Financial Statements Analysis & Interpretation

This assignment requires analysis of provided financial statements to calculate key performance indicators like profit and net income. It also delves into the concept of budgeting as a tool for managing revenue and expenses within a country or state. Finally, it examines the influence of the political process on accounting practices and budgetary decisions.

RUNNING HEAD: COST AND CONTROL
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Project Report: Cost and control

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Job costing:
a. Solution:
Normal View:
Direct material control
Debit credit
Particulars amount Particulars amount
balance b/d 23655 WIP 4810
Purchase 6155 balance c/d 25000
29810 29810
Work in process
Debit credit
Particulars amount Particulars amount
Balance b/d 6700
Direct Material 4810 Finished goods 30110
Labour 14800 balance c/d 8200
Factory overhead 12000
38310 38310
Finished Goods
Debit credit
Particulars amount Particulars amount
Balance b/d 8790 Sales 48000
WIP 30110 balance c/d 8900
gross profit 18000
56900 56900
Accounts Payable
Debit credit
Particulars amount Particulars amount
Balance b/d 2345
Cash 6700
Direct material
(purchase) 6155
balance
c/d 1800
8500 8500
Cost of goods sold

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Debit credit
Particulars amount Particulars amount
sales 48000 Gross profit 18000
Balance c/d 30000
48000 48000
Formula View:
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B C D E
Debit credit
Particluars amount Particluars amount
balance b/d =C9-C7 WIP 4810
Purchase =J7 balance c/d 25000
=E9 =SUM(E6:E7)
Debit credit
Particluars amount Particluars amount
Balance b/d 6700
Direct Material =C18-(C16+C17+C14) Finished goods =C24
Labor =3700*4 balance c/d =(1200+7000)
Factory overhead =12000
=E18 =SUM(E15:E16)
Debit credit
Particluars amount Particluars amount
Balance b/d 8790 Sales 48000
WIP =C26-(C23+C25) balance c/d 8900
gross profit =48000*(60/160)
=E26 =SUM(E23:E24)
Direct material control
Work in process
Finished Goods
Manual solution:

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b. Management accounting and history:

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Cost management accounting has been changed with a great level from earlier
concepts. Currently, the concept of cost accounting depict that the cost accounting is an
essential part of accounting of manufacturing companies and thus all related aspect must be
taken into consideration for the betterment of the results. Modern cost accounting concept
depict that the company must look over the budgeting report, various internal and external
aspects, variances etc which could help the company to manage and maintain the extra cost of
the company.
Further, study has been conducted over the great pyramid of Giza to analyze the
concept of modern cost accounting in a great manner (Garrison et al, 2010). Through this
study, it has been found that the great pyramid of Giza had once felled into the category of 7
wonders of the world. This structure has been made by human hands and it is the biggest
structure of this type. Currently a study has been conducted over great pyramid of Giza to
analyze the modern costing concept and it has been analyzed that various aspects and related
factors have been discussed while making this great pyramid of Giza and thus in the modern
cost accounting, if the accountant would look over entire related aspect than it would be easy
for the company to reduce the level of expenses.
Process Costing:
Normal View:
Company Name
Production Report
Process 1 Physical Equivalent Units Total
Flows Material Conversion
Units to account for:
From beginning WIP 2000 600 600
Units started during the year 6000 6000 6000
Total units to account for 8000
Units accounted for:
Completed and transferred
out 7000 7000 7000
Ending WIP 1000 1000 500
Total units accounted for 8000
Total equivalent Units 8000 7500

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Cost to accounts for:
Beginning WIP 3000 2000
Costs incurred during year 30000 60000
Total cost to account for 33000 62000
Cost per equivalent year 4.125 8.2666667 12.3917
Cost of units completed and transferred out 86741.66667
Ending WIP 8258.333333
Company Name
Production Report
Process 1 Physical Equivalent Units Total
Flows Material Conversion
Units to account for:
From beginning WIP 1000 300 300
Units started during the year 7000 6000 6000
Total units to account for 8000
Units accounted for:
Completed 7250 7250 7250
Ending WIP 750 750 225
Total units accounted for 8000
Total equivalent Units 8000 7475
Cost to accounts for:
Tx-in $ 8,000
Beginning WIP $ 3,000 $ 4,000
Costs incurred during year $ 35,000 $ 45,000
Total cost to account for $ 46,000 49000
Cost per equivalent year 5.75 6.5551839 12.3051839
Cost of units completed and transferred out 89212.5836
Ending WIP 5787.41639

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Company Name
Production Report
Process 2 Physical Equivalent Units Total
Flows Material Conversion
Units to account for:
From beginning WIP 1000 300 300
Units started during the year 7000 6000 6000
Total units to account for 8000
Units accounted for:
Completed 7250 7250 7250
Ending WIP 750 750 225
Total units accounted for 8000
Total equivalent Units 8000 7475
Cost to accounts for:
Tx-in $ 8,000
Beginning WIP $ 3,000 $ 4,000
Costs incurred during year $ 35,000 $ 45,000
Total cost to account for $ 46,000 49000
Cost per equivalent year 5.75 6.5551839 12.3051839
Cost of units completed and transferred out 89212.5836
Ending WIP 5787.41639
Formula View:

