Financial Management and Accounting Analysis

This assignment delves into the realm of financial management and accounting. It examines core principles, analytical tools, and practical applications through case studies. The focus encompasses areas such as working capital management, cost accounting, risk assessment, and financial statement analysis. Students are encouraged to apply their understanding to real-world scenarios and demonstrate their ability to interpret and evaluate financial information.

Management Accounting
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TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
1.1...........................................................................................................................................3
1.2...........................................................................................................................................4
1.3...........................................................................................................................................5
1.4...........................................................................................................................................6
TASK 2............................................................................................................................................7
2.1...........................................................................................................................................7
2.2...........................................................................................................................................9
2.3...........................................................................................................................................9
TASK 3............................................................................................................................................9
3.1...........................................................................................................................................9
3.2.........................................................................................................................................10
3.3.........................................................................................................................................10
3.4.........................................................................................................................................11
TASK 4..........................................................................................................................................14
4.1.........................................................................................................................................14
4.2.........................................................................................................................................16
4.3.........................................................................................................................................16
CONCLUSION..............................................................................................................................17
REFERENCES..............................................................................................................................18
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INTRODUCTION
The aim of this study is to determine and use the cost information for budgeting and
forecasting purposes within the management of firm. In such globalization era, organizations are
working in a very competitive and regularly changing environment where decision making is
very crucial in order to become profitable. Therefore, gaining crucial information regarding
finance helps managers to interpret and analyze the information effectively. Furthermore, it also
helps scholars to assess the confidence regarding applying, analyzing and evaluating
management and cost information (Kaplan and Atkinson, 2015).
In the current study, the importance and significance of management accounting has been
done in reference to Jeffrey and Son's. It is a manufacturing organization that produces very
popular brand product named Exquisite. Also, business has different departments such as service
and production. Here, Jeffrey and Son's is required to consider different cost classifications in
regard to make effective decision making so that best results can be attained. Report also focuses
upon different techniques that assists in minimizing the cost, improving business incomes and
undertaking effective business decisions (Kokubu and et. al., 2009). Also, different techniques
such as budgeting, cost allocation and variance analysis will be analyzed in order to make better
decision making.
TASK 1
1.1
Following are the different types of cost classification-
 Element- Different type of cost elements are there such as material, labor and overhead.
Direct material for Jeffrey and Sons is the cost of purchasing raw material in order to
produce products and services. While, direct labor involves the expenditures that need to
be paid for wages to the employees. For example, expenditures incurred on tools and
consumables are related to direct expenses (Lord, 2007).
 Function- Here, function can be classified to production or factory, administrating and
selling and distribution expenses. However, in factory overhead, it involves both
productive and unproductive salaries, factory rent and lighting expenses. Jeffrey and Sons
involves all the production expenses within the manufacturing process. For example,
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factory rent, employee wages etc. are not directly related to production within business
and thus cannot be charged to the specific product (VanDerbeck, 2012).
 Nature- it involves direct and indirect cost. Direct cost involves cost of raw material,
wages of labor and cost of purchasing tools and equipment. While, indirect cost cannot be
specified to a particular cost object. For example, postage, advertisement, marketing and
lighting expenses.
1. Behavior- Here, it involves fixed, variable and semi-variable cost. Fixed cost involves
building rent, insurance and depreciation. While, variable cost is directly related to
production and changes accordingly. For instance, raw material and labor wages.
Furthermore, semi-variable cost remains constant up to a certain quantity of production
and thus gets changed as the production changes. It involves electricity bill (Lazaridis,
and Tryfonidis, 2006).
1.2
Developing cost sheet helps in determining the total cost and per unit cost of the job.
