Analysis of cost of Exquisite using absorption costing

Management Accounting

TABLE OF CONTENTS
INTRODUCTION ..........................................................................................................................3
TASK 1............................................................................................................................................3
1.1 Different types of cost classification......................................................................................3
1.2 Using job costing calculation of unit cost and total job cost for job 444...............................4
1.3 Calculating cost of Exquisite using absorption costing.........................................................5
1.4 Analyzing the cost of Exquisite focusing on technique used by Jeffrey & Son's Ltd...........7
TASK 2............................................................................................................................................7
2.1 Preparation and analysis of cost report and commenting on variance...................................7
2.2 Identification of areas of improvements using performance indicators.................................9
2.3 Ways to reduce costs, enhance value and quality................................................................10
TASK 3..........................................................................................................................................10
3.1 Purpose and nature of budgeting process.............................................................................10
3.2 Selection of appropriate budgeting methods for firm and its needs....................................10
3.3 Preparation of different types of budget..............................................................................10
3.4 Preparation of cash budget...................................................................................................11
TASK 4..........................................................................................................................................12
4.1 Calculation of variances, identification of causes and recommending corrective actions. .12
4.2 Preparation operating statement reconciling budgeted and actual results...........................13
4.3 Reporting findings to management according to responsibility centers identified..............13
CONCLUSION .............................................................................................................................14
REFERENCES..............................................................................................................................15
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INTRODUCTION
Management accounting is regarded as an important business element that assists in
providing accounting information to the managers in the firm (Management accounting, 2014).
This is in order to offer them basis to develop informed business decision which would allow
them to be equipped in their management and keep a track on the functions (Burgstahler and
Eames, 2006). The reports relating with management accounting involve detailed accounts of the
company's available cash, generation of revenue and current organizations accounts payable and
receivables.
In the present report, management accounting has been discussed in context of case study
related with Jeffrey and Son's Ltd. The firm is manufacturing concern that produces popular and
brand product known as Exquisite. The present report entails to make analysis of cost
information in the firm. Further it involves methods to reduce costs and enhance value within
business. In addition to this it also includes preparation, forecasting and budgets for business. At
last it includes monitoring of performance against budget within firm.
TASK 1
1.1 Different types of cost classification
Cost is referred to as expenditures incurred by the organization in accomplishment of its
activities. The cost of business is divided in the elements stated as under:
Basis of
classification
Type of cost Meaning
Elements Labor, Material and
overhead
Material is regarded as an essential element that
involves expenses to purchase raw material for
production of goods. In contrast to this labor are the one
who carries out production of goods (Exley and Smith,
2011). Further amount paid to them for their services is
referred as labor cost. Beside labor and material cost, all
the other expenses are considered as overhead. For
example, insurance, salary, factory rent etc.
Functions Production, The expenses related with production which assists in
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administration,
research and
development, selling
as well as
distribution.
converting raw material into finished stock are referred
as cost of production. On the contrary entire office
expenses that are needed to control business operations
are termed as administration cost. Such involves
stationery and office rent. Selling and distribution cost
covers the expenses involved in promoting and selling
the products such as cost of marketing.
Nature Direct as well as
indirect cost
Direct cost is the expenses that can be charged to the
product and services. This involves cost of material and
labor. In contrast to this all the other expenses that
cannot be charged from the product cost are indirect
cost which includes supervision, insurance, rent and
rates (Lucey, 2002).
Behavior Variable, Fixed and
semi variable
The expenses that are not influenced with the increase
or decrease in the volume of production are considered
fixed cost. This includes salary of foreman and rent of
building. But semi variable cost is one that changes
after certain level of production. For instance, telephone
bill, electricity charges etc. On the contrary variable
cost is one that directly changes with the alteration in
the production volume. This includes increase in cost of
material as a result of rise in volume of production.
1.2 Using job costing calculation of unit cost and total job cost for job 444
Job costing is referred to as an essential approach that can be used by firm in order to
calculate the cost in varied situation. Under this every job possess different nature and it has been
scheduled in accordance with specifications offered by customers (Prior, 2004). This technique is
controlled by maintaining direct indirect cost account in relation to the job. Calculation of unit
cost and total cost for job 444 as per case of Jeffrey and Son's Ltd is as under:
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