Effective Cost Improvement Techniques for Enhancing Business Performance

The financial performance of a company has revealed significant issues with sales and profit estimation, resulting in negative variances between actual and budgeted figures. To address these issues, the company needs to implement effective cost management techniques, such as EOQ (Economic Order Quantity) and JIT (Just in Time), to reduce costs and improve productivity. Additionally, the company should adopt strategies to increase sales and maintain a strong financial position.

Management Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................2
1.1 Different types of cost......................................................................................................2
1.2 Calculation of unit cost and total job cost........................................................................4
1.3 Calculation of cost of Exquisite Product AB...................................................................1
1.4 Analysis of Cost of Exquisite...........................................................................................1
TASK 2............................................................................................................................................1
2.1 Analysis of Cost report.....................................................................................................1
2.2 Performance indicators used to identify areas for potential improvements.....................1
2.3 Ways to reduce costs, enhance value and quality.............................................................2
TASK 3............................................................................................................................................1
3.1 Purpose and nature of the budgeting process...................................................................1
3.2 Budgeting methods for the organisation and its needs.....................................................2
3.3 Preparation of Production Budget and Material Purchase Budget...................................3
3.4 Preparation of Cash Budget..............................................................................................1
TASK 4............................................................................................................................................1
4.1 Calculation of Different Variances and their causes and recommendations....................1
4.2 Reconciliation statement..................................................................................................1
4.3 Reporting the Findings to management............................................................................2
CONCLUSION................................................................................................................................2
REFERENCES................................................................................................................................3

LIST OF TABLES
Table 1: Calculation of Unit Cost and Total Job Cost.....................................................................2
Table 2: Production Budget (In Units)..........................................................................................11
Table 3: Raw Material Purchase Budget.......................................................................................11
Table 4: Cash Budget.....................................................................................................................12
Table 5: Material Variance............................................................................................................13
Table 6: Labour Variance..............................................................................................................14
Table 7: Sales Variance.................................................................................................................15
Table 8: Fixed Overhead Variances..............................................................................................15
Table 9: Reconciliation Statement.................................................................................................17

INTRODUCTION
Management accounting is also known as cost or managerial accounting. This involves
providing statistical and financial information to the manager. On the basis of this information,
manager takes decisions for the short term and long term period. Management accounting helps
manager in getting actual information about cash in hand, accounts payables & receivable, sales
revenue, etc. These information help manager in analysing cost related information of the
organisation. Management accounting at Jeffrey and Son's helps its manager in identifying the
methods of cost reduction and enhance value. It also provides guidelines about the preparation of
budgets. These help in monitoring organisation's performance against the planed budget. So that,
manager can identify variation in the actual and planned process.
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TASK 1
1.1 Different types of cost
Cost involve in every activity of business. So, this can divided according to its work:
On the basic of element:
 Marginal cost
 Opportunity cost
 Normal cost
 Sunk cost
 Differential cost
On the basis of nature:
 Labour cost
 Material cost
 Overhead cost
On the basis of behaviour:
 Fixed cost
 Variable cost
 Semi-variable cost
On the basis of functions:
 Process cost
 operation cost
 Joint cost
Following are the costs which can use by Jeffrey and Son's for getting actual information about
business position.
On the basis of nature Direct cost – It is the cost which is directly related with the unit of operation. These costs
vary with the variation in manufacturing of products (Kaplan and Atkinson, 2015). For
example, direct cost for a car manufacturing company is wages of workers who build car
and cost of parts which are used to build the car. Indirect cost – These include all the costs which are not directly related with the
manufacturing of a product. Indirect cost is related to both type such as fixed and
variable. For example, Electricity expense for a car manufacturing company is indirect
cost.
On the basis of behaviour Fixed cost – Fixed cost does not vary with the number of products and services. These
remain same when there are changes in the output of products. For example, A company
must pay rent to its land owner in both conditions either they manufacture or not.
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 Variable cost – variable cost changes at every level of production as output changes
(Hansen, Mowen and Guan, 2007). These are related with every single unit of output. For
example, A phone manufacturing company must pack its product before sending into the
market. So, as company's production increases, its packaging cost also increases and
vice-versa. Semi-variable cost – Semi-variable cost includes both variable and fixed costs. These are
also known as mixed cost. In these cost, fixed element remains constant with production
and variable elements are changed with the volume of production.
On the basis of element
 Opportunity cost – These are focused on net revenue that could be generated by the
best uses of its resources. These also treat as an alternative cost for the organisation.
