
Desk (10) 7000 5000 6000 8000 10000 11000
Cabinet (12) 4800 3600 4200 4800 7800 9600
Total payments 11800 8600 10200 12800 17800 20600
Calculation of labour hours
Particulars Month 1 Month 2 Month 3 Month 4 Month 5 Month 6
Desk (0.5 hour
per unit) 4200 3000 3600 4800 6000 6600
Cabinet (0.67 3216 2412 2814 3216 5226 6432
2