Implementation of Smart Looks Ltd and Techniques for Income and Expense Balance

This report presents various tools and techniques for implementing Smart Looks Ltd, aiming to achieve income and expense balance. It also explores different aspects of management accounting for optimum resource utilization and fund allocation. Through this study, learners gained knowledge on several methods for effective business operations management.

Managing
Accounting
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TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
TASK 1 ...........................................................................................................................................3
1.1 Classification of costs............................................................................................................3
1.2 Computation of total costs and unit cost for production of goods.........................................5
1.3 Inventory costing methods.....................................................................................................5
1.4 Analyzing cost data................................................................................................................7
TASK 2............................................................................................................................................7
2.1 Report of cost of goods sold..................................................................................................7
2.2 Performance indicators for measuring company's effectiveness...........................................8
2.3 Cost and quality management................................................................................................8
TASK 3............................................................................................................................................9
3.1 Budget and its significance....................................................................................................9
3.2 Methods for preparing budgets............................................................................................10
3.3 Budget for the three months to 30 June...............................................................................10
3.4 Cash budget for decision making process............................................................................12
TASK 4..........................................................................................................................................12
4.1 Marginal costing method for price determination related to new product line....................12
4.2 budgeted profit and actual profit for Smart Look ltd...........................................................12
4.3 Budgetary report..................................................................................................................12
CONCLUSION..............................................................................................................................12
REFERENCE.................................................................................................................................13
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INTRODUCTION
Managing accounting is composition of costing and budgeting approach that is useful for
forecasting and decision making for further business operations. However, through this system,
different ideas are created for implementation of entity and increasing its efficiency. The present
report is based on understanding managing accounting tools to recognize performance of Smart
Looks Ltd for decision making process. It is clothing supplier company of UK to provide clothes
to several retailers. Various costing methods are to be understood to prepare income statement.
Including this, methods to analyze financial position of organization and decision making for
further activities is to be described. Moreover, through this assignment, effective cost and quality
management is presented for adequate allocation of resources and fund. Along with this,
importance of budget relate to forecasting for implementation of entity is to be expressed.
However, overall presentation of Smart Looks Ltd is to understand by using costing and
budgeting techniques. Thus, learners are able to understand managing accounting tools regarding
organization's effectiveness by studying this report.
TASK 1
1.1 Classification of costs
A) Cost classification:- Cost is considered as monetary valuation for resource
management, time consuming and risk incurred. Therefore, cost of any product is related to
pricing for producing goods and services. In this regard, management accountant of Smart Looks
Ltd applies costing to set price of any product that impacts on productivity and profitability of
firm (Chenhall and Moers, 2015). Prices are of different kinds such as fixed, variable and semi-
variable. As per the given scenario, several kinds of cost for Smart Looks Ltd can be described in
tabular form as:-
Fixed cost Variable cost Semi-variable cost
Factory's supervisor's wages Material for cost Delivery dealers' pay
Office rates Power for sewing machines in
factory
Factory heating
Factory rent Packing materials
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Telephone charges
Fixed costs:- These are determined prices for production and supplement of goods under
which less possibilities over fluctuations is obtained. Therefore, these are decided expenses and
overheads on which Smart Looks Ltd has to incurred charges for business operations. However,
there are different costs are incurred by clothes provider company on which on fluctuations are
created (Christ and Burritt, 2013). Under this given scenario, some examples for fixed cots are
given such as; office rent, factory's supervisor's wages etc. These are fixed expenses of entity on
which business operations are obtained. Hence, fixed cost is related to operating business
activities on fixed operations.
Variable costs:- These are flexible costs that are changes by time. It is depend on
utilization of resources and fund for business operations. In this regard, various dynamics are
occurred for expenditures related to production and supplement of clothes. However, it includes
electricity bill, telephone bill on which Smart Looks Ltd has to incurred expenditures. Including
this, these prices are variable on the basis of which short term decision making is implemented.
Therefore, varieties of costing and forecasting is presented for further expenses and investments.
Semi-variable costs:- Under this cost classification, changing system for cost status is
impacted by which type of cost can be changed. In this process, variable costs can be converted
into fixed therefore company's different ideas can be created regarding costing and decision
making for further business operations.
