Management Accounting Research

This assignment delves into the field of management accounting, examining its core principles, research methodologies, and practical applications. It requires students to analyze various research papers and textbooks on topics like earnings management, budgeting systems, cost management, and strategic management accounting. The assignment encourages critical thinking about current trends and challenges in management accounting practice.

MANAGEMENT ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION .............................................................................................................1
Task 1.............................................................................................................................. 1
1.1 Classification of different types of cost...................................................................1
1.2Calculation of unit cost and total job cost for job 444..............................................3
1.3Calculation of cost of Exquisite ..............................................................................4
1.4 Analysing the cost data of Exquisite by using appropriate techniques...................5
Task 2.............................................................................................................................. 6
2.1Analyse and preparation of cost report for the month of September.......................6
2.2 Performance indicators to identify areas for potential improvements.....................8
2.3Ways to reduce costs and to enhance value and quality........................................8
Task 3.............................................................................................................................. 9
3.1Purpose and nature of the budgeting process to the budget holders of Jeffrey and
Son's............................................................................................................................ 9
3.2Appropriate budgeting method need to be used by the organisation and its needs
................................................................................................................................... 10
3.3Formulation of production and material purchase budgets...................................10
3.4 Preparation of cash budget..................................................................................11
Task 4............................................................................................................................ 12
4.1Calculation of variance, assessment cost and recommend corrective actions.....12
4.2Preparation of operating statements which reconcile both budgeted and actual
results........................................................................................................................ 14
4.3Finding to management in accordance with identified responsibility centres........15
Conclusion..................................................................................................................... 15
References .................................................................................................................... 15

INTRODUCTION
Accounting related to managerial activities is related with preparing different
types of financial statements in order to analyse the financial and statistics data. It is
performed to achieve long term as well as short term objectives. It can also be
considered as the activity of recording information which affects the business activities.
This report will talk about the different types of costs which are incurred in the
business. A company named Jeffrey & Sons has been considered. Along with that cost
of exquisite is also evaluated by using different kinds of approaches. Methods related to
cost improvements are also mentioned in the study.
In this report, purpose and nature of the budgeting process are discussed. Along
with this, appropriate budgeting method that can be used by Jeffrey & Son's is also
discussed. Further cash budget related to the company has been prepared in order to
find the amount of cash inflow and cash outflow. Along with this, variance is also
calculated (Abdel-Kader and Luther, 2008).
1

TASK 1
1.1 Different types of costs
Following are the costs on the basis of behaviour
 Fixed cost:- It is the cost which does not change from time to time. Fixed cost
includes the cost of building, factory rent and legal bills.
 Semi-variable cost: - This cost is of fixe nature and remain fixed till
predetermined limit and then started changes. In other words it could be said that
the cost of the goods produced remain fixed till the certain limit is not cross and
once the limit exceeds the cost became variable. For example: Charges like
electricity, phone bills are considered semi-variable costs. Variable cost:- This kind of cost keeps on changing with the change in the
output. For example: - cost of purchasing goods (Ahrens and Chapman, 2007).
Following are the costs on the basis of functions Production cost: -. It is the cost which is beard by the firm during the production
of goods and services. Commercial cost: - This kind of cost is incurred by the firm while performing its
different types of operations and functions. Commercial cost includes the
administration and selling & distribution cost.
Following are the costs on the basis of elements Material:- This kind of expenses arises while the course of conversion of raw
materials into the finished goods. Labour:-It is the cost which is related to the human resource. It includes the cost
of wages and salaries to the employees, employees insurance and tax benefits. Overhead:- This kind of expense cannot be conveniently traced to or identified
with any particular cost unit (Bisbe, Batista-Foguet and Chenhall, 2007).
1.2 Calculation of unit cost and total job cost for job 444
Cost sheet is documented in order to accumulate the costs related information
with the product.
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Hence the company is required to obtain £770 for the production of units.
(Purpose and nature of budgeting, 2016).
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1.3 Calculation of cost of Exquisite
A) Allocation and apportion of overhead to the production department of machine X. Y
and assembly
Production department
Service
department
Particular
s
Basis of
allocatio
n
Total in
(£)
Machi
ne X
(£)
Machi
ne Y
(£)
Assemb
ly 1 (£)
Store
s (£)
Maintenan
ce (£)
Indirect
wages and
supervisio
n
Allocated 362000.
00
100000 99500 92500 1000
0
6000
Indirect
material
Allocated 253000.
00
100000 100000 40000 4000 9000
light and
heating
Area
occupied
50000.0
0
20000 5000 15000 1500
0
5000
rent Area
occupied
100000.
00
20000 10000 30000 3000
0
10000
insurance
and
machinery
Book
value of
machiner
y
15000.0
0
7947 4,966 9933 497 5 96.096
depreciatio
n
Book
value of
machiner
y
150000.
00
79.470 49,668 99933 4970
5960
Insurance
of building
Area
occupied
25000.0
0
5000 2500 7500 7500 2500
salaries of
work
No. of
employe
80000.0
0
24000 16000 24000 8000 8000
4