Following is the job cost sheet developed for Jeffrey and Son's job no. 444 for 200 units-
Job cost sheet for Job no. 444
Particulars Total cost
Direct material 40000
Direct Labor 54000
Fixed production overhead 24000
variable production overhead 36000
Total cost 154000
Unit cost 770
Working note-
Direct material = 50kg*200 units* 4£ per kg= £40000
Direct labour cost
Labour hours = 30 hours per unit*200 Units* 9£ per hour = £54000
Fixed overhead calculation = Total fixed production expense/Total budgeted labour
hours*Labour hours for job
= 80000£/20000 hours* 6000 hours
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= £24000
Variable production overhead calculation
= 6£ per hour * 6000 hours
= £36000
Cost per unit = Total cost/ number of units
= 154000£/200 Units = £770 cost per unit
1.3
a)
Produ
ction
Servic
e
depart
ment
Basis of
allocation
Machine X
(£)
Machi
ne Y
(£)
Assembl
y 1 (£)
Stores
(£)
Maint
enance
(£) Total
Indirect wages and
supervision Given 100000.00
99500.
00 92500.00 10000 60000
362000
.00
Indirect material Given 100000.00
10000
0.00 40000.00 4000 9000
253000
.00
light and heating Area occupied 10000 5000 15000 15000 5000
50000.
00
Rent Area occupied 20000.00
10000.
00 30000.00
30000.
00
10000.
00
100000
.00
insurance and
machinery
Book value of
machinery 7947.02
4966.8
9 993.38 496.69 596.03
15000.
00
depreciation
Book value of
machinery 79470.2
49668.
87 9933.77
4966.8
9
5960.2
6
150000
.00
Insurance of
building Area occupied 5000.00
2500.0
0 7500.00
7500.0
0
2500.0
0
25000.
00
salaries of work
management
No. of
employees 24000.00
16000.
00 24000.00
8000.0
0
8000.0
0
80000.
00
5

Total 346417
28763
6 219927 79964 101056
103500
0
b)
Machine shop
X(£)
Machine shop
Y(£) Assembly(£) Total(£)
Primary
distribution
346417 287636 219927
Store 39982 29987 9995 79964
Maintenance 48506.88 32337.92 20211.2 101056
Total cost 434905.88 349960.92 250133.2
c) Overhead absorption rate for each of the production department X, Y and assembly using
machine hours
Overhead absorption rate = Total overhead/ machine hours
Overhead absorption rate for department X
= 434905.88£/80000 = £5.44
Overhead absorption rate for department Y
= 349960.92£/60000 =£5.83
Overhead absorption rate for Assembly
= 250133.2£/10000 = £25.01
d) Calculation of the overhead charge to the product
Total overhead cost = (0.8*5.44£) + (5.83 * 0.6) + (25.01£*0.1)
4.35£ + 3.50£ + 2.50£ = £10.35
Calculation of total cost = Material cost+ labour cost + Overhead cost
= 8£ + 15£ + (0.8*5.44£) + (5.83 * 0.6) + (25.01£*0.1) = £33.35
1.4
Calculation of overhead absorption rates = Total overhead/ total labour hours
Machine X = 434905.88£ /200000 Labour hours = £2.17
Machine Y = 349960.92£/150000 labour hours = £2.33
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Assembly = 250133.2£/200000 labour hours = £1.25
Total overhead cost = (2.17£*2) + (1.5*2.33£) + (1*1.25£)
4.34£ + 3.50£ + 1.25£ = £9.09
Total product cost = Material + Labour + Overhead
= 8£ + 15£ + 9.09£ = £32.09
Differences of the unit cost- Through using the machine hours it can be assessed that the
overhead cost for Machine X, Machine Y and Assembly are £5.44, £5.83 and £25.01. While,
undertaking labor hour operation basis overhead cost for all the production departments are
£2.14, £2.3 and £1.25. On the other hand, total overhead cost charged to the product under the
machine hour and labor hour basis are £10.35 and £9.09. Therefore, it can be assessed that the
total product cost is £33.35 and £32.09. However, it is high in case of using machine hour on an
appropriate basis. For instance, at the time when Jeffrey and Sons uses labor hour basis the
product cost get changed to £32.09 which is comparatively lower than the machine hour basis.
