Management Accounting for Cost and Control - Desklib

Explore the topic of management accounting for cost and control with solved assignments, essays, and dissertations on Desklib. Learn about cost per equivalent unit, production budget, relevant costing, balanced scorecard, and more. Discover the advantages of operating budgets and relevant costing methods. Get expert guidance on how to calculate flexible budget variance, material usage budget, material purchase budget, and total relevant cost of special orders.

Management accounting for cost and control
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Table of Contents
Solution1:...................................................................................................................................3
Solution 2:..................................................................................................................................5
Solution 3:..................................................................................................................................8
Solution 4:................................................................................................................................10
Solution 5:................................................................................................................................12
Bibliography.............................................................................................................................14
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Solution1:
Part a.
Calculation of Equivalent unit using Weighted average
Particulars Input Output
Material
% -
Weights
Equivalent
material
units
Conversio
n Costs %
- Weights
Equivalent
conversion
cost units
Opening inventory -
WIP
3,000
Units Introduced 12,000
Units completed 9,000 100 9,000 100 9,000
Abnormal Loss 1,000 100 1,000 100 1,000
Closing inventory -
WIP
5,000 100 5,000 60 3,000
Total Equivalent
Units
15,000 15,000 15,000 13,000
Part b.
Cost per equivalent unit
Particulars
Opening
Inventory - WIP
Units
Introduced Total
Units 3,000 12,000
Total Material Cost 2,100 9,000 11,100
Material- equivalent units 15,000
Material cost per equivalent unit 0.74
Total Conversion Cost 485 10,045 10,530
Conversion Cost- equivalent units 13,000
Conversion Cost per equivalent
unit
0.81
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Part c.
Value Of Ending Inventory
Particulars Units ($) Total
Direct Materials 5,000 0.74 3,700.00
Conversion Costs 3,000 0.81 2,430.00
Total 6,130.00
Part d.
Value Of Abnormal Loss
Particulars Units ($) Total
Direct Materials 1,000 0.74 740.00
Conversion Costs 1,000 0.81 810.00
Total 1,550.00
Note: due to lack of information we have ignored the normal loss.
Part e.
Value Of Goods Completed And Transferred
Particulars Units ($) Total
Direct Materials 9,000 0.74 6,660.00
Conversion Costs 9,000 0.81 7,290.00
Total 13,950.00
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Solution 2:
Part a.
Production Budget (In Units)
Particulars January February
Sales 48,000 84,000
Less : Opening Stock 69,000 99,000
Add : Closing Stock 99,000 78,000
Total 78,000 63,000
Working:
Calculation Of Closing
Stock :
Month Jan Feb Mar Apr
Unit Sales 48,000 84,000 60,000 72,000
Closing stock 99,000 78,000 72,000 -
Part b.
Material Usage Budget
Particulars January
Production 78,000
Raw material per unit 2
Total Material - unit 1,56,000
Total Material - amount 31,20,000
Part c:
Material Purchase Budget
Particulars January
Raw Material Required 1,56,000
Less : Opening Stock 62,400
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Add : Closing Stock 50,400
Total Material Purchase 1,44,000
Working:
Calculation Of Stock :
Month Jan Feb
Unit Produced 78,000 63,000
Raw Material Required 1,56,000 1,26,000
Opening stock -Raw material 62,400 50,400
Closing stock 50,400
Part d.
There are various types of budgets that are prepared by the managers of the company in order
to assist them with the workings. The budget which is prepared to forecast the revenues and
cost for the organisation is known as the operating budget. An operating budget is prepared in
the format of income stamen stating all the revenues and cost. These revenue and cost are
estimates set by the management which is based on various assumptions and factors. A
detailed study and market research is conducted in order to prepare the operating budget
including the amounts and units. There are various advantages of an operating budget, few of
which have been listed below:
- Helps in tracking the fixed costs: the fixed cost of the company does not change. When a
budget is prepared a thorough investigation of each and every item of cost and revenue are
done which also include fixed costs. If there are any changes found in the fixed cost of the
company during such research then the management can compare and find the reasons for
such changes. This will help control the fixed cost and provide maximum benefits (Atkinson,
2012).
