Management Accounting Assignment Example

Running Head: MANAGEMENT ACCOUNTING
Management Accounting
Name of the Student:
Name of the University:
Author’s Note:

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Table of Contents
Answer to Part A.............................................................................................................................2
Incorporation of Master Budget...................................................................................................2
Answer to Part B............................................................................................................................10
Analysis of Production Plan......................................................................................................10
Answer to Part C............................................................................................................................13
Analysis of Participative and Imposed Budgets........................................................................13
Reference.......................................................................................................................................15

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Answer to Part A
Incorporation of Master Budget
Figure 1: (Image showing Sales Budget)
Source: (Created by Author)
Figure 2: (Image showing Production Budget)
Source: (Created by Author)

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Figure 3: (Image showing Direct Labor Budget)
Source: (Created by Author)

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Purchase Budget:
Particulars July August September October
Budgeted Sales Volume 40000 32000 36000 48000
Budgeted Production Volume 20800 32800 38400
Fuse required per unit 2 2 2
Total Fuse Required 41600 65600 76800
Add: Closing Inventory of Fuse 38400 43200 57600
80000 108800 134400
Less: Opening Inventory of Fuse 48000 38400 43200
Budgeted Purchase Volume (in units) 32000 70400 91200
Fuse Cost per unit $48.00 $48.00 $48.00
Total Cost of Fuse $15,36,000 $33,79,200 $43,77,600
Isolators required per unit 3 3 3 3
Total Isolators Required 62400 98400 115200
Add: Closing Inventory of Isolators 57600 64800 86400
120000 163200 201600
Less: Opening Inventory of Isolators 72000 57600 64800
Budgeted Purchase Volume (in units) 48000 105600 136800
Isolators Cost per unit $64.00 $64.00 $64.00
Total Cost of Isolators $39,93,600 $62,97,600 $73,72,800
Budgeted Direct Material Purchase $55,29,600 $96,76,800 $117,50,400
Figure 4: (Image showing Purchase Budget)
Source: (Created by Author)

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Figure 5: (Image showing Direct Material Cost Budget)
Source: (Created by Author)

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Manufacturing Overhead Budget:
Particulars July August September
Direct Labour Hour 104000 164000 192000
Indirect Labor Cost per DLH $33.60 $33.60 $33.60
Total Indirect Labor Cost $34,94,400 $55,10,400 $64,51,200
Power Cost per DLH $3.20 $3.20 $3.20
Total Power Cost $3,32,800 $5,24,800 $6,14,400
Variable Maintenance Cost per unit $37.78 $37.78 $37.78
Variable Maintenance Cost $39,28,889 $61,95,556 $72,53,333
Fixed Maintenance $181,95,556 $181,95,556 $181,95,556
Total Maintenance Costs $221,24,444 $243,91,111 $254,48,889
Other Variable Cost per unit $24.00 $24.00 $24.00
Other Variable Cost $24,96,000 $39,36,000 $46,08,000
Other Fixed Cost $80,00,000 $80,00,000 $80,00,000
Other Manufacturing Costs $104,96,000 $119,36,000 $126,08,000
Supervision $224,00,000 $224,00,000 $224,00,000
Depreciation $20,00,000 $20,00,000 $20,00,000
Rates & Utilities $16,52,800 $16,52,800 $16,52,800
Budgeted Manufacturing Overhead $625,00,444 $684,15,111 $711,75,289
Figure 6: (Image showing Manufacturing Overhead Budget)
Source: (Created by Author)

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Figure 7: (Image showing Total Collection from Debtors)
Source: (Created by Author)
Figure 8: (Image showing Cash Payment of Selling and Administrative Expenses)
Source: (Created by Author)