 Sunk Cost – It is a cost which has already been incurred and cannot be recovered.
For instance bad food from a restaurant, bad movie, training and development of
employees etc are kind of sunk costs.
On the basis of functions
 Process cost – It is used in the industry where mass production of similar products
occurs. The costs is associated with individual units of output which cannot be
differentiated from each other. For example costs related to designing department,
production department, conversion department etc.
 Operation cost – It is a cost related to the day to day operations of the business. For
example, stationary expenses, transportation expenses etc are operational in nature.
1.2 Calculation of unit cost and total job cost
Table 1: Calculation of Unit Cost and Total Job Cost
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PARTICULARS AMOUNT
D.M. 50kg @ £4 200
D.L. 30hrs. @ £9 270
Var. Prod. O/h 30hrs. @ £6 180
Fixed Prod. O/h (W.N 1) 30hrs. @ £4 120
Total Unit cost 770
Total Job cost 200 units @ £770 £ 154000
W.N.1 Fixed Prod. O/h per unit =
Total Fixed
Production
overhead/ Total
direct labour hours
= £80000/20000
= £ 4
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1.3 Calculation of cost of Exquisite Product AB
(A)
Table 2: Allocation of overheads to the production department
Basis of
allocation
Machine
shop X
Machin
e shop
Y
Assembl
y
Stores Mainten
ance
Indirect wages
and
supervision
Allocated £100,000.
00
£99,500
.00
£92,500.
00
£10,000
.00
£60,000.
00
Indirect
materials
Allocated £100,000.
00
£100,00
0.00
£40,000.
00
£4,000.
00
£9,000.0
0
Light and
heating
Area occupied £10,000.0
0
£5,000.
00
£15,000.
00
£15,000
.00
£5,000.0
0
Rent Area Occupied £20,000.0
0
£10,000
.00
£30,000.
00
£30,000
.00
£10,000.
00
Insurance and
machinery
Machinery
book value
£7,947.02 £4,966.
89
£993.38 £496.69 £596.03
Depreciation
of machinery
Machinery
book value
£79,470.2
0
£49,668
.87
£9,933.7
7
£4,966.
89
£5,960.2
6
Insurance of
building
Area occupied £5,000.00 £2,500.
00
£7,500.0
0
£7,500.
00
£2,500.0
0
Salaries of
works
management
Number of
employees
£24,000.0
0
£16,000
.00
£24,000.
00
£8,000.
00
£8,000.0
0
Total cost of
overhead
£346,417.
02
£287,63
6.00
£219,927
.00
£79,964
.00
£101,056
.00
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(B)
Table 3: Reapportioning the service or support department costs to the production departments
Particular Basis Machine X Machine Y Assembly
Primary
Distribution
As Stated
Earlier
346417.02£ 287636£ 219927£
Stores
Department
Direct material
(4:3:1)
39982£ 29987£ 9995£
Maintenance
Department
Maintenance
machine hours
(12:8:5)
48506.88£ 32337.92£ 20211.2£
Total cost 434905.9£ 349960.92£ 250133.2£
(C)
OAR = Total cost/Actual machine hours
Table 4: Calculation of Overhead Absorption Rates
Particular Machine X Machine Y Assembly
Total cost 434905.9£ 349960.92£ 250133.2£
Actual machine
hours
80000 60000 10000
OAR 5.44£ 5.83£ 25.01£
(D)
Table 5: Calculation of overhead charge
Items Calculation Per unit cost
Material 8£
Labour 2 hours*7.50£ 15£
Production Department
Overheads
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Machine X 0.8 hours*5.44£ 4.35£
Machine Y 0.6 hours*5.83£ 3.5£
Assembly 0.1 hours*25.01£ 2.5£
Total cost 33.35£
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1.4 Analysis of Cost of Exquisite
Overhead Absorption rate = Total cost/direct labour hours
Table 6: Calculation of overhead absorption rates using labour hours as a basis
Particular Machine X Machine Y Assembly
Total cost 434905.9£ 349960.92£ 250133.2£
Labour hours 200000 150000 200000
OAR 2.17£ 2.33£ 1.25£
In the given scenario, the finance director of the organization is not satisfied with the
existing basis of calculating OAR. Hence company should absorb overheads on the basis of
direct labour hours.