Therefore, it can be stated that this is comparatively a good basis of apportionment.
TASK 2
2.1
According to the scenario, cost sheet has been developed for Jeffrey and Sons Ltd. i.e. for
1900 units in regard to identify the total cost and cost per unit. Also, variance analysis is required
to be done through assessing the difference among the actual figures and budgeted.
Budgeted Output ( 2000 Units) Actual Output ( 1900 Units)
Particular Per unit cost Total cost Per unit cost Total cost
Material 12 24000 12 22800
Labour 9 18000 10 19000
Fixed Overhead 15000 15000
Electricity 8000 7625
Maintenance 5000 4800
Total 35 70000 36.43 69225
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Necessary Working Note:
Material cost = 24000£/2000Units *1900 units = £22800
Labour cost 10£ per unit * 1900 Units = £19000
Electricity is semi variable cost
Variable cost per unit = 8000£ - 5000£/2000 Units -1200 Units
= 3000£/800 Units = 3.75 per unit
Fixed charges = 8000£ - (3.75£*2000 Units) = £500
Variable electricity charges = 3.75£*1900 Units
= £7125
Total electricity charges = 7125£ + 500£ = £7625
Maintenance cost = 5000£ - (1000£/500 units*100 Units) = £4800
Cost per unit = 69225£/1900 Units = £36.43
Variance Analysis: The variances are calculates as under:
Particular Budgeted cost Actual cost Variance
Material 24000 22800 1200
Labour 18000 19000 -1000
Fixed Overhead 15000 15000 0
Electricity 8000 7625 375
Maintenance 5000 4800 200
Total 70000 69225 775
Evaluation- Material variance helps in assessing that the company is required to bear lower the
cost as compared to the budgeted cost. Therefore, the material price variance is 0 as the price of
material remains the same i.e. £12 per unit. Also, the labor cost has been enhanced due to higher
labor rate to £10 per unit. While, the cost of electricity is declining to £7625. Hence, it can be
articulated that labor cost variance, material cost variance and labor rate variance influences in
negative aspect to the firm. Also, it influences the profitability of firm up to a great extent.
Therefore, it is crucial for the management to identify different solutions so that they can
minimize all these negative aspects (Peasnell, Pope and Young, 2005).
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2.2
There are varied type of performance indicators used by Jeffrey and Sons in regard to
determine the potential improvements in business. One of the crucial tool is business sales means
higher the sales indicates improved performance and vice versa. Through improving the business
sales, profitability can be improved. Furthermore, business profitability is another tool that states
that higher the business profits shows increased performance and vice versa (Scapens, 2006).
Also, it is essential for every business to prepare financial statements so that best results can be
attained. Further, business is required to reduce the waiting time for customers in order to receive
best products and services and thus potential improvement can be attained. It also helps in
increasing the market share and profitability of business. Thus, Jeffrey and Sons is required to
enhance the performance by maximum utilization of resources and attain high sales, profitability
and customer satisfaction (Cole, 2012).
2.3
It is crucial for each and every business to minimize cost and thus attain organizational
goals. Therefore, it is essential for Jeffrey and Sons to achieve high yield. However, by using
updated technology it helps firm to minimize the cost of business and utilize all the resources and
also recycle the waste and scrap. Also, Jeffrey and Sons is required to assess the different sources
at which material is available at cheaper rates but should not affect the quality of products
(Cooper, 2011). Moreover, employing skilled labor enhances the wage rates for business.
However, value of business can be enhanced through paying good return to the shareholders of
Jeffrey and Sons. Further, competitive advantage can be gained through delivering wide range of
products and services to the clients at affordable prices. Thus, providing best quality products
enhances the brand image of firm in market. Further, in order to improve the quality of firm it is
essential for Jeffrey and Sons to use good quality raw material. Thus, all such factors helps
Jeffrey and Sons to increase their productivity and attain positive results (Healy and Palepu,
2007).