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Cash Budget:
Particulars July August September TOTAL
Cash Flow from Operational Activities:
Collection from Debtors $1165,57,900 $1320,96,000 $1296,38,400 $3782,92,300
Payment to Suppliers -$55,29,600 -$96,76,800 -$117,50,400 -$269,56,800
Direct Labour Cost Paid -$31,20,000 -$49,20,000 -$57,60,000 -$138,00,000
Indirect Labor Cost -$34,94,400 -$55,10,400 -$64,51,200 -$154,56,000
Power Cost -$3,32,800 -$5,24,800 -$6,14,400 -$14,72,000
Maintenance Charges Paid -$221,24,444 -$243,91,111 -$254,48,889 -$719,64,444
Other Manufacturing Cost -$104,96,000 -$119,36,000 -$126,08,000 -$350,40,000
Supervision -$224,00,000 -$224,00,000 -$224,00,000 -$672,00,000
Rates & Utilities -$16,52,800 -$16,52,800 -$16,52,800 -$49,58,400
Selling & Administration Expenses -$361,55,900 -$260,37,600 -$302,90,700 -$924,84,200
Net Cash Flow from Operating Activities $112,51,956 $250,46,489 $126,62,011 $489,60,456
Cash Flow from Investing Activities:
Purchase of Land -$208,00,000 -$208,00,000
Net Cash Flow from Investing Activities $0 $0 -$208,00,000 -$208,00,000
Cash Flow from Financing Activities:
Dividend Paid -$7,08,000 $0
Loan from Bank $0
Repayment of Loan $0 $0 $0
Interest Paid $0 $0 $0
Net Cash Flow from Financing Activities $0 $0 -$7,08,000 -$7,08,000
Net Increase/(Decrease) in Cash Flows $112,51,956 $250,46,489 -$88,45,989 $274,52,456
Add: Opening Cash Balance $20,00,000 $132,51,956 $382,98,444 $20,00,000
Closing Cash Balance $132,51,956 $382,98,444 $294,52,456 $294,52,456
Figure 9: (Image showing Cash Budget)
Source: (Created by Author)

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Figure 10: (Image showing Cost of Goods Manufactured)
Source: (Created by Author)
Figure 11: (Image showing Income Statement)

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Source: (Created by Author)
Answer to Part B
Analysis of Production Plan
As per the requirement of the part, the production manager intends to introduce a new
production program which can adhere to all the needs of the organization and there ensure that
there is growth in the production volume of the business. The production plan is intended to
increase the production capacity of the business and thereby also increase the revenues which are
associated with the business. The production plan of the business is intended to combat the rising
costs which are associated with the business and also increase the overall sales of the business.
The management in order to estimate the costs and revenues which are associated with the
production program has decided to adopt budgetary approach where the management can easily
estimate the cost and revenues which the business can earn (Ríos, Bastida and Benito 2016). The
management is planning to prepare a master budget. A master Budget is the aggregate of all
budgets which are usually prepared in an organization and includes additionally cash budgets,
financial plans and statement of estimated income. A master Budget is prepared generally for a
quarter or on a month’s basis so that all activities of the business can be monitored and directed
towards the achievement of the common goal of the company (Lawson et al. 2015). The
components of the master budgets which are prepared for the analysis of the production plan is
discussed below in the coming paragraphs
The sale budget which is included in the master budget shows for the quarter beginning
on July and ending on September. The sales volume which is anticipated shows that the sales
units will fall in August in comparison to the month of July. Again, the sales volume has

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increased in both the months of September and October. The sale price is kept constant as
appropriate changes in prices is difficult to estimate. The budgeted sales revenue of the company
is anticipated to increase from $ 1536,00,000 in July to about $ 1843,20,000 in the month of
October. As the sales of the business is estimated during the quarter the production volume must
also be increased to meet the requirements of sales as anticipated in the budget. The budgeted
production volume is expected to increase from 20800 units in July to 38400 units in the month
of September. In such a budget production estimate considers the closing stock of inventory and
also opening stock of inventory for arriving at the total production which is estimated to be
achieved by the company. The direct labour budget shows that the budgeted labour cost for the
month of September is highest which clearly shows that that the business estimates that the cost
relating to direct budget is expected to increase in the month of September. As the production
volume is increasing it is quite eminent that the direct material cost, direct labour cost and
variable overhead costs which all forms under variable expenses will be rising. As shown in the
direct labour budget that the total direct labour hour has increases from August which was
164000 hours to about 192000 hours in September. The direct labor cost which is anticipated by
the business has increased from the month of august which is shown as $ 57,60,000 in the month
of September. The purchase budget which is included in the master budget shows that the
business is will be requiring materials such as fuse, Isolators. As per the direct material budget,
the total fuse cost and total isolators cost forms part of the total budgeted direct material costs as
shown in the budget. The budgeted direct material cost as shown is $ 110,59,200 for the month
of September which is estimated to be highest during the quarter. The budgeted direct material
cost for the month of August is estimated to be $ 94,46,400.

