Analysis of Management Accounting Practices

This assignment requires students to analyze the concept of management accounting, including its importance in decision-making and its application in various industries. Students are expected to discuss the different types of management accounting, such as performance budgeting and participatory budgeting, and examine their role in promoting social waste and incentives. The assignment also touches on the challenges faced by management accounting in the new paradigm of service and the use of technology to enhance linkages between technology and accounting.

Management accounting
costing and budgeting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Q1................................................................................................................................................1
a) Classify costs into fixed, variable and semi-variable costs.....................................................1
b) Other ways of classifying costs..............................................................................................2
Q2................................................................................................................................................3
a) Compute the total cost and cost per unit at different level of unit..........................................3
b) Analyse cost using graphical presentation..............................................................................3
Q3................................................................................................................................................5
1. FIFO........................................................................................................................................5
2. LIFO........................................................................................................................................5
3. Average cost............................................................................................................................5
Q4 Prepare COGS report for FIFO, LIFO and Average cost.....................................................6
Q5................................................................................................................................................7
a) Two critical success factors and KPI......................................................................................7
b) Suggestion...............................................................................................................................8
Cost reduction.............................................................................................................................8
Value and quality enhancement..................................................................................................9
Q6................................................................................................................................................9
a) Describe budget.......................................................................................................................9
b) Purpose of budget...................................................................................................................9
c) Methods of budget................................................................................................................10
Q7..............................................................................................................................................10
a) Sales budget..........................................................................................................................10
b) Production budget.................................................................................................................11
c) Raw material budget.............................................................................................................11
d) Labour budget.......................................................................................................................12
e) Total overhead budget...........................................................................................................12
Q8 Cash budget.........................................................................................................................12
Q9..............................................................................................................................................13

a) Budget profit.........................................................................................................................13
b) Actual profit .........................................................................................................................14
c) Material and labour sub variances........................................................................................15
d) Operating statement for reconciling budgeted and actual profit...........................................15
Q10 Recommendation...............................................................................................................15
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17

Index of Tables
Table 1: Classification of costs........................................................................................................1
Table 2: Cost per unit and total cost................................................................................................3
Table 3: Closing stock of FIFO.......................................................................................................5
Table 4: Closing stock of LIFO.......................................................................................................5
Table 5: Closing inventory of Average cost....................................................................................5
Table 6: COGS report of FIFO method...........................................................................................6
Table 7: COGS report of LIFO method...........................................................................................6
Table 8: COGS report of Average cost method...............................................................................6
Table 9: Sales budget.....................................................................................................................10
Table 10: Production budget..........................................................................................................11
Table 11: Raw material budget......................................................................................................11
Table 12: Labour budget................................................................................................................12
Table 13: Overhead budget............................................................................................................12
Table 14: Cash budget...................................................................................................................12
Table 15: Budgeted Profit..............................................................................................................13
Table 16: Actual profit...................................................................................................................14
Table 17: Reconciliation statement................................................................................................15
Illustration Index
Illustration 1: Material and labour variances.................................................................................15

INTRODUCTION
Role of management accounting increases with the increasing external market difficulties
located in the external business environment. This project is about using several techniques if
budgeting in identifying all the problems incurred in business along with the proper management
of financial resources. This report also emphasises on different kinds of costs incurred in an
entity.
TASK 1
Q1
a) Classify costs into fixed, variable and semi-variable costs
Table 1: Classification of costs
Participants Fixed costs Variable costs Semi-variable costs
Material for clothes
Factory rent
Power for sewing
machines
Factory supervisor's
wages
Packaging materials
Telephone
Office rates
Delivery driver's pay
Factory heating
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In the above classification of costs of various expenses incurred in the business in several
criteria such as fixed cost, variable cost and semi variable costs. Three colours are taken in order
to reflect the three different costs (Management accounting, 2017). Above classification of cots
is shows like a matrix in which an entity will easily identify which expenses falls under which
particular category in order to help an entity in reducing the current cost incurred in the business.
