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Financial Statement Analysis and Performance

   

Added on  2020-01-28

23 Pages6068 Words71 Views
Finance
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Management AccountingTable of Contents
Financial Statement Analysis and Performance_1

INTRODUCTION................................................................................................................................4TASK 1.................................................................................................................................................41.1 Different types of cost classification.....................................................................................41.2 Calculating Unit cost and total job cost.................................................................................51.3 Calculating cost of Exquisite using absorption costing technique........................................51.4 Analyzing cost of Exquisite...................................................................................................7TASK 2.................................................................................................................................................82.1 Preparing and analyzing cost report.......................................................................................82.2 Using performance indicators to identify areas for potential improvement..........................92.3 Ways to reduce cost and enhance value, quality.................................................................10Task 3.................................................................................................................................................113.1 Purpose and nature of budgeting process............................................................................113.2 Selecting appropriate budgeting methods for organization.................................................113.3 Preparation of different types of budget..............................................................................123.4 Preparing of cash budget......................................................................................................13TASK 4...............................................................................................................................................154.1 Calculating of variance........................................................................................................154.2 Preparing of reconciliation operating statement..................................................................164.3 Findings to management in accordance with identified responsibility centers...................16CONCLUSION..................................................................................................................................17REFERENCES...................................................................................................................................182
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INTRODUCTIONManagement accounting is a crucial aspect by which management can keep detail recordrelated to accounting information and accordingly, they can take decisions related to pricingstrategies. It is also extended in three areas such as strategic, performance and risk managementwhich provide support to business in order to determine secure position in the marketplace. Thepresent report is based on the case study of Jeffery and Son's which produces many popular andbranded products (Weygandt and et. al., 2009). This has basically two departments such asservice (stores and Maintenance) and production. In this regard, classification of cost has beendone on the basis of element, function, nature and behavior. Further, unit cost and total cost havebeen calculated by using job costing method. In addition to this, purpose and nature of budgetingprocess are also explained.TASK 11.1 Different types of cost classification There are different types of cost involved in the production of products and services.Here, costs have been classified into following categories-Element-According to the element, cost is divided into two different parts such as direct andindirect cost. Main examples of direct cost are heating, lighting and material as well as laborwhich play active role in production activities (Jones and Clatworthy, 2006). On the other hand,indirect costs are those which are indirectly related to the production. It includes smooth toolswhich support production activities indirectly.Function-Cost of production is divided according to the functions to be performed. It consists offinance, production and marketing as well as research and development. Here, cost ofcorporation will be recorded functionally for example in production department overall cost issegregated on the basis of manufacturing and large amount is being utilized for carrying outproduction. Further, in marketing department cost is indulged for development of advertisementand other promotional tools. Nature-Under this, cost is divided into three main parts such as labor, overhead expense andmaterial. All these aspects are related to the overhead expenses. It assists corporation to carry outproduction in a smooth manner. For instance if organization provides payment to labor then it is3
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considered as cost for the business and cost of purchasing material for production shows thenature of cost. Here, cost of all the elements are differ from each other which in turn contributetowards carry out business activities effectively (Cohen and Kaimenaki, 2011).Behaviour- As per the behavior, cost is segregated into three parts such as fixed, variables andsemi variable. The semi variable cost is like telephone bill whereas fixed cost remains constantthroughout the flow of production. In addition to this, variable cost consists of material and laborwhich change in accordance with the volume of production.1.2 Calculating Unit cost and total job costThe unit cost and total job cost have been calculated as per the given information. Here,job cost is calculated as per each job involved in product (Needles, Powers and Crosson, 2008).It consists of both direct and indirect cost so as to calculate sales price of product. Table 1: Unit cost and total job costParticularsAmount (£)Direct cost Direct material200Direct labour270Indirect cost Variable production overhead180Fixed production overhead120Cost per unit770Units to be produced200Total cost 770*200154000Working note:1Fixed production overhead=(£80000 / 20000 hours) * 30 hours =£120As per the aforementioned calculation it has been found that per unit cost of job 444 is£3.85. Accordingly total cost of the job is £770.1.3 Calculating cost of Exquisite using absorption costing techniqueProductionDepartmentsServiceDepartmentBasisofTotalMachineMachineAssemblyStoresMaintenanceApportioningShopXShopY000’sIndirectWagesAllocated362100,00099,50092,50010,00060,0004
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IndirectMaterialsAreaoccupied253100,000100,00040,0004,0009,000LightingHeating&AreaOccupied5010,0005,00015,00015,0005,000RentAreaOccupied10020,00010,00030,00030,00010,000Insurance&MachineryBookvalueofMachinery157,9474,967993497596DepreciationofMachineryBookvalueofMachinery15079,47049,6699,9344,9675,960InsuranceofBuildingAreaOccupied255,0002,5007,5007,5002,500SalariesWorksofNo.employeesof8024,00016,00024,0008,0008,000SubTotals1,035346,417287,636219,92779,964101,056Re-ofserviceStoresDept.39,98229,9879,995(79,964)Maintenance48,50732,33820,211(101,056)Totals434,906349,961250,13300Working NoteLighting&Heating:MachineryX10/50x£50,000—f10,000MachineryY5/50x£50,000—£5,000Assembly15/50x£50,000—f15,000Stores15/50x£50,000=£15,000Maintenance5/50x£50,000=£15,000RentMachinery X 10/50x£100,000=f20,000MachineryY5/50x£100,000 = £10,000 Assembly 15/50x£100,000=5
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£30,000Stores15/50x£100,000=£30,000Maintenance5/50x£100,000=£10,000Insurance&MachineryMachineryX800/1510x£15,000=£7,964MachineryY500/1510x£15,000—£4,966Assembly 100/1510 x :E15,000 —£994Stores50/1510 x £15,000= f497Maintenance 5/1510 x f15,000= £596Depreciation of Machinery MachineryX800/1510x£150,000=£79,470Machinery Y 500/1510 x £150,000 =£49,669Assembly100/1510x£150,000=£9,934Stores50/1510x£150,000—£497Maintenance60/1510 x £150,000=£596InsuranceofBuildingsMachineryX15/50x£25,000—£5,000MachineryY5/50x£25,000=£2,500Assembly15/50x£25,000=f7,500Stores15/50x£25,000—£7,500Maintenance5/50x£25,000=£2,500Salariesofworksmgmt.MachineryX3/10x£80,000=£24,000MachineryY2/10x:E80,000=£16,000Assembly3/10x£80,000=£24,000Stores1/10x£80,000—£8,000Maintenance1/10x£80,000=£8,000Reappointing workings: based on material issues Machinery X 400/800* £79,964 = £39,982Machinery Y 300/800 * £79,964 = £29,987Assembly 100/800 * £79,964 = £9,9995Based on time spent Machinery x 12/25 * £101,056 = £48,507Machinery y 8/25 * £101,056 = £32,3386
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