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Accounting Costing and Budgeting Table of Contents Introduction

   

Added on  2020-01-28

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Management Accounting:Costing and Budgeting
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TABLE OF CONTENTSINTRODUCTION...........................................................................................................................3TASK 1............................................................................................................................................31.1 Classification of cost ............................................................................................................31.2 Different costing methods and explanation on use of same by the firm...............................31.3 Calculating cost using appropriate techniques......................................................................41.4 Analysis of cost data.............................................................................................................4TASK 2............................................................................................................................................72.1 Preparation and analysis of cost reports................................................................................72.2 Performance indicators for identifying potential improvement............................................82.3 Suggestions to reduce quality enhanced value and quality ..................................................9TASK 3............................................................................................................................................93.1 Purpose and nature of budget process...................................................................................93.2 Budgeting methods used in case study and comments on same...........................................93.3 Way for preparing a budget and and use of method for this purpose.................................103.4 Cash budget for the firm.....................................................................................................11TASK 4..........................................................................................................................................124.1 Calculating variances and finding out possible causes and recommending corrective action...................................................................................................................................................124.2 Preparing reconciled operating statement...........................................................................134.3 Reporting findings to management in accordance with responsibility center....................14CONCLUSION..............................................................................................................................14INDEX OF TABLESTable 1: Trade payable budget.......................................................................................................11Table 2: Raw material budget........................................................................................................11Table 3: Production budget............................................................................................................12Table 4: Sales budget.....................................................................................................................12Table 5: Cash budget.....................................................................................................................12Table 6: Variance calculation of May............................................................................................13Table 7: Reconciled operating statement of May..........................................................................14Table 8: Variance at 10% reduction in demand.............................................................................15
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INTRODUCTIONManagement accounting is one of core branch of accounting that is used to measurecompany performance. In this report, costs are classified on the basis of several factors and typeof costs that firm incurred is identified. Along with this, different costing methods are explainedin detail in the report. In the middle part of report budgets are prepared and their results areinterpreted in proper way. Finally, in the report variance analysis is done and comments are doneon same. In this report ways that firm can follow in order to improve its performance are alsodescribed in detail.TASK 11.1 Classification of cost Costs can be classified on the basis of nature, function and behavior. These classificationsare given below. Behavior- On the basis of this category costs are classified a fixed, variable and semivariable cost. Fixed cost is a cost that remain static and does not get changed. In case ofBittern ltd fixed cost is given as £5000 per annum (Kaplan and Atkinson, 2015).Whereas, in case of variable cost there are production and material cost. It is a cost thatkeeps on changing consistently with variation in production. There is semi variable costin Bittern ltd which cover labor cost. Some part of this cost is fixed for the firm andsome part is variable. Hence, it can be said that costs of the firm are classified on thebasis of behavior.Function- On this basis cost is divided in to various departments that are running anorganization. Cost related to production, finance and marketing departments are includedin this category of cost.Type- On the basis of this parameter cost are divided in to labor, material and productionexpenses (DRURY, 2013). Labor cost include wages paid to employees and material costinclude cost of purchase of raw material. Hence, it can be said that these are the expensesthat are incurred by every type of organization.1.2 Different costing methods and explanation on use of same by the firmDifferent costing methods that are used by business firms are as follows.
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Job costing- This is a method in which costs are determined for each and every orderindividually because each job have its own specifications. This method of costing is usedin case of building repair projects etc.Contract costing- This costing method is used for for calculating cost for large sizeprojects. Each contract is assumed as separate unit for costing purpose (Zimmerman andYahya-Zadeh, 2011). This costing method is often used for construction of brides andbuilding etc. Unit cost- Bittern ltd is using unit cost method and under for per unit of product that isproduced in an organization costing is done. Under this method of costing units areprepared and there cost is computed. Thereafter, costs are divided by the number of unitproduced. By doing so cost of per unit is computed at Bittern ltd.1.3 Calculating cost using appropriate techniquesIn order to calculate cost appropriate methods are as follows.Variable costing method- This method is also know as direct costing method and underthis technique of cost computation fixed cost are not taken in to account and only variablecost that are incurred during the production process are considered. Bittern ltd is usingthis costing system in its business.Absorption costing- It is known as full costing methods and under this method all sort ofcosts are taken in to account in order to compute cost of production for the firm (Herman,2011). Hence, it can be said that this method is inverse of variable costing method.If we compare both methods then it can be said that in absorption costing all sort of costsare considered but in variable costing system all costs are not taken in to account. Hence, interms of profit measurement it can be said that absorption costing system reveal actual profitearned by the company.1.4 Analysis of cost dataAs per scenario given, Bittern Ltd sale a per unit of its product at a price of £25 per unit.Earlier, it use a variable costing for cost computation and now it decided to evaluate the systemand to compare same with an absorption costing system (Gow, Ormazabal and Taylor, 2010).The computaiton of Bittern’s profits in constant-price-level terms for a three-year tenure usingvariable costing system and full-cost absorption costing system is given below.
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