Performance of the business is regarded as one of the important aspects to be considered by an
enterprise owner in uplifting their existing business conditions (Leite, Fernandes and Leite,
2016). It can be seen from the classification matrix that majority of costs incurred in the Smart
looks entity falls under the category of semi variable costs which ave constituent of both costs
such as variable as well as fixed costs incurred in the business. Semi variable costs is widely
incurred in the corporation but due to its wrong classification an employer is not able to identify
its nature and categorise them as fixed costs or variable costs which in turn induces the overall
costs incurred in the business.
b) Other ways of classifying costs
 Direct costs- It is that type of costs incurred in the business which is directly attributable
to a product such as raw material used in the making of a particular product. Expenses
incurred by an enterprise owner which is related directly with the manufacturing of a
single product. Direct costs of a singular product can be easily traced out by the
management as this falls under the nature of costs.
 Indirect costs- Another costs incurred in a firm is opposite version of the above mention
costs in which the costs is indirectly associated with the making of a product. Lubricating
oil used in improving the condition of machine helps in manufacturing of a product.
These costs are considered as indirect as there is no close relationship among this
particular costs with the manufactured product in the business enterprise.
 Function costs- Costs are also segregated in an entity according to various business
function such as productions, finance, human resource and marketing, selling and
distribution and information technology. All these functions are performed by an
employee in achieving desired aims and targets in the business concern (Leite, Fernandes
and Leite, 2016). Sole responsibility of business manager is to emphasise on each and
every factors included in an entity as this helps in achieving desired aims and targets
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framed by an enterprise owner. It includes products costs which is regarded as that type
of costs which helps in producing or manufacturing single product in an entity.
Production costs incurred in the business such as cost of raw material. Raw material is
regarded as basic factor of costs included in the business. Marketing costs involved in an
entity includes cost of advertising incurred in the business for creating market awareness
about al the products or services offered by an employer to all the clients located in the
external business environment. Information technology costs is regarded as the important
costs as communicating important information from one end to another is essential for an
entity in achieving all aims and targets within a given span of time. Role of business gets
increases with the passage of time as all types of costs are identified by the management
in initial stage in order to target all important type of costs with higher value which an
enterprise tries to minimise it within a given span of time.
Q2
a) Compute the total cost and cost per unit at different level of unit
Table 2: Cost per unit and total cost
Particulars Cost per unit 15000 units 20000 units 25000 units
Material £5 £75000 £100000 £125000
Labour £6 £90000 £120000 £150000
Fixed costs £50000 £50000 £50000 £50000
Total costs £215000 £270000 £325000
Cost per unit £14.33 £13.5 £13
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b) Analyse cost using graphical presentation
15000 units 20000 units 25000 units
0
50000
100000
150000
200000
250000
300000
350000
Cost analysis
Variable costs
Fixed costs
Total costs
Interpretation
Costs is regarded as one of the important aspects of the organisation which will be
identified at initial stage in order to improve the overall performance of an entity. Cost is the
negative element incurred in the corporation that will be minimised by the firm as it has
categorised into various categories such as fixed cost, variable costs and semi variable costs
takes places in an entity (Kaplan and Atkinson, 2015). There are different types of costs incurred
in the business as fixed costs which incurred in the business in zero or more production units
manufactured by an entity. In the current case scenario, Costs are evaluated on three different
unit level such as in an increasing order from 15000 units, 20000 units and 25000 units. It can be
seen from the above graph that apart from fixed costs increasing variable costs in an entity at
different activity level he overall costs incurred in the business has increases with the passage of
time. Total cost increases in an enterprise due to variable costs as it increases or decreases the
overall cost in an entity.
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0.5 1 1.5 2 2.5 3 3.5
0
50000
100000
150000
200000
250000
300000
350000
Cost analysis
Variable costs
Fixed costs
Total costs
Interpretation
Line chart is one of the visual presentation technique that helps in presenting the data of
costs that reflects the performance of an enterprise. Three kinds of costs are depicted the
performance of an entity as the line charts presents all kinds of costs in clear way. Costs are
analysed in advance as it will be helpful for an entity in order to gain competitive advantage over
its variety of costs incurred in the business.
