Management Accounting Analysis - PDF

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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