Management Accounting Essay of ABC Ltd

MANAGEMENT
ACCOUNTING

Index of Tables
Table 1: Closing stock using FIFO..................................................................................................3
Table 2: Closing stock using LIFO..................................................................................................3
Table 3: Closing stock using Average cost......................................................................................4
Table 4: Routine costs......................................................................................................................5
Table 5: sales budget........................................................................................................................7
Table 6: Production budget..............................................................................................................8
Table 7: Material usage budget........................................................................................................8
Table 8: Material purchase budget...................................................................................................8
Table 9: Plastic usage budget...........................................................................................................8
Table 10: Plastic purchase budget....................................................................................................9
Table 11: Cash budget.....................................................................................................................9
Table 12: Calculating sales............................................................................................................10
Table 13: Raw material..................................................................................................................11
Table 14: Production overhead......................................................................................................11
Table 15: Variance analysis...........................................................................................................12

INTRODUCTION
Role of management accountant of an entity is to minimise the complexities imposed on
an entity. It help to make complete records of each and every transactions so that company will
run effectively. ABC Ltd has been selected in the given report in order to analyse the
performance of the firm in relation to various costs and variances determined. This report is all
about classification of costs, determination of closing stock using different techniques. Current
report emphasises on preparing budgets to forecast the future performance along with the
preparation of variance analysis.
TASK 1
1.1 Classification of costs
1

Cost is regarded as one of the important aspects that needs to be identified by an
enterprise owner in their business. Cots is essential to be identified as this can affect overall
performance of an entity in the near future. From business perspective, cost is always taken into
negative sense as this would affect the ability of the firm by suppressing its sales and the
revenue. An entity owner identifies all kinds of costs in an entity by segregating them into
various categories. Classes of costs will be helpful for an entity owner in order to ascertain its
financial performance (Friesen, Lundquist and Van Stan, 2015). ABC Ltd is required to analyse
its present resources in relation to all the costs incurred in a firm as this may reduces the current
revenue generated in a particular financial year. Expenses are segregated on the basis of various
classes such as determinate costs, changeable costs and semi variable price on the basis of
behaviour. Production, administration and other office expenditures incurred in a firm are
categorised into functional costs of the business. On the other hand, indirect or direct costs
involved in a business are comes under the category of nature of costs. A single costs can fall
under all these three classification of costs. Cost accountant of ABC Ltd will be easily identified
all kinds of costs incurred in a corporation in order to meet all the costs appropriately in a firm.
1.2 Different costing methods
Costing is a study of all the methods that are used in state to determine different costs
which are acquire in a business. Efficiency of all the trade practices will be improved with the
passage as in this way existing performance of the firm will get increases. There are various
methods of costing used by an individual in identifying variety of costs in a firm are given as
below:
Job costing- In this type of costing different jobs are created in a business in which all the
targets are specifically treated as singular jobs. The evaluation of jobs includes direct material
cost, labour and overhead costs (Frank, 2015). These costs are evaluated in order to determine
the profit by excluding all the costs from the existing sales of an entity.
2

Process costing- In industry like construction, a process is evaluated from start till the end of the
process to determine the overall movement of goods from one process to another. Process
costing consider both direct and indirect costs which are integral part of an entity. In the end of
every process finished stock will be transferred to the finished stock ledger as the products are
processed with the help of al the processes whose accounting will be done in the current costing
methods.
Batch costing- It is a form of specific order costing. In batch costing items are manufactured for
stock. A finished product may require different components for assembly and may be produced
in economical batch lots. In general the procedures for costing batches are very similar to costing
jobs. The batch would be treated as a job during manufacture. On completion of the batch the
cost per unit can be calculated by dividing the total batch cost by the number of good units
produced.
Examples of products that are best accounted for cost through batch costing include:
 Production of engineering components
 Radios/television sets
 Medicine
 Footwear
 Clothing manufacturer
The costs included in the batch cost are direct costs of material, labour and direct expenses plus
overheads absorbed into the batch.
1.3 Calculating closing stock
Table 1: Closing stock using FIFO
Date
Purchas
e Unit Amount Sale Unit Amount
Closing
Stock Unit Amount
02/06/17 2000 15 30000 2000 15 30000
06/06/17 800 15 12000 1200 15 18000
11/06/17 1000 17 17000 1200 15 18000
1000 17 17000
3