Management Accounting | Decision Making Process | Report

Added on -2020-02-17

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Management Accounting
Table of ContentsINTRODUCTION...........................................................................................................................4TASK 1............................................................................................................................................4A. Importance of budgets for an organisation.............................................................................4B. Administrative procedure used in budgeting process.............................................................4C. Stages included in budgeting process.....................................................................................5TASK 2............................................................................................................................................5a) Classification of costs on various basis...................................................................................5b) calculation of fixed and variable cost by high low method....................................................6c) limitations of high low method and other method that can be used.......................................6TASK 3............................................................................................................................................7a) difference between job costing, batch costing, process costing and service costing..............7b) Profit and loss statement on the basis of absorption costing..................................................8c) calculation of profit or loss by marginal costing for west area.............................................10TASK 4..........................................................................................................................................11a) Advise regarding whether to cease production of A and D..................................................11b) Calculation of various figures on the basis of marginal cost statement provided................11c) combination of products to maximise profits.......................................................................12d) calculation of profit if labour hours increased by 80000......................................................13TASK 5..........................................................................................................................................13a) Different types of budgets and their importance...................................................................13b) preparation of cash budget and management of cash flows.................................................14TASK 6.........................................................................................................................................15(I) preparation of flexible budget and calculation of total variances........................................15(II) analysis of various cost variances.......................................................................................16(III) Reporting of the findings to board.....................................................................................16TASK 7..........................................................................................................................................17
a) calculation of break even point and margin of safety...........................................................17b) Calculation of profit and loss of the shop.............................................................................17c) Calculation of desired sales to earn profit of 300000...........................................................18d) calculation of number of shoes to be sold at break even......................................................18e) Recommendation for the improvement of financial performance of INK Ltd.....................18CONCLUSION..............................................................................................................................19REFERENCES..............................................................................................................................19
INTRODUCTIONManagement accounting is the process in which it is required that various accounts andreports are required to be prepared on the basis of this decisions will be taken by the managers.For the preparation of these reports information will be required which should be collected onthe timely basis (Bromwich and Bhimani, 2005). There are various techniques that can be usedfor the purpose of preparation of better reports such as budgets, ratios, different methods ofcosting, etc. In this assignment all these will be used to create an understanding of how budgetscan be used for the purpose of taking decisions and maximise the profits of the company.TASK 1A. Importance of budgets for an organisation.Budgets are estimates that are made in relation to cost, revenues and resources by whichit can be ascertained what is to be achieved and what will be the growth in the future (Chapmanand et.al. 2006). Budgeting is important for an organisation as with the help of this it will bepossible to achieve the set targets and also wasteful expenditure that is incurring can becontrolled. With the help of budgets it will be easy to adapt to the changes that will be occurring.It will tell that how the available finance should be spend so that maximum profit can be earnedfrom it. As by budgets the objectives are set so the work will be carried out in the most effectivemanner in order to achieve those targets.B. Administrative procedure used in budgeting process.Administrative procedure is the set of rules or process that are required to be undertakenin order to prepare a budget. For the preparation of budgets firstly it will be required that budgetcentres are established which will be the units that will have the responsibility of preparation ofbudgets. In this there can various cost centres that will be included in it (Ezzamel and et.al.2003). Than a committee will be established which will consist of the senior members. In thisrepresentative from every department will be present. Committee will work in order to maintain
the coordination, decide about the time when the budgets will be required to be prepared, willprovide the information that will be required in order to prepare a budget and lastly actual andbudgeted figures will be compared by it so that deviations if any will be identified andinvestigation can be carried out in relation to such deviations.C. Stages included in budgeting process.In the preparation of budget various stages will be required to be completed. Firstly it willneeded that relevant information should be collected which will be required for making a budgetand for this sources from where information can be obtained will be identified (Hansen, Mowenand Guan, 2007). After this plan will be made in which it will be decided that in what aspect isthe budget required to be prepared. will it me made by the help of historical data or on the basisof projections and than it is required that approval is obtained for the preparation of budgets. Itwill be needed to identify the reason for which budget is required to be prepared. After all thiscompleted budget will be prepared which will describe the future projections that are required tobe achieved by the company. It will specify the break evens by which it will be ascertained thatwhat is the level that is necessary to be achieved so that company can survive in the market. It isneeded that once the budget is prepared it should be reviewed in order to deal with the loop holesif any that are present in the budget.TASK 2a) Classification of costs on various basis.In the production of a product or in provision of a service there are various costs that areincluded and those are described below :Direct cost : these are those cost that are directly related to the producing of product orservice (Nixon and Burns, 2012). It can be related to material, labour or other expenseand can be ascertained in an easy and accurate manner. Example of it can be material thatwill be used in manufacturing a machine.Indirect cost : the cost that cannot be ascertained easily and is not related in a directmanner for the production of goods or service will be indirect cost. The example of it canbe any expenditure such as power which is made on combined basis and difficult to becalculated on individual basis,
Fixed cost :the cost that does not change with the change in level of production is fixedcost. Such as rent paid for the premise that will be paid irrespective of the fact that howmany units are produced.Stepped Fixed cost : the expense that remains fixed upto a level and will change afterthat level is passed and the activity is shifted (DRURY, 2013). An example of this can bethat a new machinery will be purchased after a fixed level of production is achieved.variable cost :the cost that is dependent on the units produced and changes with changein each unit produced such as material used to produce a single unit.Semi variable cost : the cost that remain fixed for a particular level of production andafter that changes with every unit produced. An example of it can be wages which will befixed till a level and after that more workers will be required to be hired.b) calculation of fixed and variable cost by high low method.1. Calculation of variable expense per unitvariable cost per unit = Change in cost at highest and lowest level Change in units = 92000 - 42000 8100 - 3100 = 50000 5000 = £ 10 per unit2.Calculation of Fixed costTotal cost - ( variable cost per unit * no. of units)92000 - ( 10 * 8100) 92000 - 81000fixed cost = 11000this method is used as electricity expenses consist of fixed and variable portion which can bedifferentiated by this method and moreover this is simple and easy to use and provide correctanswers.

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