- Helps in planning the availability of the resources: when an operating budget is prepared it
makes an estimate of the resources that would be required for the upcoming production cycle.
This gives the management a chance to take to the suppliers regarding the resources at pre
determined rates. This prevents the situations of shortages of raw materials (Berry, 2009).
- Helps in cost control: since the production is carried out taking the budget as a base, the
resources allocated are also based on the budget. The departments are motivated to work
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within the set allocated resources, which helps to promote efficiency and cost control within
the organisation (Boyd, 2013).
- sets a direction for the company to move forward: all the organisations need a path or a
direction which helps them plan the activities. The operating budgeted helps the management
set such a path for the company (Datar, 2015).
- helps to improve efficiency: the operating budget prepared estimates the production
requirement for the products. While setting these requirements, a proper study and research
can helps the management plan the resources in such a way that provides maximum output
with minimal resources. This helps to improve the production efficiency (Datar, 2016).
Therefore, we see that there are a lot of advantages of creating a operating budget for an
organisation.
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Solution 3:
Part a.
Calculation Of Flexible Budget Variance
Particulars Standard Cost per
unit
10,000 Units Variance
Standard Cost Actual Cost
Direct Materials 20 2,00,000 2,02,500 -2,500
Direct Labour 25 2,50,000 3,25,000 -75,000
Variable Overhead 6 60,000 1,00,000 -40,000
Fixed Overhead 10 1,50,000 1,50,000 -
Total Cost 61 6,60,000 7,77,500 -1,17,500
Part b.
Calculation Of Various Variance :
Particulars Standard
Cost ($)
Actual
Cost ($)
Amount
($) Status
Direct Materials Price Variance 225000 202500 22500 Favourable
[(Actual Qty * Standard Rate)- Actual Cost ]
Direct Materials Efficiency Variance 200000 225000 (25000) Adverse
[(Standard Qty - Actual Qty)*Standard Rate]
Direct Labour Price Variance 312500 325000 (12500) Adverse
[(Actual Hours*Standard Rate)-Actual Cost]
Direct Labour Efficiency Variance 250000 312500 (62500) Adverse
[(Standard Hours - Actual Hours)*Standard Rate]
Variable Manufacturing Overhead Spending
Variance
75000 100000 (25000) Adverse
[(Actual Qty * Standard Rate)- Actual Cost ]
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Variable Manufacturing Overhead Efficiency
Variance
60000 75000 (15000) Adverse
[(Standard Hours - Actual Hours)*Standard Rate]
Fixed Manufacturing Overhead Spending
Variance
150000 125000 25000 Favourable
(Standard Cost-Actual Cost)
Fixed Manufacturing Overhead Efficiency
Variance
100000 125000 (25000) Adverse
[(Standard Hours - Actual Hours)*Standard Rate]
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Solution 4:
Part a.
Calculation Of Total Relevant Cost Of The Special Order
Particulars Amount ($)
Direct Materials 100
Direct Labour 50
Manufacturing Support 90
Total Relevant Cost 240
Note: Assuming there is spare capacity.
Part b.
The relevant cost for the product is $240 per unit, whereas the customer is offering $350 per
unit. Since the customer is offering more than what company will incur the special order
should be accepted. This conclusion is based on the availability of spare capacity. If the
company has no spare capacity then the conclusion may change.
Part c.
Calculation Of Total Relevant Cost Of The Special Order :
Particulars Amount ($)
Direct Materials 100
Direct Labour 50
Manufacturing Support 90
Contribution Loss 225
Total Relevant Cost 465
Working:
Calculation Of Contribution Per Unit From Current Operations
Particulars Amount ($)
Sales 500
Less :
Direct Materials 100
Direct Labour 50
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Manufacturing Support 90
Marketing Costs 35
Contribution 225
Part d.
Relevant costing is the costing method that is used to evaluate the special offers. While
conducting the relevant cost analysis for a product the two potential problems that should be
avoided are as follows:
- Consideration of fixed costs- the fixed costs are irrelevant costs. These costs do not affect
the decisions, as these costs will be incurred irrespective of what the decision is. Therefore,
while conducting a relevant cost analysis of a product, we should make sure to not consider
fixed costs.