Table 7: Calculation of cost
Items Calculation Per unit cost
Material 8£
Labour 2 hours*7.50£ 15£
Machine X 2*2.17£ 4.34£
Machine Y 1.5*2.33£ 3.5£
Assembly 1*1.25£ 1.25£
Total cost 32.09£
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TASK 2
2.1 Analysis of Cost report
Budgeted
cost Actual cost
Varian
ce
2000 units 1900 units
Material £24,000 £22800 1200
Labour £18,000 £19000 -1000
Fixed overheads £15,000 15000 0
Electricity
Variable £8,000 £7125 375
Fixed £500
Maintenance £5,000 £4800 1200
Total £70,000 69225 775
Actual Cost information In £
Material cost 12
Labour Cost 10
Electricity Cost (W.N. 1) 3.75
Total Variable cost Per unit 25.75
W.N.1 Semi variable cost
Variable Element 3.75
Fixed Element
Total variable Cost (3.75*2000) 7500
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Total Fixed Cost (8000-7500) 500
W.N.2 Calculation of Maintenance Cost
Increase of £1,000 for each 500 units
Actual Units Produced 1900
For 1900 units, The maintenance cost will
be
5000 - (1000/500*100) 4800
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2.2 Performance indicators used to identify areas for potential improvements
Performance indicators are the set of measures focusing on those elements which are
important in current and future success of the organisation (Ward, 2012). These help company to
identify its current performance in order to meet their operational and strategic goals. Main
reason of using such indicators is to improve effectiveness of business. Following are the various
performance indicators which help in identifying areas for the potential improvements: Profit – It is one of most important performance indicators which provide information
about the actual position of company in the financial terms. According to the amount of
profit, manager can take decisions about the future actions. If, there is less profit as
compare to targeted, then manager comes to know about the weak point for such results.
These will help manager in identifying areas which need to work out for new
improvements within the business of Jeffrey & Sons. Cost – Cost is another performance indicator of the business. It concerns with the
identification of area which might cause for increasing cost (DRURY, 2013). If, cost is
higher as compared to the target, then this will loss for the Jeffrey & Sons. So, company
should use various cost reduction techniques. This indicator use as a tool for the future
planning of business. Sales – Sales is concerned with the total sell of product and services of Jeffrey & Sons in
the fixed time period. These help in identify business performance by concerning region
wise sales reports. So that, on this basis, manager can identify elements which affect or
support total sales. These help manager in making decisions about the selection of
distribution channels, target consumer, etc.
 Customer satisfaction – Customer satisfaction can be measured by CSR which includes
customer satisfaction scores and rate of loyal customers for Jeffrey & Sons (Chapman,
Hopwood and Shields, 2006). Positive result of such research is good for company. But,
when this results are negative then manager has to make decisions in order to increase the
number of repeating customers.
 Ratio analysis – It can act as the performance indicator for Jeffrey & Sons. It will show
the financial position in terms of liquidity, efficiency, profitability etc. Different types of
ratios are calculated to compare the financial performance.
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2.3 Ways to reduce costs, enhance value and quality
Every organisation wants to generate revenue but it could only possible through reducing
costs and improving the quality of product and services. Following are the ways to reduce cost
and enhance value as well as quality: Minimize transportation cost – Transportation plays an important role in exchanging of
goods between business and customers (Lal, 2009). Company is focused on spending
larger amount on such activity. So, if transportation cost reduces then it ultimately
resulted to reduce in overall cost. These can be reduced by mapping out shipping carriers
and working with a third party logistics provider. Analyse supply and demand – In order to reduce cost, company should analyse supply
and demand of products. On that basis, company can make decision about the allocation
of resources (Anderson, 2011). Company sets its distribution channels according to the
demand of product. It will help company to reduce its cost and provide better quality
products to its customers. Using JIT system and Kaizen costing – For reducing costs and improve quality,
company can use Just- In-Time system. JIT concerns with the continuous improvement
and it focuses on eliminating waste so that extra cost can be reduced. Main aim of this
system is to provide right item with the right quantity and quality within the required
time. Purpose of JIT is to reduce cost, improve quality, enhance performance, etc. Kaizen
costing is the process of cost reduction in manufacturing of existing product. This helps
company in achieving the cost standards that are set by management. These focus on
reducing actual cost below the standard cost.
