Management Accounting Costing and Budgeting

MANAGEMENT
ACCOUNTING COSTING
AND BUDGETING
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INTRODUCTION
The accounting process under which financial data are recorded, analysed and reviewed
by the managers of the company able to take internal business decisions is known as
management accounting. It considers in the business entity for manage the overall financials as
well as forecast for the upcoming times. In the current report Smart Looks Limited company is to
be taken into account for analsye and explain different concepts of the management accounting.
In this report, different kinds of costs are to be classified as per their criteria of segregation.
Different kinds of budgets like as sales, production, cash, overhead etc. are prepared and
reviewed here for the Smart Looks firm. In addition to this, at the current study there are
different kinds of budgeting methods such as zero based, flexible and fixed are to be explained
which supports to frame the budget statements. Moreover costs such as variable, fixed and semi
variable are analysed and after adding such all cost of total production and units expenses both
determined.
TASK 1
1.1 (A) Differentiate the costs and expenses
Variable cost and expenses Semi-variable cost and
expenditures
Fixed cost of production
Power for sewing machine
(level of power and
electricity changes as per the
units of production)
Deliver delivers pay
(In some situation cost of
deliver is fixed but due to
enhancing production by
high level then gets fluctuate
(Kaplan and Atkinson,
2015).)
Factory rent
(As per the signed agreements
between land lord and Smart
Looks rent of factory fixed)
Material for clothes
(when more number of cloths
produce then fabric and raw
materials also require in
more
quantity)
Factory heating
(Up to some extent heating
and fuel cost is fixed but
because of increasing
production at the higher level
then change)
Factory supervisor wages
(As per the signed contract
wages and salary fixed)
Packaging material Telephone charges (basic Office rates
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(Higher the number of cloths
lead to increase costs of
packaging and fewer units
incur low cost of packaging
the products)
cost and bills of the
telephone are fixed for each
month but as higher and
lower consuming lead to
increase and decline
respectively (Islam and Hu,
2012).)
(It is not related to the
production level and due to
this it remains same and not
varied)
1.1 (B) Other methods to segregate costs of the production
In the above section there are costs are to be segregated in basically three concepts which
are such fixed, variable as well as semi-variable expenses. Apart from this all there are other
ways on the basis of total expenses associated in the Smart Looks Limited. Varieties of the other
costs as well as expenses on the basis of which number of expenditures are classified are like as
prime costs, opportunity costs, sunk costs, conversion expenses etc. Furthermore, by considering
the direct as well as indirect costs and overheads expenses also total costs are classified at the
workplace. In addition to this, among the overheads also there are different expense comes which
are such as manufacturing, fixed as well as variable overheads (Hammad, Jusoh and Yen Nee
Oon, 2010).
1.2 Calculating the total expenses along with the unit cost
At the current task there are different kinds and varieties of costs comes under the
production and manufacturing process. After adding all types of expenses the company able to
assess the total cost of products which are stitched and manufactured in the firm of Smart Looks
Limited. Further, after consider the total cost as well as level of outputs the managers able to
assess cost and expense of every unit. Moreover, total and unit expenditure of the firm are stated
as below:
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At the current situation there are total costs of production and cloths are like as 215000
GBP and 270000 GBP for the units like as 15000 as well as 20000 units respectively. Apart from
this at the level of 25000 units total cost is calculated such as 325000. At here fixed cost is
constant which is worth of 50000 GBP at the every level of production and variable cost varied
in accordance to outputs level. The cost of total production is to assessed and determined with
the help of below mentioned formula:
Total cost and expense (TC): Total variable cost (TVC) + Total fixed cost (TFC)
Further, cost of each and every unit is worth of 14 GBP, 14 GBP as well as 13 GBP at the
level of output such as 15000 units, 20000 units and 25000 respectively. Cost of every unit is to
be determined using formula such as: Total cost of production / Total production.
1.3 Methods of inventory and stock management
There are mainly and basically three kinds of the methods and techniques for assessing
the value of stock and inventory available at the workplace. Generally three tools which are
adopted by Smart Looks Limited for derive stock value are like as LIFO, FIFO and weighted
average which are presented below:
 LIFO: The method under which the stock which comes at the last within business and
sale at the first time is called the last in first out method (Hinkel and et.al., 2014) In the
current case scenario of the Smart Looks company value of the stock and inventory is
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worth of 10000 GBP as well as 19200 GBP which is for the units of 500 and 800
respectively. On the basis of current stock valuation technique the business able to
determine effectual and proper value and takes the business decisions in the proper way.
Further, old and higher inventory lead to reduce productivity and liquidity of the firm due
to which LIFO method is better. FIFO: Another method for valuing the level of inventory and stock is such as first in first
out under which beginning stock is to be sold at the earlier and preference to the new and
current inventory is to be given (Clinton and White, 2012). At this technique stock value
of the Smart Looks company is such as 18200 GBP which is lower as compare to above
mentioned method. Higher the value of stock is better and due to which cause the above
discussed method is more effectual. Apart from this, after adopting the existing stock
valuation way the company able cannot sale the old stock which lead to decrease its
efficiency for generating revenue in the textile industry.
 Weighted Average: Combination as well as mixture of LIFO and FIFO both the methods
is known as weighted average technique where the firm can assess average value of the
overall stock (Eichfelder and Schorn, 2012). In the business entity Smart Looks average
value of the available stock comes worth of 15800 GBP which is lower from both the
tools. Hence, due to this overall stock valuation fall down this is not good for the firm as
compare to others. At this level of the stock value average production units are such as
667 units at the end of the financial year.
1.4 Analyse as well as interpret the costs using graphical representation
In the Smart Looks firm there are variable as well as fixed both kinds of costs associated
under stitching and producing cloths. After adding such both expenses total cost is to be
determined which shows and presented using the graphs stated below:
Total variable costs:
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