Thus, managing accounting tool as cost are classified into different categories thereby
various decision making for costing and budgeting is presented (De and et.al., 2014). However,
these are tools which are benefited for price determination and presenting financial position of
Smart Looks Ltd. In this regard, on the basis of this classification, various decision making for
various time periodicity is determined effectively.
B) Other ways of cost classification:- Except above mentioned costs, different costs are
determined for business operations. For example; product and prime cost, relevant and irrelevant
costs, direct/indirect costs etc. Under this system, product cost is relate to prices incurred on
purchasing materials and incurring charges for production and distribution system. Including
this, prime cost is composition of direct costs including expenses incurred on direct material,
labor and overhead. Therefore, overall expenditures on direct costing is evaluated through this
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method. Moreover, relevant cost is useful for decision making process while irrelevant costing is
not required for decision making process. In this regard, these kinds of cost classification is
related to price determination for expenditure and forecasting for gained revenue.
1.2 Computation of total costs and unit cost for production of goods
Management accountant of Smart Looks Ltd evaluates total cost incurred on business
operations including fixed and variable costs. On the basis of this, further planning procedure is
processes for production and distribution system (Fullerton, Kennedy and Widener, 2013).
Therefore, different costs and unit per cost is measured by addition of variable and fixed
overheads. In this regard, cost is computed as:-
Number of
units
Material
(5) Labor (6)
Total variable
cost (A)
Fixed cost
(B)
Total
cost Unit cost
15000 75000 90000 165000 50000 215000 14
20000 100000 120000 220000 50000 270000 14
25000 125000 150000 275000 50000 325000 13
300000 360000
Total cost 660000 50000
Interpretation:- It has been interpreted that Smart Looks Ltd has expenses on fixed
overhead as 50000. Including this, purchasing price for material is 5 per unit and labor cost is 6
per unit. In respect of this, different cost units are presented such as 15000, 20000 and 25000.
Therefore, cost on each unit for material and labor is measured differently. In this regard, total
material cost is 300000 and total labor cost is 360000. Thus, total variable cost is obtained as
660000. Hence, total cost incurred on business operations is 215000, 270000 and 325000. As per
this calculation, further planning is created for production of new product line for Smart Looks
Ltd effectively.
Unit cost of production of goods:- Under this process system, unit cost per material and
labor is obtained by dividing total cost to each number of unit. It is measured in cost per unit that
generates ideas for costing and determining cost per unit (Grabner and Moers, 2013). In this
process, unit costs are measured as 14, 14 and 13 to incurred price on material and labor.
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1.3 Inventory costing methods
Management accountant of Smart Looks Ltd uses different inventory costing methods as
per which various ideas are generated for management of inventories. There are various
methods used for inventory costing such as first in, first out (FIFO), Last in, first come (LIFO)
and so on. Therefore, inventories are managed by first produced goods to be supplied at first
while in LIFO terms, it is recognized that last come products are supplied at first time (Heizer
and Barry, 2013). Thus, as per given data, these points can be understood as follows:-
Date Description Units Unit cost Total cost
1st January Beginning inventory 500 20 10000
18th January Inventory purchased 800 24 19200
25th January Inventory purchased 700 26 18200
TOTAL 2000 47400
Average 667 15800
 First in, first out (FIFO):- Under this system, products which are produced at first time
get supplied. It is time consuming and suitable for increasing in demand as to attracting
customers at large scale related to different quality features of products (Hope, 2016). As
per given calculated data, it is determined that beginning inventory units are 500 and cost
for production is 20. Therefore, total cost incurred in first time is 10000. Therefore,
according to this structure, it has been recognized that overall units are produced in the
month of January is 1400 under which at the beginning 500 units produced. Therefore,
company gains profit by applying this method. Last in, first out (LIFO):- Through this system, in the last week of January units
produced are obtained by which 700 units obtained. It is 50% of overall produced units
and cost incurred for this production is 18200. Thus, LIFO method is appropriate for
attracting customers for demand for innovative new products (Ibrahim and Yaya, 2016).
However, through this method, effective outcome can be obtained. In this regard,
purchased inventories are 18200 that impacts on productivity and profitability of firm.
 Average cost method:- It is great estimation for further business operations under which
average of cost is evaluated. It is calculated by division of total costs incurred for
inventory purchased to number of variables (Ismail and King, 2014). Therefore, average
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cost is evaluated as 15800. In this regard, average of units is determined as 667 so that
average cost of production is effective. Therefore, on the basis of this costing evaluation,
it is determined that organization can expand and also can increase its efficiency through
producing large number of inventories. However, different decisions are made on the
basis of these methods that impacts on creating different ideas for further business
operations.