Q3
1. FIFO
Table 3: Closing stock of FIFO
Particulars Units
Opening stock 500
Inventory purchased 800
Inventory purchased 700
2000
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Sale (1400)
Closing stock 600
Cost per unit £26
Closing inventory £15600
2. LIFO
Table 4: Closing stock of LIFO
Particulars Units Cost per unit Total costs
Opening stock 500 £20 £10000
Inventory purchased 100 £24 £2400
Closing inventory 600 £12400
3. Average cost
Table 5: Closing inventory of Average cost
Particulars Unit Cost per unit Total costs
Opening stock 500 20 £10000
Inventory purchased 800 24 £18200
Inventory purchased 700 26 £19200
Total 2000 £47400
Cost per unit 600 £23.70
=47400/2000
£14220
Q4 Prepare COGS report for FIFO, LIFO and Average cost
Table 6: COGS report of FIFO method
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Particulars Amount
Opening stock(500 units@20) £10000
Add: Cost of purchase
800 Units @24 £18200
700 units @26 £19200
Cost of units available for sale £47400
Less: Closing stock £15600
Cost of 1400 units sold £31800
Table 7: COGS report of LIFO method
Particulars Amount
Opening stock(500 units@20) £10000
Add: Cost of purchase
800 Units @24 £18200
700 units @26 £19200
Cost of units available for sale £47400
Less: Closing stock £12400
Cost of 1400 units sold £35000
Table 8: COGS report of Average cost method
Particulars Amount
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Opening stock(500 units@20) £10000
Add: Cost of purchase
800 Units @24 £18200
700 units @26 £19200
Cost of units available for sale £47400
Less: Closing stock £14220
Cost of 1400 units sold £33180
Q5
a) Two critical success factors and KPI
Criteria Critical success factors Key performance indicators
Customer experience  Developing
coordination among all
the employees.
 Meeting needs of all
the consumers
 Position analysis of
Company
 Net promoter score
Supplier and product quality  Application value
chain analysis to
improve the quality of
supply chain.
 Complying various
procedures in order to
deliver right services to
its users.
 Acceptable quality
level
 Six sigma
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Operations Efficiency Benchmarking
 Waste reduction
 Percentage defective
level
 Right first time
Reducing maintenance
spending
 Identifying current
business condition
 Eliminating costs
 Maintenance delivery
 Maintenance works
quality
Cost reduction and
Profitability increase
 Assessment of business
in terms of costs
 Reviewing financial
performance
 Profitability ratios
 Recovery plans
b) Suggestion
Cost reduction
Identification of all kinds of cost incurred in the business Smart Looks Limited is to
improve the current business conditions of an entity as the desired role of an enterprise get
increases with the passage of time (Kaplan and Atkinson, 2015). Cost is regarded as the negative
factor imposed on the firm of Smart Looks that will be recognised in advance to eliminate all
kinds of costs incurred in the business. Cost minimising strategies will be adopted by an
enterprise after considering each ad every element which can be used as one of the important
measure of resolving all doubts and queries incurred in the business enterprise.
There are various cost reduction strategies to be adopted by Smart Look Ltd in order to
enhance the quality of the business within a given span of time.
Cost will be identified properly in an entity by emphasises on the nature of costs as the
prioritisation of costs which helps in clearly identification all the costs incurred in the business
enterprise.
 Request for quotations- In the current case scenario, where Smart Looks entity deals in
offering furniture to its variety of customers can demand quotations of all the products in
order to charge different prices for all its products or services (Gordon, Osgood Jr and
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Boden, 2016). By requesting quotations of various products, an entity will be easily
ascertain the costs of product manufactured by them in their business concern.
