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Management Accounting | Case Study On Jeffrey & Son's

   

Added on  2020-02-14

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Management Accounting 1

Table of ContentsINTRODUCTION................................................................................................................................3TASK 1.................................................................................................................................................3P 1.1 Different types of cost classification..................................................................................3P 1.2 Calculation of Unit cost by using unit costing method......................................................4P 1.3 Cost of exquisite using absorption cost..............................................................................5P 1.4 Cost data of exquisite using appropriate techniques..........................................................7TASK 2.................................................................................................................................................8P 2.1 Preparation and analysis of cost report for the month of September and variance analysis.....................................................................................................................................................8P 2.2 Various areas of potential improvements using performance indicators...........................9P 2.3 Ways to reduce cost and enhancing value and quality.....................................................10TASK 3...............................................................................................................................................10P 3.1 Purpose and nature of budgeting process for Jeffery and Son's Ltd.................................10P 3.2 Use of appropriate budgeting technique...........................................................................12P 3.3 Preparation of production and material budgets...............................................................13P 3.4 Preparation of cash Budget...............................................................................................13TASK 4...............................................................................................................................................16P 4.1 Calculation of variances, identify possible causes and recommend corrective actions...16P 4.2 Operating statements includes both budgeted and actual results.....................................16P4.3 Responsibility centers........................................................................................................17CONCLUSION..................................................................................................................................17REFERENCES...................................................................................................................................182

INTRODUCTION Management accounting is also termed as managerial accounting that combines normswhich are related to costing and budgeting. This unit of accounting is significantly used by themanagers in order to collect data for making a good use of accounting information for decisionmaking (Ward, 2012). From past few decades, management accounting is being used incorporate world to decide financial matters within the organization. The case scenario of Jeffreyand Son’s manufacturing company is taken into consideration for making present report.Furthermore, cost report is prepared for a manufacturing unit while using various performanceindicators to find out the areas of potential improvements. The purpose as well as the nature ofthe budgeting process is explained to the budget holders of Jeffery and Son’s Ltd. In this respect,different kinds of budgets such as a production budget in units; materials purchases budget and acash budget are prepared. At the end of the report, variance in budget is identified along withpossible causes and recommended corrective actions.TASK 1P 1.1 Different types of cost classification Manufacturing company bears expenses at the time of production of goods and services,which is generally known as “Cost”. Nonetheless, there are various cost incurred during theproduction process that are further classified into various categories. In general form, the cost isclassified on the basis elements; namely behaviors, nature and function. Following points willexplain the cost classification: Elements of cost: The cost includes three major elements which are Material, Labor andExpenses. Material is used to produce finished goods, labor put efficiency in production andexpenses are occurred in whole process. However, these elements are further divided into directand indirect forms such as direct material and indirect material (Zimmerman and Yahya-Zadeh,2011).Nature of Expense: On the basis of nature of cost, it is divided into material, labor andexpenses. Within the manufacturing company, the remuneration paid to workforce is consideredas labor cost. Material cost, on the other hand, is paid against the purchase of raw material that is3

used by the company for successful accomplishment of manufacturing process. All the expensesmade for providing services are expenses for a manufacturing unit (Nørreklit, 2010).Functions/Activities: According to the functions of different departments of business,the cost is classified as per the expenses made by respective departments. For example:Production cost, Selling cost, Administration cost, Marketing cost, Distribution cost and R&Dcost are included in function based cost. Behavior of Cost: Volume is the base of deciding behavior of cost. On the other hand,the cost which is based on the volume of production is categorized into behavioral category. Costof production changes as per the production volume of a specific time span. According to thebehavior, cost is classified into three major categories such as Fixed cost, Variable cost and Semivariable cost (McGowan, 2010). Fixed cost does not modify at any level of production orremains same at any production volume. However, variable cost has a nature of change due toalteration in production volume. Semi-variable cost has characteristics of both fixed and variablecost. It can be said that to a specific level that a cost remains fixed and after this level, it leads tochange. This kind of cost which occur in production process is called as semi-variable cost. P 1.2 Calculation of Unit cost by using unit costing methodIn general phenomenon, Job costing is referred as a method that is used by anorganization to compute cost for a job which is different and unique in nature and is to beperformed as per specific requirements of customers. The use of such costing methods allowsmanufacturers to consider direct and indirect cost of the job at a same time. In respect withJeffrey and Son’s manufacturing Ltd., the calculation of cost and unit cost of job 444 isexplained below:Table 1: Calculation of cost and unit cost of Job 444ParticularsAmount (£)Direct cost Direct material200Direct labour270Indirect cost Variable production overhead180Fixed production overhead120Cost per unit7704

Units to be produced200Total cost 770*200154000Working noteFixed production overhead= (Budgeted overhead / total direct labor hours) * Direct labor hoursfor Job 444=(£80000 / 20000 hours) * 30 hours=£120 With the help of above mentioned calculation, the total cost of job 444 is found to be£770. However, per unit cost of job 444 is £3.85. P 1.3 Cost of exquisite using absorption costProductionDepartmentsServiceDepartmentBasisofTotalMachineMachineAssemblyStoresMaintenanceApportioningShopXShopY000’sIndirectWagesAllocated362100,00099,50092,50010,00060,000IndirectMaterialsAreaoccupied253100,000100,00040,0004,0009,000LightingHeating&AreaOccupied5010,0005,00015,00015,0005,000RentAreaOccupied10020,00010,00030,00030,00010,000Insurance&MachineryBookvalueofMachinery157,9474,967993497596DepreciationofMachineryBookvalueofMachinery15079,47049,6699,9344,9675,960InsuranceofBuildingAreaOccupied255,0002,5007,5007,5002,500SalariesWorksofNo.employeesof8024,00016,00024,0008,0008,000SubTotals1,035346,417287,636219,92779,964101,0565

Re-ofserviceStoresDept.39,98229,9879,995(79,964)Maintenance48,50732,33820,211(101,056)Totals434,906349,961250,13300Working NoteLighting&Heating:MachineryX10/50x£50,000—f10,000MachineryY5/50x£50,000—£5,000Assembly15/50x£50,000—f15,000Stores15/50x£50,000=£15,000Maintenance5/50x£50,000=£15,000RentMachinery X 10/50x£100,000=f20,000MachineryY5/50x£100,000 = £10,000Assembly 15/50x£100,000=£30,000Stores15/50x£100,000=£30,000Maintenance5/50x£100,000=£10,000Insurance&MachineryMachineryX800/1510x£15,000=£7,964MachineryY500/1510x£15,000—£4,966Assembly 100/1510 x :E15,000 —£994Stores50/1510 x £15,000= f497Maintenance 5/1510 x f15,000= £596Depreciation of Machinery MachineryX800/1510x£150,000=£79,470Machinery Y 500/1510 x £150,000 =£49,669Assembly100/1510x£150,000=£9,934Stores50/1510x£150,000—£497Maintenance60/1510 x £150,000=£5966

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