 Using Six sigma – This tool can be used by company to reduce its defect upto maximum
level. This technique is known as six sigma because it helps in reducing the defect to
99.99%. Six sigma mainly focuses on increasing performance and decreasing the process
variation (Arai, Kitada and Oura, 2013). These are method of improving the quality of
work. To achieve target, company has to give training and provide proper organizational
infrastructure as well as culture. Six Sigma aims to improve the processes. Benefits of
this technique is to both the individual as well as company. As per the research conducted
on this, ot has been showed that about $ 2 for every dollar is invested in six sigma. It
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helps in reducing the cost and improving the quality of products. So that, organisation can
produce quality product with zero defect.
 Total quality management – It is another very comprehensive approach which improves
the quality of the products and services. It is applied through ongoing refinements with
response to the continuous feedbacks.
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TASK 3
3.1 Purpose and nature of the budgeting process
Budgeting process is an important component of management system. It is the way of
preparing organisational budget. Budgeting process is also concerned with fixed cost and
variable cost of production. It helps the Jeffrey & Sons in coordinating and controlling all the
activities. Main purpose and nature of budgeting process for budget-holders are as follows: Resource allocation – Budgeting process is important for budget-holders in order to
allocate resources effectively (Bardy, 2006). This process helps budget-holders in
predicting the future needs of business so that accordingly they can allocate resources. Control – Budget's main aim is to plan activity in an effective manner. In case of Jeffrey
& Sons, it is necessary that actual activity should be lined with planed activity. Budgeting
process helps budget-holders to control activity, if there is any variation. Planning – Another purpose of budgeting process is to make an effective plan. This
could be short term and detailed plan. This process helps budget-holders in identifying
organisation's goals and objectives so that they can plan accordingly (Sisaye and
Birnberg, 2010). Improve efficiency – Budget-holders can improve efficiency by using budgeting process
(Banks, 2008). For instance in Jeffrey & Sons, efficiency in desired output can be
improved by using good budgeting process. Budget is make on the basis of previous
expenses and income statements, so this increases the chances of accuracy in budget. Allocation of responsibilities – Budget also includes the allocation of responsibilities to
the individual and departments. The business of Jeffrey & Sons is also divided into
various departments hence the purpose of budgeting process is to allocate work to the
departments and set target for individual. So, when individual fulfils the targets,
ultimately overall target fulfil.
 Performance evaluation – Purpose of budgeting process is to evaluate the performance
of planed activity (Barnes, 2013). It is also concerned with the performance evaluation of
whole organisational activity. Budget-holders evaluates performance for getting actual
position of current work in accordance with planed.
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3.2 Budgeting methods for the organisation and its needs
Jeffrey and Son's is currently using priority based budgeting system. Company prepares
budget for the specific department and for its working areas. This helps company in identifying
opportunities for the particular work. Company can also use different types of budging methods,
these are as follows:
1. Incremental budgeting – In this kind of budgeting process, previous year's budget is
carried forward for the next annual budget with some specific improvements (Birnberg
and Sisaye, 2010). In this budget, some known factors such as additional sources, wage
inflation and service development are changed according to the requirements. It helps
Jeffrey and Son's in preparing incremental budget for the specific department. Zero based budgeting – This is a purest form of budgeting process. In this budgeting
process, it assumes that organisation is starting as a new company. This budgeting
process does not refer previous budget statements. In this process, management focuses
on objectives and targeted outcomes. This is known as fresh budgeting so all resources
need to allocate according to requirement (Cohen and Kaimenaki, 2011). Jeffrey and
Sons can use this budget for the better allocation of resources and set new objectives.
 Performance based budgeting – This budgeting process is concerned with the
performance and allocation of resources. While preparing such budgets, it requires some
information about Input (in monetary terms), output (units of output), cost per activity
and level of goal achievement. These all are work as a base for the next budget. These
help management in identifying company's strength in the particular field. On that basis,
management prepares budget for that particular field or department (Drake and Fabozzi,
2012). This helps Jeffrey and Son's in identifying its performance for the particular
department so that budget could be decided accordingly. This will also help company in
reduce wastage of resources.
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3.3 Preparation of Production Budget and Material Purchase Budget
Table 8: Production budget of Jeffrey & Son's
Particulars July August September
Budgeted Sales 105000 90000 105000
Inventory at the beginning period 11000 13500 15750
(Sales – opening inventory) 94000 76500 89250
Inventory at the ending period 13500 15750 16500
Required Production 107500 92250 105750
Inventory July August September
Closing Inventory 90000*15%
= 13500
105000*15%
= 15750
110000*15%
=16500
The estimated sales for the month of July, August and September are 105000, 90000 and
105000 units. Jeffrey & Sons are required to maintain finished stock equal to 15% of the next
month budgeted sales. The opening inventory within business is 11000 units for the month of
July. It is equal to the previous month of closing inventory. The production budget of the
company is prepared by adding the opening inventory to the budgeted sales. It is also subtracted
from the closing inventory.