TASK 3
3.1
Budgeting process- Main purpose of preparing the budget by Jeffrey and Sons is to determine
the differences among budgeted and actual figures. It helps in determining the variance and
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overcoming the adverse variance that creates negative impact upon the performance of business.
Therefore, management of firm is required to take appropriate decisions and allocates the
resources effectively. Also, through preparing budget it helps in controlling the cost of Jeffrey
and Sons in which expenditure can be controlled and monitor them. There are different types of
budget such as sales, purchase, production and cash budget. Main purpose of preparing such
budget is to take effectual decisions and control the cost (Lasher, 2010).
Nature of budgeting process- Here, the budget holders of Jeffrey and Sons are required to
eliminate the cash inflows and outflows. Within the cash inflows, organization is required to
forecast the sales and other operation incomes. While, the cash outflows need to be forecasted
through considering the Jeffrey and Sons expenditures on purchase and operational expenditure
such as labor wag, salary of employees and other capital expenditure requirements. Therefore, it
is essential for the manager of business to maintain the cash balance by deducting the total cash
payments from the total cash inflows (Ilter, 2014). Thus, the cash balance left with Jeffrey and
Sons should be added to the cash balance at the end of the period.
3.2
Here, incremental budgeting system has been followed by Jeffrey and Sons in regard to
prepare its budget. Therefore, it has been suggested to business that they should undertake zero
based budgeting system in order to overcome the limitation of incremental budgeting system.
Further, zero based budgeting system possess varied advantages that each period budget is
prepared through considering the changes in the market. Therefore, it is essential for the
management to determine the business operation that need to be taken place in the future course
of time (Jin, 2012). Thus, it helps in allocating all the cash inflows to different activities as per
the requirement of business. With the help of this, optimum utilization of resources can be
carried out and thus enhances the profitability of firm. It also helps in minimizing the cost of firm
in market and attain high profits and growth (Whitecotton, Libby and Phillips, 2013).
3.3
Production budget- It has been developed in order to assess the quantity of the product which
has been produced by business. Following is the production budget for Jeffrey and Sons-
Sales 105000 90000 105000
Less: Op. Stock 11000 13500 15750
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94000 76500 89250
Add: Closing stock 13500 15750 16500
Total Production 107500 92250 105750
Working Note:
Closing stock = It is required equal to 15% of the next year sales
July = 90000 Units*15% = 13500 Units
August: 105000Units*15% = 15750
September: 110000Units *15% = 16500 Units
Material Purchase Budget: It is developed in regard to assess the quantity of material which is
required to produce the desired quantity of finished products.
Material Require (2 per kg) 215000 184500 211500
Less- Opening stock 52000 45000 52500
Total 163000 139500 159000
Add- Closing stock 46125 52875 54250
Purchase 209125 191250 212875
Working note:
Material requirement = Production * material required per unit
July = 107500 * 2 = 215000 Kg
August = 92250 * 2 = 184500 kg
September = 105750 * 2 = 211500 kg
Closing Stock = It is required to 25% of the next month requirements.