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The manufactured overhead budget shows indirect costs which are associated with the
business. It is estimated that the indirect costs which the business would be incurring are indirect
labour cost, power costs, maintenance cost and other variable cost. All these cost combine
together to give Budgeted Manufacturing Overhead which is shown to be $ 684,15,111 for the
month of August and the same increases to about $ 711,75,289 in the month of September which
indicates that the management expects a rise in the indirect costs of the business. The total
collection from debtors show that the sales revenue which is generated for the month of
September shows $ 1382,40,000 which shows a major portion of the sales revenue is generated
from credit sales of the business. The total collection from debtors which is shown in the budget
comes to about $ 1296,38,400 in the month of September. The cash budget which is shown in the
master budgets shows all cash related expenses of the business. The cash from operations shows
that the business has positive cash flows from operating activities which shows that even though
the cost of operations has increased with the production volume, the business is still able to
maintain the cash inflows. The closing cash balance for the month of September is shown to be $
294,52,456 which has reduced from the previous month’s estimate. This may be due to increase
in the costs of the business as the production volume of the business has significantly increased.
The income statement which is prepared which shows that the business earns loss in the month
of July which is $ 338,37,945. The business however earns profit in August and September.
However the aggregate results shows that the quarter results end in losses and therefore the
business or the production manager should not select the production program as it is estimated
that during the quarter the business earns losses as estimated by the management with the help of
master budget.

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Answer to Part C
Analysis of Participative and Imposed Budgets.
A participative budget utilizes all the inputs which are provide for the preparation of the
budget by all level of employee. In other words, it means that it provides the business to
incorporate the views of the staff and employees of the business in the preparation of the budget
(Rahman 2013). The basic advantage of using such a budget in the business is that it brings about
unity and collaboration in management. The employees are more motivated in case of the
participative budgets. The quality of budget is also improved when it comes to forecasting of
results as it is being forecasted by respective departments who are involved in day to day
business operations. In addition to this, this type of budgets is known as bottom up budgets
which tends to reflect the forecasted results in a more effective manner as compared to top to
bottom budget (Derfuss 2016). The only drawback which can be identified is that the preparation
of the budget takes a long time as there are large number of employees in the business and a
number of key departments which have a vital role to play in case of a participative budget
(Mah'd et al. 2013).
An imposed budget is also known as top to bottom budgets where all the policies and
objectives of the business are set by the senior managers. As the budgets are set, it is send to
various departments so that it can be followed and every department is expected to achieve the
targets which are set by the top-level management (Johansson and Siverbo 2014). In this type of
budget, the senior management takes decisions on their own and no information is collected from
the from the operational staff of the business. In such a budget the targets are broken in smaller
targets based on each department (Martin 2014).

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In the case of the company, the management should adopt participative budget approach
as it facilitates free flow of information and empowers the employee to paly a significant role in
the preparation of the budget. Where as in case of Imposed budgets, the senior management sets
and imposes the budget targets on each department and the communication between top level
management and lower staff is not present in case of such a budget. Therefore, the management
should select Participative Budgets.

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Reference
Derfuss, K., 2016. Reconsidering the participative budgeting–performance relation: A meta-
analysis regarding the impact of level of analysis, sample selection, measurement, and industry
influences. The British Accounting Review, 48(1), pp.17-37.
Johansson, T. and Siverbo, S., 2014. The appropriateness of tight budget control in public sector
organizations facing budget turbulence. Management Accounting Research, 25(4), pp.271-283.
Lawson, R.A., Blocher, E.J., Brewer, P.C., Morris, J.T., Stocks, K.D., Sorensen, J.E., Stout, D.E.
and Wouters, M.J., 2015. Thoughts on competency integration in accounting education. Issues in
Accounting Education, 30(3), pp.149-171.
Mah'd, O., Al-Khadash, H., Idris, M. and Ramadan, A., 2013. The impact of budgetary
participation on managerial performance: Evidence from Jordanian university
executives. Journal of Applied Finance and Banking, 3(3), p.133.
Martin, R.L., 2014. The big lie of strategic planning. Harvard business review, 92(1/2), pp.3-8.
Rahman, A.R., 2013. The Australian Accounting Standards Review Board (RLE Accounting):
The Establishment of Its Participative Review Process. Routledge.
Ríos, A.M., Bastida, F. and Benito, B., 2016. Budget transparency and legislative budgetary
oversight: An international approach. The American Review of Public Administration, 46(5),
pp.546-568.