Accounting Techniques for Preparing Profit and Loss State
Added on 2019-12-04
26 Pages6654 Words439 Views
Management Accounting1
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................4TASK 1............................................................................................................................................4A Purpose of using budgeting......................................................................................................4B Administrative budgeting procedure........................................................................................4C Describing the stages of budgeting process.............................................................................5TASK 2............................................................................................................................................5A Classifying cost........................................................................................................................5B Calculating the fixed and variable cost using high low method..............................................6TASK 3............................................................................................................................................6A Absorption and marginal costing effect on stock valuation and profit determination.............6B Difference between job costing, batch costing, process costing and service costing..............7C Preparing profit and loss statement for North and South area under absorption costing.........7D Prepare profit and loss statement for South region on the basis of marginal costing..............9TASK 4............................................................................................................................................9A Advise the KBC.......................................................................................................................9B Calculating following figures.................................................................................................10(i) Contribution to sales ratio (PVR)..........................................................................................10C Combination of products with limited labour hours..............................................................11D Calculating of profits at 6000 further hours...........................................................................11TASK 5..........................................................................................................................................11A Different types of budgeting method.....................................................................................11B Cash budget............................................................................................................................12TASK 6..........................................................................................................................................13Budget and calculation of variance............................................................................................13TASK 7..........................................................................................................................................15(A) Calculating units sold and sales value.................................................................................15B Computing profit or loss at the sale of 26500 pair of shoes...................................................15C Computation number of units to earn desired profit worth £240100....................................16D Computing total number of units at increased selling price by 15% & advertisement cost of£20000........................................................................................................................................16E Recommending and justifying appropriate action for improving performance of Bata Ltd..162
CONCLUSION..............................................................................................................................17REFERENCES..............................................................................................................................183
INDEX OF TABLESTable 1: Table 1: Profit for North Area...........................................................................................9ILLUSTRATION INDEXIllustration 1: P & L for south area................................................................................................10Illustration 2: P & L for south Region...........................................................................................104
INTRODUCTIONManagement accounting is the procedure of preparing management report and accountsthrough which decision related to daily business activities are taken effectively. BY usingconcepts of management accounting reports are generated on monthly or weekly basis in order toshow balance related to cash, sales turnover and outstanding debts. Present report is based oncase study of KBC Ltd which handle its work related to management accounting by utilizingnumber of techniques. Furthermore, purpose of budgeting and control mechanism are alsoexplained effectively. In addition to this, effect of absorption and marginal costing has beendiscussed along with proper demonstration.TASK 1A Purpose of using budgetingBudgeting Budgeting is defined as a tool used for estimating the revenue and expenditure, for thepre-set time period. It is a quantitative plan used for deciding which activities and associatedexpenditure. KBC Company designs budget to make optimum use of financial resource and tofind the way to overcome or control expenses. The main purpose is to have control overexpenses and avail financial resources on important activities of business.Benefits of budgetingBudgeting is very important for business as is provide certainty for future businessactivities. It assists corporation in reducing cost of production and increasing overall rate ofreturn. The use of budget enable business to maintain effective balance between potentialexpenditure and income in KBC ltd. Similarly, budgeting benefits management of KBC Ltd toget information related to potential threats so that accordingly appropriate action can be taken forsmooth operation of business (Davies and Crawford, 2011). Another benefit of budget for KBCCompany is that resources allocation is also done with the help of budgeting process. It helps inanalyzing cost and expenses is done in the light of expected return or growth of company.Budgeting facilitates KBC Ltd to access cost effective sources of finance in order to reduce cost5
of production and ensure expansion of business in the marketplace. As a benefit, effectivemanagement of capital structure is ensured by using budgeting practices.B Administrative budgeting procedureThe following points represents the administrative budgeting procedure:Setting objectives of budgeting in a line with corporation budget: The administrativebudgeting process start with setting objectives of corporation for preparing budgets. In thisprocess m the KBC Ltd might set objectives related to enhancement of profitability andincreasing sales turnover and increased customer base (Gibbons and et.al. 2010). Review the plan with different departments: The plan of budget is to be discussed withdifferent department so as to assess the funding needs for each department. This is the process inwhich business has to define functions of finance. The budget is to be set in accordance withobjectives of each department which are set in order to ensure growth and success of KBC Ltd.Make a budget: The last stage is of preparing budget for the business by monitoringstrategies so as to reduce gap between actual and expected outcome. The continuous monitoringtend is to be ensured for growth and success of company for long run (Kaplan and Atkinson,2015).C Describing the stages of budgeting processThe budgeting process of KBC Ltd has been stated as follows-Draft- The primary stage of budgeting is to draft the budget. In this stage, objectives ofbudgets are to be designed in accordance with the requirements of business. Budgeting isdone by managers by drafting the budgets such as sales budget, cash budget andproduction budget (Chua, Lowe and Puxty, 2015).Approve- The prepared budget is to be approved by the management of company for this,it has to set standard related to expenses. The expected amount of profitability can bedebated by the managers. Execute- After their approval, the process starts with implementation of budget and startexpending. The activities discussed with budgets and monetary aspects of budget will beapplied. 6
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