 Product benchmarking- It is another way of improving the existing performance of an
entity as in the given case an entity will be ale to improve its performance over a
particular span of time. Actual performance of the business will be compared with the
best industry practices in which costs will be decreases in order to grab higher market
share in the external business environment. Cost minimising standards will be applied to
each and every product of the firm as the basic aim of an enterprise owner is to focus on
the efficiency and effectiveness of the business concern.
Value and quality enhancement
Quality management technique such as total quality management or six sigmas will be
used whose major role is to eliminate all kinds of waste incurred in a firm related to the resources
used in the production of products or services (Bischoff and Blaeschke, 2016). DMAIC and
DMAIC design techniques will be used by an enterprise owner to identify the prospective areas
that will be consider by an entity owner in improving the existing business conditions of their
firm. Value of an entity get increases by adopting appropriate measure helps in achieving desired
aims and the objectives of the business within a given span of time.
Q6
a) Describe budget
Budget is quantitative expression of financial plan for a definite period. It includes
estimated sales, revenue, resources required, costs and expenses for that period. Also, it reflects
the plan of action for achieving the desired objectives. It is a plan for coordination of resources
and expenditures for an organization
b) Purpose of budget
Budget is prepared for different purposes like short term target settings, monitoring
business performance, control measures, motivation to achieve performance levels, monitoring
the relationship between costs and revenues at different activity levels and to aid communication
with senior management. Short term targets depicts the long the term objectives, thus to achieve
short term goals, budget is required. Monitoring business performance is another purpose to
prepare a budget so that actual performance could be compared with forecast business
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performance. It reflects estimated and actual performances of business and variations between
them (Tosun and Bağdadioğlu, 2016). Controlling the performance of business is also one of the
purpose of budget so that the organization is able achieve desired targets in time and up to the
level of mark. Budget also helps in motivation of the employees in achieving the target levels by
involving them in drafting the budget, when they are involved in formulation they are more
strived to achieve the targets set.
Further it monitors the relationship between costs and revenues, budget at first estimates
the costs of completing the objectives with the future cash flows that could be generated from the
project, after comparing the costs and cash flows it is determined whether project is feasible or
not. Costs and revenues are estimated at different activity levels like 50 percent, 60 percent, 80
percent, 100 percent etc. Activity levels are set for estimation so that the organization may come
to know at which level the profits will be higher and the fixed costs are recovered from the
proposed project (Holston, Issarny and Parra, 2016). The project manager has overall
responsibility to execute the project and communicate the progress of project with senior
management.
c) Methods of budget
Budget is prepared to control the spending, timely achieving the objectives, higher
revenues with better communication to management. There are different methods of preparing
budgets like Zero-based budget, Fixed budget and Variable budget.
Zero based budgeting is the method of preparing budget which is prepared with no
reference to prior period starts with zero base, each of the resource allocation has to be justified,
the managers first rank the activities according to decreasing benefits to the organization, then
the resources are allocated as per the spending levels of the activities.
Fixed budget remains constant irrespective of levels of activities i.e. a standard volume of
production is used to create the fixed budget (Wilson and et.al., 2016). Although there are
disadvantages of fixed budget, estimates of revenue are not correct as they are prepared based
upon standard volume, also, it's difficult to predict future growth and demand for the
organization. Whereas, Variable budget is prepared according to different production levels or
capacity utilization levels. It estimates future revenues and expenditures based upon current
output of the organization. With this budget management can predict both worst and best
scenarios for the upcoming accounting period.