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B C D E F G
Process 1 Physical Total
Flows Material Conversion
Units to account for:
From begining WIP =D13 =D36*30% =D36*30%
Units started during the year =D14 6000 6000
Total units to account for =D36+D37
Units accounted for:
Completed and transferred out =D15 7000 7000
Ending WIP 1000 1000 =D42*50%
Total units accounted for =D38
Total equivalent Units =E41+E42 =F41+F42
Cost to accounts for:
Begining WIP 3000 2000
Costs incurred during year 30000 60000
Total cost to account for =E48+E49 =F48+F49
Cost per equivalent year =E50/E44 =F50/F44 =E51+F51
Cost of units completed and transferred out =D41*G51
Ending WIP =E42*E51+F42*F51
Equivalent Units
Company Name
Production Report
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J K L M N O
Process 2 Physical Total
Flows Material Conversion
Units to account for:
From begining WIP =F13 =L36*30% =L36*30%
Units started during the year =D41 6000 6000
Total units to account for =L36+L37
Units accounted for:
Completed =L43-L42 =L41 =M41
Ending WIP 750 =L42 =L42*30%
Total units accounted for =L38
Total equivalent Units =M41+M42 =N41+N42
Cost to accounts for:
Tx-in 8000
Begining WIP =F20 =F21
Costs incurred during year =F23 =F24
Total cost to account for =M48+M49+M47 =N48+N49
Cost per equivalent year =M50/M44 =N50/N44 =M51+N51
Cost of units completed and transferred out =L41*O51
Ending WIP =M42*M51+N42*N51
Company Name
Production Report
Equivalent Units
Manual solution:

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Joint costing- decision making:

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a) Normal View:
Product A Product B
Material 60000 40000
Cost
$
1,87,500
$
62,500
Further
Processing
$
45,000
$
25,000
Total cost
$
2,32,500
$
87,500
Total units 60000 40000
Cost per unit
$
3.88
$
2.19
Selling price per
unit
$
4.50
$
2.54
Gross margin rate 16.13% 16.13%
Formula View:
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B C D
Product A Product B
Material 60000 40000
Cost =187500 =250000-C5
Further Processing 45000 25000
Total cost =C5+C6 =D5+D6
Total units =C4 =D4
Cost per unit =C7/C8 =D7/D8
Sellinf price per unit 4.5 =D9*116.13%
Gross margin rate =(C10-C9)/C9 0.1613
Manual solution:

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b) Report:

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If the company get an offer to buy all the material related to product A in $ 2 per kg
than the total cost of the company would be $ 120000 whereas the current cost of material A
is $ 187500. This means that the offered cost is quite lower than the current cost. Whereas if
the product is further manufactured by the company to product the product “C” than the total
cost of the company would b $ 165000 and the profit of the company would be $ 105000 so
it is suggested to the company to accept the proposal as the high profit would be get by the
company in that case.
Variance analysis:
a) Standard cost variance:
Normal View:
Calculation of material purchase price variance
Standard Price (A)
$
6
Actual Price (B)
$
6.20
Actual quantity (C) 2,20,000
DM purchase price variance
(A-B)*C
$ -
44,000.00
Unfavourable
Calculation of material usage variance
Standard Quantity (A) 214500
Actual Quantity (B) 197000
Standard Price (C)
$
6.00
DM material usage variance
(B-A)*C
$ -
1,05,000.00
Unfavourable
Calculation of actual direct labour rate per hour
Direct Labour Variance 1950
Standard rate 20
Actual Hours 40000

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Actual direct labour rate per
hour 20.05
Books of KLINGTON limited
Journal Entries
Raw material $ 13,64,000
Accounts Payable
$
13,64,000
Direct Labour a/c 801950
Cash 801950
Formula View:
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B C
Standrad Price (A) 6
Actual Price (B) =C18/C17
Auctual quantity (C) =C17
DM purchase price varinace (A-B)*C =(C25-C26)*C27
=IF(C28>=0, "Favorable", "Unfavourable")
Standrad Quantity (A) =19500*11
Actual Quantity (B) 197000
Standard Price (C) =C25
DM material usge varinace (B-A)*C =(C34-C33)*C35
=IF(C36>=0, "Favorable", "Unfavourable")
Direct Labour Variance 1950
Standrad rate 20
Actual Hours 40000
Actual direct labour rate per hour =((C43*C42)+C41)/40000
Calculation of material purchase price varinace
Calculation of material usage varinace
Calculation of actual direct labor rate per hour

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B C D
Raw material =C18
Accounts Payable =C51
Direct Labour a/c =C43*C44
Cash =C54
Books of KLINGTON limited
Journal Entries
Manual solution:

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b) Report:

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Variance analysis is an investigation over the deviation of actual figures and the
planned or forecasted behaviour in the management accounting and budgeting report.
Variance analysis study is essentially done to look over the actual difference among the
planned and actual behaviour which indicates about the performance and management quality
of a business.
Variance analysis helps a business to manage the various aspect of the company to
reduce the cost and time consumption of the company. This study is helpful for the company
to analyze the lose points of the company. Some of the purpose of variance analysis is as
follows:
1. Relationship:
Variance analysis study help the company to analyze the relation among two and
more aspects and help the company to manage the relation and affect into change
into one aspect over other. Through this study, it becomes easy for the company to
manage the related factors of the company (Kaplan & Anderson, 2013).
2. Forecasting:
Variance analysis study helps the company to predict the future changes into the
external market and internally in the company. Through this study, it becomes easy
for the company to analyze the changes which could take place into the
performance of the company.
3. Performance:
Variance analysis study helps the company to analyze the performance of the
company according to the budgeted behaviour and actual behaviour of the
company. Through this study, it becomes easy for the company to analyze the
performance of the company on the basis of various aspects.
4. Maintain the cost:
Variance analysis study helps the company to manage and maintain the cost and
revenue of the company. Through this study, it becomes easy for the company to
analyze the changes which has been taken place into the operations of the company
and thus it becomes easy for the company (Weygandt, Kimmel & Kieso, 2015).
5. Competitive advantage:

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Variance analysis study helps the company to predict the future changes into the
external market and internally in the company. Through this study, it becomes easy
for the company to maintain the competitive advantage.
Further, it has been analyzed that various categories of variance analysis are available
for the company to make a better decision and use the variance analysis study in a proper
manner. Overhead variance analysis is also one of the parts of the variance analysis which
helps the company to make a control over all the indirect expenses of the company.
The above are the formulas of overheads. This helps the company to manage over the
entire indirect expenses such as indirect material, indirect labour and other indirect expenses.
Thus it has been found that study of variance analysis is very important for a manufacturing
company to reduce the level of expenses.
Budgeting:
a) Financial model to forecast Income Statements:
Normal View:
Budgeting report
20X1 20X2 20X3 20X4 20X5 20X6
Sales 30000 32400 34992 37791.4 40000 40000
Unit Selling price 6.5 6.63 6.968 7.384 8.127 8.775
Sales Price 195000 214812 243824 279051 325080 351000
Less: cost of goods sold 150000 165240 187557 214655 240800 260000
Gross Profit 45000 49572 56267.1 64396.5 84280 91000

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Less:
General and administrative
expenses 27300 30073.7 34135.4 39067.2 45511.2 49140
Dividend 6972.73 7681.16 8718.56 9978.2 15272.6 16490.3
Profit 10727.3 11817.2 13413.2 15351.1 23496.2 25369.7
Less: Tax 4290.91 4726.87 5365.27 6140.43 9398.5 10147.9
Net Profit 6436.36 7090.3 8047.91 9210.65 14097.7 15221.8
Formula View:
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B C D E F G H
20X1 20X2 20X3 20X4 20X5 20X6
Sales 30000 =C6*108% =D6*108% =E6*108% 40000 40000
Unit Seling price =5*130% =5.1*130% =5.36*130% =5.68*130% =6.02*135% =6.5*135%
Sales Price =C6*C7 =D6*D7 =E6*E7 =F6*F7 =G6*G7 =H6*H7
Less: cost of goods sold =C6*5 =D6*5.1 =E6*5.36 =F6*5.68 =G6*6.02 =H6*6.5
Gross Profit =C8-C9 =D8-D9 =E8-E9 =F8-F9 =G8-G9 =H8-H9
Less:
General and administratuve expenses =C8*14% =D8*14% =E8*14% =F8*14% =G8*14% =H8*14%
Dividend =(C10-C13)*65/165 =(D10-D13)*65/165 =(E10-E13)*65/165 =(F10-F13)*65/165 =(G10-G13)*65/165 =(H10-H13)*65/165
Profit =C10-(C13+C14) =D10-(D13+D14) =E10-(E13+E14) =F10-(F13+F14) =G10-(G13+G14) =H10-(H13+H14)
Less: Tax =C15*40% =D15*40% =E15*40% =F15*40% =G15*40% =H15*40%
Net Profit =C15-C17 =D15-D17 =E15-E17 =F15-F17 =G15-G17 =H15-H17
Budgeting report
Manual solution:

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b) Political process:

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Budgeting is a technique which is used by the states and countries to manage
the expenses as well as revenue in such a manner that the expenses could be done
according to the future revenue of the country or state. Budgeting techniques help the
country to prepare and present the budget in such a manner that a better strategy could
be made through it for maintain the control over expenses of the country (Rasiah,
2011).
The above carton image depict about the changes in the budgeting report
which has been done by the Australian government after analyzing the market
situation and predicting about the future changes. This depict that company has
palnned to invest some amount into the new departments to manage the future issues
and risk which could be faced by the country.