1.4 Analyzing cost data
Management accountant of Smart Looks Ltd evaluates cost incurred on material and
labor. It is determined in specific manner by effective calculation. As per the given data,
different number of units are 15000, 20000 and 25000 on each material as 5 and on each labor as
6. Therefore, material costs are 75000, 100000 and 125000. Including this, labor costs incurred
as 90000, 120000 and 125000 thus total labor cost incurred by organization is 360000. Further,
total variable cost is determined by addition of material and labor costs therefore for each unit,
different variable costs are presented such as 165000, 220000 and 275000. Including this, fixed
costs incurred for production of clothing is recognized as 50000. Thus, for each unit, total costs
are measured differently as 215000, 270000 and 325000. In this regard, total cost incurred for
new product line is evaluated by which cost per unit is measured through dividing total cost to
each number of unit. It is measured in cost per unit. Hence, for each cost unit, different outcomes
are obtained as 14,14 and 13. On the basis of this cost evaluation, several ideas are generated for
further business operations in the that affects production and distribution system of clothes can
be presented adequately. However, it is useful for optimum utilization of fund and resources so
that balance between incurred expense and gained revenue can be achieved. In accordance to
this, production d supplement for new product line can be generated efficiently that affects on
organization's effectiveness (John, Etim and Ime, 2015).
TASK 2
2.1 Report of cost of goods sold
As per the above mentioned data interpretation, it has been analyzed that Smart Looks
Ltd uses different approaches for production of goods. In this regard, critically evaluation on
production and supplement is obtained and further goods sold is presented. However, total units
are sold in January is 1400 and cost incurred for production is 47400. Therefore, effective
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organization's position is obtained that impacts on further business operations (Kaplan and
Atkinson, 2015). In accordance to this, cost of goods sold is presented that is interrelated with
inventories purchased in the beginning and in the final time. Thus, different methods are used for
producing products as well decisions are made regarding production of goods effectively.
2.2 Performance indicators for measuring company's effectiveness
Being senior manager of Smart Looks Ltd performance of organization is analyzed
including customer experience, supplying product quality, operations efficiency and maintenance
spending. In this process, management accountant of entity recognizes different factors as per
which company's effectiveness can be obtained. Moreover, according to costing and budgeting
factors, several ideas are created for forecasting and decision making process. In accordance to
this, productivity and profit earning capacity of organization get impacted (Novas, Alves and
Sousa, 2016). However, by getting customers' views on product quality and measuring business
operations, ideas are generated for incurring expenditures and gaining income adequately. It is
helpful to create balance between income and expenses of entity. Therefore, performance of
Smart Looks Ltd related to market value is obtained efficiently. In this regard, cost effectiveness
and increasing in profitability is achieved for maintenance of customer dealing services.
Similarly, efficiency in production and distribution of goods can be gained to present
organizational structure. In addition to this, supplying and product quality is implemented that
affects on market value of organization. However, efficiency in business operations and various
tools for expansion of company is evaluated related to price determination strategies. In this
process, maintenance to repair entity's effectiveness can be obtained effectively. Therefore,
performance of organization is increased through this process by which different ideas can be
created. It is interrelated with enhancing product quality and better customer dealing services as
well business operations can be more effective that affects productivity and profitability of firm.
In addition to this, cost quality control is recognized and effectiveness of firm get affected at
high level. Thus, different performance indicators are useful for measuring entity's effectiveness.
2.3 Cost and quality management
Management accountant of Smart Looks Ltd applies different strategies for cost
effectiveness and increasing quality as well value for efficient business operations. In this
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process, management of price of products as well quality is obtained. Including this, cost control
techniques are used such as economic order quantity and just in time. These are valuable for
adequate price determination and presenting financial position of organization. However, cost is
get managed effectively that impacts on productivity and profitability of firm. Therefore, quality
used in material for production and distribution of goods can be enhanced efficiently to increase
market value of entity and clothing provided by firm (Otto and et.al., 2013). In this regard,
different management tools are applied for increasing quality services of organization. Including
this, overall business performance and different operations are managed efficiently. In
accordance to this, different approaches are applied for cost and quality management that affects
to create good reputation of organization in market. However, pricing is determined as per
product value and various strategies to be implemented as well developing environment of entity
can be created at high level. Therefore, cost control and total quality management of entire
business operations are able to get managed through this system. In this regard, high level of cost
can be reduced and efficiency in pricing terms can be achieved that affects on productivity and
profitability of clothing provider company. In this way, various strategies of business
organization as marketing and competitive can be enhanced to gain maximum customer
satisfaction. However, cost and quality of products is able to increase effectiveness of entity.