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Q7
a) Sales budget
Table 9: Sales budget
Particulars April May June
Sale units 2000 1500 2500
Sale units 30 30 30
Sale £60000 £45000 £75000
b) Production budget
Table 10: Production budget
Particulars April May June
Sales units 2000 1500 2500
Closing Finished goods 150 250 100
Total production 2150 1750 2600
Less: opening Finished
inventory 100 150 250
Units produced 2050 1600 2350
c) Raw material budget
Table 11: Raw material budget
Particular April May June
Units to be produced 2050 1600 2350
Direct material 5 metre 5 metre 5 metre
Direct material need 10250 8000 11750
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Add: desired closing
raw material
750 1000 1200
Less: Opening raw
material
500 750 1000
Direct material
purchase
10500 8250 11950
Cost per unit £7.50 £7.50 £7.50
Cost of direct material £78750 £61875 £89625
d) Labour budget
Table 12: Labour budget
Particular April May June
Units to be produced 2050 1600 2350
Direct labours per unit 1.5hrs 1.5hrs 1.5hrs
Total labour hours 3075 2400 3525
Direct labour cost per
unit
£6 £6 £6
Direct labour cost £18450 £14400 £21150
e) Total overhead budget
Table 13: Overhead budget
Particulars April May June
Labour hours 3075 2400 3525
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Variable overhead unit
per hour
3 3 3
Variable overhead £9225 £7200 £10575
Fixed overhead £2000 £2000 £2000
Total overhead £11225 £9200 £12575
Q8 Cash budget
Table 14: Cash budget
Particulars April May June Quarterly budget
Cash inflow
Opening cash 1200 0 41337.5 0
Cash from sales 60000 45000 105000
Bank overdrafts 11612.5 6275 65475
Total receipts 12812.5 60000 86337.5 105000
Payments
Fixed overhead 2000 46387.5 72725 121112.5
Raw materials 8200 8450 11000 27650
Variable overhead 4612.5 8212.5 8887.5 21712.5
Cash outflow 12812.5 18662.5 21887.5 53362.5
Closing balance 0 41337.5 0 0
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Interpretations
Cash budget is regarded as one of the important document in a business which depicts the
financial performance in terms of good liquidity position of an entity. Cash is that factor in a
business concern which is used in eliminating short term obligations imposed on a business
concern. Cash is that assets that handles the pressure of trade creditors incurred in a business as
the desired aim of an entity (Said, 2016). Shortages of cash will be improved by using bank
overdrafts as shortage of cash will depict the deficiency of business that will be overcome by
using bank overdraft to compensate the loss incurred by an entity. It can be said from the above
cash budget, that performance of an entity is not suitable as it is showing negative cash flows in
the initial stage which is not appropriate for an entity.
Q9
a) Budget profit
Table 15: Budgeted Profit
Particulars Amount
Direct material (6mtr@£5) £30
Direct Labour (3 hrs. @£6) £18
Total cost £48
Cost@25% £12
Sale price £60
Sale unit 5000
Sale £300000
Cost of sales
Direct raw material(£30) (£150000)
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Labour(£18) (£90000)
Fixed production costs (£12500)
Budgeted profit £47500
b) Actual profit
Table 16: Actual profit
Sales units 4800 units
Sales unit £60
Sale £288000
Cost of sales
Direct raw material(£30) (£141360)
Labour(£18) (£99000)
Fixed production costs (£12500)
Actual profit £35140
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c) Material and labour sub variances
Illustration 1: Material and labour variances
d) Operating statement for reconciling budgeted and actual profit
Table 17: Reconciliation statement
Particular Amount
Budgeted profit £47500
Material price £8640
Labour variances £9000
Sub variances £12000
Actual pro £35140
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Q10 Recommendation
In the given case scenario, budgeted profit incurred in an entity is compared to the actual
profit shows that an enterprise has applied its fewer efforts in generating higher output within a
given span of time. Role of a business gets increases when their actual performance are
compared with the standards in order to take corrective action by the business. It can be
recommended to Smart Looks management in order to use benchmarking as comparison
technique in enhancing the existing business performance of a firm.
CONCLUSION
It can be concluded from the above assignment that focus of smart Looks management
lies on identifying the core competencies of the business in order to gain higher competitive
advantage over it variety of competitors located in the similar industry. This report is all about
using various techniques of budgeting as the costs incurred in a business can be easily regulated
by an entity. Budgeted profit of the business is higher than compared to the actual profit due to
higher efforts applied by an entity owner in achieving all its aims and desired targets.
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