July = 92250 Units*2 Kg*25% = 46125 Kg
August = 105750 units*2kg *25% = 52875 Kg
September = 108500 Units*2Kg*25% = 54250 Kg
3.4
Cash budget- It can be stated that developing cash budget helps in combining all the
estimated or forecasted cash inflows and outflows for the future course of action. Following
is the cash budget for Jeffrey and Sons-
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Particular July August September
Cash balance 16000 44031 67993
Cash Receipts
Cash sales 900000 821250 864000
Total cash Income 916000 865281 931993
Cash Expenditures
Material Purchase 365969 334688 372531
Direct wages 322500 276750 317250
Variable overhead 108500 98350 100350
Fixed Overhead 75000 87500 87500
Total cash expenses 871969 797288 877631
Cash balance 44031 67993 54362
Working note: Sales
May June July August September
Sales units 95000 110000 105000 90000 105000
Sales prices 9 9 9 9 9
Total sales 855000 990000 945000 810000 945000
60% in the
same month 513000 594000 567000 486000 567000
25% in the
following
month 213750 247500 236250 202500 236250
10% after two
months 85500 99000 94500 81000 94500
5% bad debs 42750 49500 47250 40500 47250
Sales for the months of July, August and September
July August September
60% of the monthly sales 567000 486000 567000
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25% of previous sales 247500 236250 202500
10% of Sales before two months 85500 99000 94500
Total 900000 821250 864000
Purchase of raw material
July = 209125 kg * 1.75 = 365969
August = 191250 kg * 1.75 = 334688
September = 212875 kg * 1.75 = 372531
Labour expenditure
July = 107500 * 3 = 322500
August = 92250 * 3 = 276750
September = 105750 * 3 = 317250
Variable overhead
June July August September
Units 110000 107500 92250 105750
Variable cost per
unit 1 1 1 1
Total variable
overhead 110000 107500 92250 105750
60% in the same
month 66000 64500 55350 63450
40% in the next
month 44000 43000 36900 42300
Variable overhead
July August September
60% of the monthly
overhead 64500 55350 63450
40% of the previous
year overhead 44000 43000 36900
Total variable 108500 98350 100350
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overhead
It can be concluded from the cash budget that within all the subsequent months, Jeffrey
and Sons owns positive cash balance at the end of the period.
TASK 4
4.1
Following is the calculation of budgeted cost for 4000 units which is as follows-
Particular Per unit cost Budgeted
Sales (A) 4 16000
Material 0.96 3840
Labour 0.8 3200
Fixed Overhead 4800
Total Cost (B) 2.96 11840
Profit (A - B) 1.04 4160
Working Note:
Sales = 4000 * £4 = £16000
Material cost = 0.4kg*£2.40*4000 = £3840
Labour cost = £8*6/60*4000 = £3200
Fixed overhead = £4800
Calculation of variance
Particular Budgeted Fixed Actual
Sales 16000 14000 13820
Material 3840 3360 3420
Labour 3200 2800 2690
Fixed overhead 4800 4800 4900
Profit 4160 3040 2810
Sales variance
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Particulars Variance
Sales volume variance ( 4160 - 3040) 1120 (A)
Sales price variance ( 14000 - 13820) 180 (A)
Particulars Formula Calculation Net variance
Material price
variance
AQ*(SP-AP) 1425(2.4£ - 2.4£) Zero
Material usage
variance
(SQ-AQ)*SP [( 3500 *0.4)-(1425)*
(2.40)]
60(Adverse)
Total 60 (Adverse)
The labour variance
Particulars Formula Variance Net variance
Labour rate variance (SR-AR)*SH [(8£-7.8£)*350] 70 (f)
Labour efficiency
variance
(SH-AH)*SR [(3500*0.1)-(345)]*8£ 40(f)
Fixed overhead variance
Particulars Variance Net variance
Budgeted fixed
production overhead
4800
Actual fixed overhead 4900
Fixed overhead
expenditure variance
Budgeted -Actual 4800 - 4900 100 (A)
Possible causes and corrective actions- It can be evaluated from the stated sales amount that
there is negative variance to £2180. While, the possible causes may be decreasing the per unit
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sales to £3.94. On the other hand, the total sales volume also get declined to 3500 units.
However, the organization has been advised that they should purchase material from the other
sources at lower prices. While, the labor and overhead variance arrived to £510 and £(100). Main
reason behind the labor cost variance is that the decided labor hour is 400 per unit. While, the
actual labor hour takes place for 345 hours (Mongiello, 2015). Also, the budgeted and actual
labor rate is £8 and £7.8. Hence, in regard to overcome such variances, it is crucial for firm to
enhance the efficiency of labor.