- Consideration of Selling and distribution costs- while evaluating a decision of a special
order which includes relevant cost analysis, one must make sure to eliminate the costs related
to selling and distribution. The selling and distribution costs are incurred in order to sell more
units. But when a customer is already present then no selling and distribution costs for such
order are required to be incurred. Hence, we should make sure to not include the selling and
distribution costs while analysing the relevant costs (Holtzman, 2013).
Therefore, while we calculate the relevant for a given order we must make sure to eliminate
all irrelevant cots in order to ensure correct relevant cost information.
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Solution 5:
Balanced scorecard is a management system of strategic planning which is used by the
organisations for effective communication of the goals. Also, it helps to plan the work and set
the strategies. This method helps to prioritise the work for a given time and also helps to
measure and monitor the progress towards strategic targets. The other methods which are
used by the organisations are basically used to evaluate the short term progress of the
organisation. This method helps the management attain short tern objectives by keeping its
eye on the long term goal. This means that the organisations keep taking small steps which
contribute towards the accomplishment of the long term objective of the organisation
(Horngren, 2012).
The method of the balanced scorecard helps to improve the communications in the
organisation. Increased communication leads to awareness amongst various departments that
helps to promote smooth functioning (Noreen, 2015).
This method helps the organisation to create a link between the various elements of the
business in order to achieve the long term target. These elements include mission, vision,
strategic core values, objectives measures, etc.
The balanced scorecard method is used to improve the internal functions of the company so
that there resulting external outcomes can be improved. The quantitative data collected is
interpreted by the management of the organisation which is used to make better decisions for
the company. This method is extensively used by the various business organisations,
industries and government worldwide (Seal, 2012).
Evaluating the internal elements of the organisation will help the management understand the
areas with problems. The areas which create obstacles or slow the later processes can easily
be identified because of the balances scorecard methods (Siciliano, 2015).
The balanced scorecard method helps improve the functioning by dividing the organisation
into four major legs, which are finance, customers, growth and business process.
The financial data of the enterprise is very helpful in analysing the financial performance.
The financial metrics such as ratio calculations, budget variances or targets, can be used to
access the performance of the enterprise.
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Customers form one of the most important parts of organisation. The workings of the
organisation are done in order to satisfy the customer needs. The customer feedback should
be taken into consideration as it provides scope for improvement.
The growth of the enterprise is very much dependent on the learning. It is important that the
members are the enterprise is continuously trained in order to keep up with the changing
trends. Continuous learning will help the organisation have a competitive advantage over the
other enterprises of the same industry.
Lastly, there are business processes. These business processes are investigated by studying
the product. The efficiency in production, savings in cost etc are the factors that help us
evaluate the business processes
The best part of using the balanced scorecard method is that it very prominently links the
various elements of the business with one another. The connection between the activities can
very easily be identified which can be used to analyse the relation between the two elements.
This helps to ensure smooth flow of data and recourses, which helps to promote
organisational efficiency.
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Bibliography
Atkinson, A. A. (2012). Management accounting. Upper Saddle River, N.J.: Paerson.
Berry, L. E. (2009). Management accounting demystified. New York: McGraw-Hill.
Boyd, W. K. (2013). Cost Accounting For Dummies. Hoboken: Wiley.
Datar, S. (2015). Cost accounting. Boston: Pearson.
Datar, S. (2016). Horngren's Cost Accounting: A Managerial Emphasis. Hoboken: Wiley.
Holtzman, M. (2013). Managerial Accounting For Dummies. Hoboken, NJ: Wiley.
Horngren, C. (2012). Cost accounting. Upper Saddle River, N.J.: Pearson/Prentice Hall.
Noreen, E. (2015). The theory of constraints and its implications for management accounting.
Great Barrington, MA: North River Press.
Seal, W. (2012). Management accounting. Maidenhead: McGraw-Hill Higher Education.
Siciliano, G. (2015). Finance for Nonfinancial Managers. New York: McGraw-Hill.
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