Thus, cost and quality management for business organization is valuable for effective operations
of business entity that affects productivity and profitability of firm.
TASK 3
3.1 Budget and its significance
Budget is an approach for forecasting and decision making for further business
operations. It is valuable to present actual business performance as well increasing different
factors of organization such as productivity, profitability, customer dealing services and creating
positive environment of entity. Under this system, management accountant of Smart Looks Ltd
prepares budget by analyzing actual organizational structure related to various activities.
However, several kinds of ideas are generated to increase productivity and profit earning
capacity of firm. Including this, it is significant for expansion of entity at high level. However,
balance between production and supplement of goods can be created (Quattrone and Paolo,
2016). In accordance to this, optimum utilization of resources and fund is able to achieve at large
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scale. Hence, budget is a technique to forecasts and decision making to achieve effectiveness of
organization. Along with this, business, competitive and marketing strategies of entity can be
increased at high level. Therefore, importance of budget can be understood as below:-
 Present actual business performance
 Helpful for optimum utilization of resources and fund
 useful in increasing productivity and profitability
 Valuable to create balance between incurred expenses and gained revenue
 Enhancing business and competitive strategies
 Creating positive and peaceful environment of firm
 Achieving maximum level of customer satisfaction
 Managing overall business operations
 Encouraging employees better work performance and coordination in working in team
 Improving communication among employees of the organization
Therefore, on the basis of analyzing actual business performance, different ideas are generated
for operating business activities. In this regard, various factors get affected such as customer
satisfaction, balance of production and distribution of goods, effective income and expenditure
balance, increasing in productivity and profitability and so on. Thus, various components get
affected through increasing in demand for products and proper allocation of resources as well
fund can be obtained. Hence, preparing budget is helpful for enhancing quality services of
clothing can be gained at high level. In this regard, best use of resources and fund effectively.
Thus, budget is helpful for management of entire business operations and increasing efficiency
of organization at large scale (Tucker, 2016). Including this, budget is useful for creating
effective communication between senior and junior employees of Smart Looks Ltd. Therefore,
organization can expand at high level however effective environment of firm can be created that
influences development of entity. In this regard, several tools and techniques are used for
forecasting and decision making as per which implementation of action plans can be obtained by
proper management of entire business operations. Hence, budgeting is considered as decision
making process for further business operations and increasing in efficiency of quality products
supplied by organization at high level.
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3.2 Methods for preparing budgets
 Zero based budgeting: The Zero based budgeting is a tool of budgeting in which expenses
are required to be justified in each cycle of the budget. In the Zero based budgeting the
making of budget starts by taking Zero as a base. Thus, it can be said that this type of
budgeting starts from the scratch by taking Zero base (De and et.al., 2014). It makes a
revaluation of each item that is displayed in every item of cash flow statement. Thus, the
expenditures can be justified by the department. In this type of budgeting all expenses are
calculated based on actual ones rather than any incremental basis. This method makes an
attempt to explain each expenditure with detail justification so that revenue generation
can be monitored. In this method of budgeting, the previous balances are not carried
forward. Thus, it is more concentrated towards the identification of task and allotting the
finance for that.
 Fixed budget: As the name suggests, it is a budgeting process which does not use to
change as per the alterations, increase or decrease occurring in the sales or other similar
activities. This is also known as the static budget. This type of budget gives the provision
of measuring the long and short term budgets. It attempts to allocate the funds to different
overheads on an advance basis so that at the end of period, the left over money can be
taken as an amount of profit. This method of budgeting gives a great facility of making
comparison on constant basis (Chenhall and Moers, 2015). Thus, by making a
comparison, the organisation can easily make the decision about their performance that in
which month, their cash flow is better. As per this method, the strict and tight budget is
followed because of which many unproductive investments can be avoided.