Table 9: Material purchase budget of Jeffrey & Son's
Particular July August September
Material Consumption 215000 184500 211500
Less- Opening inventory of material 52000 45000 52500
Material consumption-Opening stock 163000 139500 159000
Add- Closing inventory 45000 52500 55000
Budgeted material purchases 208000 192000 214000
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Particular July August September
Material
consumption
107500*2 Kg
= 215000 kg
92250 units*2 Kg
= 184500 Kg
105750 units*2 Kg
=211500 Kg
Closing
inventory
90000units*2kg*25
%
= 45000 kg
105000units*2Kg*25
%
=52500 kg
110000units*2Kg*25%
= 55000 kg
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3.4 Preparation of Cash Budget
Table 10: Cash Budget
Particulars July August September
Cash Receipts
Cash sales 900000 731250 864000
Total cash Income 900000 731250 864000
Cash Expenditures
Material Purchase 365969 334688 372531
Direct wages 322500 276750 317250
Variable overhead 108500 98350 100350
Fixed Overhead 75000 87500 87500
Net cash flow 28031 (66038) (13631)
Opening Cash balance 16000 44031 (22007)
Cash at the end of the
month
44031 (22007) (35638)
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TASK 4
4.1 Calculation of Different Variances and their causes and recommendations
Table 11: Material Variance
Budgeted Output 4000 units
Standard quantity 0.4 kg
Standard Price 2.4
Actual Output 3500 units
Actual quantity 1425 Kg.
Actual Price 2.4
Since Standard Output should be equal to Actual
Output therefore
For 4000 units 0.4 kg of Direct Material is
required then for 3500 units 1400 kg is required
Material Cost Variance
Std. Qnty. X Std. Price – Actual Qnty. X Actual Price
2.4*1400 – 2.4*1425 = (60)
Material Price Variance
(Std. Price – Actual Price) X Actual Quantity
(2.4-2.4) X 1425 = 0
Material Usage Variance
(Std. Qty – Act. Qty.) X Std. Price
(1400-1425)X 2.4 = (60 )
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Table 12: Labour Variance
Labour Variances
S.H. OF D.L. 0.1 hour
S.R. OF D.L. 8 PER HOUR
A.H. 345 hours
A.R.
7.8 per hour
(Approx.)
Since Standard hours should be equal to Actual
Hours therefore
S.H. For Actual output 0.1X 3500
350 hours
Labour cost variance
Std hrs. X Std. Rate – Act. Hrs. X Act. Rate
350X 8 – 345X 7.8 109
Labour Rate Variance
(Std. Rate – Act. Rate) X Act. Hrs
(8-7.8) X 345 69
Lab our Efficiency Variance
(Std. Hrs. - Act. Hrs) X Std. Rate
(350 -345) X 8 40
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Table 13: Sales Variance
Sales Variances
BSP 4 per unit
B.O. 4000 units
Actual s.p. (A.P) 3.95 per unit
Actual Output (A.O.) 3500 units
Since Standard Output should be equal to Actual
Output therefore
Sales Cost Variance
Act. Output X Act. Price – Budg. Output X Budg.
Price
3500 X 3.95 – 4000 X 4 -2175
Sales Price Variance
(A.P. - B. P.) X A. O.
(3.95 – 4) X 3500 -175
Sales Quantity Variance
(A.O. - B. O.) X B. P.