4.2
Particular Per unit Budgeted(4000 Units) Per unit Actual(3500) Variance
Sales 4 16000 3.94 13820 -2180
Material 0.96 3840 0.97 3420 420
labour 0.8 3200 0.77 2690 510
Fixed
Overhead 4800 4900 -100
Total 2.96 11840 3.14 11010 830
Operating
profit 1.04 4160 0.8 2810 1350
4.3
In every business enterprise there are different departments that carries out its operations.
As per the present scenario, there are three crucial department i.e. purchase, sales and production
department that helps in taking effectual decisions by using these variances. It is essential for the
purchase department to clearly assess the quantity and rate of required raw materials. Further,
sales department is required to attain the sales targets in both units as well as in value terms.
Here, Jeffrey and Sons Ltd is not able to meet the budgeted values (Manage multiple
investigation types across the organisation from a wide variety of sources. 2014). Therefore, it is
crucial for the department to assess the reason behind that. However, in regard to overcome such
variances it is essential for business to make effective marketing plans. At the end, production
department is required to analyze the production of adequate amount of quantity according to the
market requirement. As per the Jeffrey and Sons cost has been enhanced due to high labor
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charges, high purchase of raw material and other operating expenditures. However, Jeffrey and
Sons assesses that the profits declines from the set budgeted targets (Zimmerman and Yahya-
Zadeh, 2011). Furthermore, higher the product cost and lower the sales prices results in lower the
profit per unit from 1.04£ to 0.8£.
CONCLUSION
From the report it can be stated that it is essential for management of firm to determine
the budget and cost so that effective financial decisions can be made. Also, in such competitive
era, it is crucial for businesses to analyze the financial position by minimizing the cost and
expenses and thus improve the performance of firm.
17

REFERENCES
Books and Journals
Cole, V., 2012. The uniformity-flexibility dilemma when comparing financial statements: Views
of auditors, analysts and other users. Journal of Accounting and Information
Management. 20(2). pp.114-141.
Cooper, W. E., 2011. Determinants of off-balance sheet usage in private banks. Journal of
Studies in Economics and Finance. 28(4). pp.248–259.
Healy, P. and Palepu, K., 2007. Business Analysis and Valuation: Using Financial Statements. 4.
Cengage Learning.
Ilter, C., 2014. Misrepresentation of financial statements: An accounting fraud case from Turkey.
Journal of Financial Crime. 21(2). pp.215-225.
Jin, J., 2012. Commercial bank credit risk management based on grey incidence analysis.
Journal of Grey Systems: Theory and Application. 2(3). pp.385–394.
Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.
Kokubu, K. and et. al., 2009. Material flow cost accounting with ISO 14051. ISO Management
System. 9(1). pp.15-18.
Lasher, W., 2010. Practical Financial Management. Cengage Learning.
Lazaridis, I. and Tryfonidis, D., 2006. Relationship between working capital management and
profitability of listed companies in the Athens stock exchange. Journal of financial
management and analysis. 19(1).
Lord, B. R., 2007. Strategic management accounting. Issues in Management Accounting. 3.
pp.135-154.
Peasnell, K. V., Pope, P. F. and Young, S., 2005. Board monitoring and earnings management:
do outside directors influence abnormal accruals?. Journal of Business Finance &
Accounting. 32(7‐8). pp.1311-1346.
Scapens, R. W., 2006. Understanding management accounting practices: A personal journey.
The British Accounting Review. 38(1). pp.1-30.
VanDerbeck, E., 2012. Principles of cost accounting. Cengage Learning.
Whitecotton, S., Libby, R. and Phillips, F., 2013. Managerial accounting. McGraw-Hill Higher
Education.
Zimmerman, J. L. and Yahya-Zadeh, M., 2011. Accounting for decision making and control.
Issues in Accounting Education. 26(1). pp.258-259.
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