Variable budgeting: The variable or Flexible method of budgeting is the most common method
of budgeting which helps in making desired changes in the budget as per the requirements. This
method helps in making comparison so that actual cost allowed for performing various activities
can be compared with the achieved level of activities. It is mainly based on actual amount of
total output in current period (Christ and Burritt, 2013). This method is mostly preferred by the
business owners as it allows making adjustments easily in the desired manner. It takes the
revenues and expenditures of current period based on production and makes an estimation of
changes that will occur through alterations in output. This helps in better evaluation of various
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activities so that company can easily identify the productive and unproductive areas. Usually, the
major aim of making this budget is to make a prediction of effects occurred due to changes in
cost.
As per the above analysis, the Flexible or variable budgeting is suitable for the Smart
Looks organisation. This will help the mentioned entity in making different adjustments in the
budget so that they can fully utilize its advantages of not losing any productive project due to
tight budget.
3.3 Budget for the three months to 30 June
Sales budget
Month Sales Unit Estimated data
April 2000 30 60000
May 1500 30 45000
June 2500 30 75000
Production budget
Month Production Unit Estimated data
April 150 21 3150
May 250 21 5250
June 100 21 2100
Inventory/raw material budget
Month
cost
Raw material Unit Estimated data
April 750 7.5 5625
May 1000 7.5 7500
June 1200 7.5 9000
Labor budget
Month Labor cost Unit Estimated data
April 150 9 1350
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May 250 9 2250
June 100 9 900
Total overhead budget
Month Overhead Unit Estimated data
Fixed
overhead
Overall estimated
data
April 150 21 3150 2000 5150
May 250 21 5250 2000 7250
June 100 21 2100 2000 4100
3.4 Cash budget for decision making process
April May June
Opening balance 1200 -5895 41075
Sales 60000 7500
TOTAL 1200 54105 48575
Payment of raw material 2520 4200 1680
Payable 630 1050
Variable expenses 2575 3625 2050
Payable of variable expenses 2575 3625
Fixed overhead 2000 2000 2000
TOTAL 7095 13030 10405
Net cash balance -5895 41075 38170
TASK 4
4.1 Marginal costing method for price determination related to new product line
Cost Unit
Standard
position
Actual
data
Cost Unit Actual data
Direct
material 12500 30 375000 141360 30400 233640
Direct labor 5000 18 90000 99000 15840 -9000
a) Budgeted profit:- Under this technique, budgeted data is obtained by which
forecasting and decision making is determined. Therefore, through this data interpretation, it has
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been recognized as standard position (Kaplan and Atkinson, 2015). Hence, management
accountant of Smart Looks Ltd identifies actual business performance as per which these data is
estimate to be gained. In this regard, for direct material cost will be incurred as 375000 while for
labor cost, incurred expenses will be 90000.
b) Actual profit:- In this process, actual expenditure incurred are analyzed as for
materials is 233640 and for labor (-) 9000. In accordance to this, actual organizational structure
is obtained that is compared to standard that impacts on further business operations.
4.2 budgeted profit and actual profit for Smart Look ltd
c) Material and sub variances:- Under this system, variances is determined between
actual and standard position that generates different ideas for further business operations
(Grabner and Moers, 2013). It is interrelated with optimum utilization of resources and fund.
d) Operating statement:- Through this system, business operations are implemented for
effective organization's structure (Ibrahim and Yaya, 2016). It is decision making process is
prepared for operating business operations activities.
4.3 Budgetary report
To
Board Of Director
Smart Looks Ltd
Budgeting is best tool for forecasting and decision making for further implementation.
However, proper planning procedure is applied that affects on production of goods. Including
this, different ideas are created for increasing productivity and profitability of Smart Looks Ltd.
In this regard, management accountant sets target to encourage employees for effective
relationship among employees of the organization.
CONCLUSION
The report is concluded that management accounting is essential for forecasting and
decision making for further business operations. Different management accounting tools as
costing and budgeting is determined. Significance of costing and budgeting is considered.
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However, systematic data interpretation for cost calculation and generating different ideas for
further business operations is recognized. Including this, utilizing various tools for
implementation of Smart Looks Ltd and different techniques to create income and expense
balance is presented. Moreover, through this study, learners learned several aspects of
management accounting for optimum utilization of resources and fund is obtained. Thus, the
report is able to understand several methods for management accounting for overall management
of business operations effectively.
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REFERENCE
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