(3500-4000) X 4 -2000
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Table 14: Fixed Overhead Variances
Fixed Overhead Variances
Budgeted Fixed Overheads 4800
Actual Fixed overheads 4900
Budgeted Fixed Overheads – Actual Fixed
Overheads
4800 – 4900 -100
There are possible causes for the variances which are discussed below. Sales Price Variances: In case of favourable Sales volume variances, there is an
expectation of planned increase in the prices of products. The market prices also increase
due to less competition in the market (Iazzolino, Laise and Marraro, 2012). For adverse
sales volume variances, it is expected that sales prices have decreased and market prices
are also decreased due to more competition in the market. Material Price Variances: The reason for favourable material price variance is the
downfall in the market prices. Another cause is purchasing the lower quality of materials
and buying with skills. The adverse material price variance occurs due to a rise in the
prices of market and purchasing good quality material. Labour Rate Variances: The reason for favourable usage variances are fall in the market
labour prices, less quality people are employed and there is high level of negotiation in
the labour prices. For adverse sales usage variances, reasons are high market prices, good
employee quality and low level of negotiation (Kont, 2012). Labour Efficiency Variances: Reasons for favourable efficiency variances are qualified
and trained people, good quality materials as well as latest technologies. Reasons for
adverse efficiency variances are poor training and lower quality of materials which are so
harder to use effectively and efficiently and also using poor machines (Kaimenaki and
Cohen, 2011). Material Usage Variances: These become favourable in case of higher and good quality
of materials, more efficient utilization of material, product specialization changes and
incorrect budget analysis. Theses variances become adverse due to bad quality of
materials, less experienced staff etc.
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 Fixed Overhead Variances: The fixed overhead variances become favourable because of
reduction in prices and seasonal effects. They become adverse because of increase in
prices and some seasonal effects (Vanderbeck, 2012).
Corrective Actions for Possible Variances
Corrective actions which are to be taken for the adverse variances need to be chosen for
affecting future programs. Measures to be taken include the corrective action plans like
comparing the actual performance with the estimated performance. With the help of this
comparison, company can take possible actions which help in completing the project on time.
Company prepares variance analysis report which is a kind of document to communicate the
causes, their impact and corrective actions that are needed to be taken for them. Once the main
problem is identified, its impact on the project and report can be analysed. In the corrective plan,
proper description of all the activities is to be performed (Kastantin, 2005). The results from
previous actions and plans are also to be included. A corrective Action Log which traces the
actions that are already taken and the situation of plan for every variance analysis is to be
prepared. At the time of describing the impact of plan on the costs which are described,
Schedules and their impact to other similar cost accounts are needed. If, corrective action is not
possible then it can explain the reason for the same.
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4.2 Reconciliation statement
Table 15: Reconciliation Statement
Budgeted Results
Sales revenue 16000
Material (3360)
Labour (2800)
Fixed overheads (4800)
Budgeted profit 5040
Reconciliation Statement
Budgeted profit 5040
Material Price Variance 0
Material Usage Variance (60)
Lab our Rate Variance 69
Lab our Efficiency Variance 40
Sales Price Variance (175)
Sales Quantity Variance (2000)
Fixed Overhead Variances (100)
Actual Profit 2810
The above reconciliation statements disclose the financial position of company. Above
results are showing that there are some issues with the estimation of sales and profits. A huge
negative difference can be noticed between the actual and budgeted figures. Negative variance is
not good for the financial position of company. Variances are to be handled in an effective
manner. Business has not gained adequate profits due to ineffective sales strategies. Corrective
actions which are to be taken for the adverse variances to be chosen for affecting future
programs. The expenses were not estimated in an appropriate manner. There are no adequate
profits to cover up all the expenses (Arai, Kitada and Oura, 2013). There is a need to show
effective management of expenses and for that purpose, various costs improvements techniques
can be adopted. Focus is to be given on maintaining material, labour and fixed overheads.
Effective sales strategies are to be implemented so that sales of the business can be increased.
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4.3 Reporting the Findings to management
The responsibility centres in the variance analysis system are raw material purchase
department, Labour department, sales department and lastly the overhead's department. The
Variance analysis of this company has many fluctuations like the actual output and budgeted
output is not same, they result in variances. The actual profits and budgeted profits are also not
same and vary. Management should take corrective actions to prevent such fluctuations and try
to reduce adverse variances between sales price and volume. Along with this, management
should adopt strategies and improve the cost management system (Robb and Woodyard, 2011).
CONCLUSION
From the above study, it can be concluded that management accounting is a very
complex set of knowledge. Business is required to use an effective cost improvement technique
which can enhance the level of performance and productivity. Negative variance is not good for
the financial position of company and they are to be handled in an effective manner. Estimation
of income and expenses is to be done correctly. Further, costing information can be of greater
use for the company as many financial decisions can be taken effectively. Techniques such as
EOQ (Economic Order Quantity) and JIT (Just in Time) etc. are very productive for the cost
reduction. The above study has also concluded that budgeting process is tough to implement as it
needs effective estimation and analytical skills (Kate-Riin Kont, 2012). Management accounting
is a wide branch of knowledge and helps in making crucial financial decisions.
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