managem
ent
es
Sub totals 346,41
7
287634 219927 7996
7
101056
Re-
apportionin
g of
service
dept. cost
0 0 0 0 0
Store
departmen
t
39989 29988 9996 0 0
maintenan
ce
48507 32018 20211 0 0
Total cost 434908 349649 259134 0 0
B) Reapportion of the cost of service and support department to the production
department
Particulars Production
Basis of
allocation
Total
in (£)
Machine
X
Machine Y
(£)
Assembly 1 (£)
Primary
distribution
(Earlier table)
1035
000.0
0
314490.
19
272264.70 245862.78
Stores Direct
material
39982 29987 9995
Maintenance Machine
hours
48506.8
8
32337.92 20211.2
Total 434905.
88
349960.92 250133.2
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C)
The overhead absorption rate for Machine X, Y is calculated by using the machine
hours.
Rate of overhead absorption = Fixed overhead / machine hours
Calculation of the overhead absorption rate for each of the production department is as
follows:
The computation for OAR for each of the production department are as follows:
Machine shop X = = 346417 + 39982 + 48506.88/80000
= £ 5.44
Machine shop Y =287636+29987+32337.92/ 60000
= £5.83
Assembly = 219927 + 9995+ 20211.2/10000
= £25.01
Thus, on the basis of above calculation, it can be concluded that overhead
absorption rate of department X is £4.66 whereas for department Y, it is £5.24. Thus, in
lieu of which assembly needs to absorb their overhead rate at £4.41.
D) Calculating the overhead charge to the product by using the absorption rate
Total overhead cost = 5.44*0.8= 4 .35
5.83*0.6=3.50
25.01*0.1=2.50
£4.35 + £3.50 + £2.50 = 10.35£
Cost of product may be defined as the sum up of material, labour and overhead
expenses.
Total cost of the product: Material + Labour + Overhead
= 8+ 15+ 10.35£
= £33.35
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1.4 Analysing the cost data of Exquisite by using appropriate techniques
Particulars Production
Basis of
allocation
Total
in (£)
Machine
X
Machine Y
(£)
Assembly 1 (£)
Primary
distribution
(Earlier table)
1035
000.0
0
314490.
19
272264.70 245862.78
Stores Direct
material
34882.3
5
26161.76 8720.59
Maintenance Labour hours 2:1.5:
1
22052.2
9
16539.22 11026.14
Total Cost 371424.
83
314965.68 265609.51
Calculation of the overhead absorption rate as per the labour hours is as follows:
Production department Overhead absorption rate in the form of
labour hours
Machine X = 371424.83/200000 labour hours =
1.86£
Machine Y = 314965.68/150000 labour hours =
2.10£
Assembly = 265609.51/100000 labour hours =
2.66£
From the above calculation it can be interpreted that maintenance cost assembly
and machine appears high if it is computed with regard to labour cost. On the other side
the maintenance cost for machine X is less when it is computed with regard to labour
cost. When machine hours are taken into consideration, then cost of maintenance
appears to be very high. For machine X the cost is 23816.4, for Machine Y is 15877.65
and for assembly, it is 9923.53. Change in the cost of maintenance also puts an impact
on the per unit cost of the product. The per unit cost of the product is also affected when
the cost of maintenance keeps on changing,
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TASK 2
2.1Analyse and preparation
In the given scenario the labour, material and overhead cost of the products are 2000 units.
On the other side the cost of material, labour and overhead are 1900 units. Thus, following
calculation has been mentioned below:-
Particulars Formula Calculation
Material cost Total number of units*material
price per unit
= 1900 units* 12£ =
22800£
Labour cost Total number of units*Piece rate = 1900 units * 10£ =
19000£
Electricity: Electricity is the semi variable expense that remains fixed to the
definite point and then it becomes variable when the definite limit has been crossed.
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The cost related to maintenance has reduced because of change in the units of
the production. It has reduced from 1000 to 5000 units.
Analysis of the variances is as follows:
Particular Budgeted cost (2000
units)
Actual cost at 1900
units
Variance
Material 24000 22800 1200
Labor 18000 19000 -1000
Fixed
Overhead
15000 15000 0
Electricity 8000 7625 375
Maintenance 5000 4800 200
Total 70000 69225 775
From the above calculation it can be interpreted that units produced within
the business decreases from 2000 to 1900. This in turn shows that positive variances
have been emerged for the operations. While on the other side labour variance has an
negative impact on the costs of products and services. Hence in order to overcome
such variance, the company should make efforts to motivate the workers. It will lead to
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increase in the productivity and profitability. Due to less production, positive variation
has occurred in electricity and maintenance cost. Main cause for positive variance is
that Jeffrey and Son's has produced only 500 units instead of 1000units. In order to
justify the labour cost, Jeffrey and Son's should prepare various strategies and policies
(Cohen, Dey and Lys, 2008).
2.2 Performance indicators to identify areas for potential improvements
Different types of areas can be highlighted for potential improvements within the
business. These are as follows:
Satisfying the employees by motivating the customers: - For the purpose of motivating
the employees, useful training session can be given at regular intervals. It is expected
that highly motivated employees will deliver their best at all the levels. This in turn will
improve the quality of the product. At the same time cost of production will also be
reduced because wastage of the raw material will decrease.
Company should also try to reduce the sales revenue. This in turn will aid the
company to reduce its cost of production and manufacturing (Davila and Foster, 2005).
In order to increase the level of profitability, they are required to adopt appropriate
accounting practices. The preparation of the financial statements must be in accordance
with IFRS and GAAP standards. Performance can also be improved by appointing
skilled and efficient workers for the business.
2.3 Ways to reduce costs and to enhance value and quality
There are several ways which can help the Jeffrey and Son's to reduce its costs
and to enhance value and quality of the product. Some of them are listed below:-
Jeffrey and Son's should try to optimize the utilisation of the production process.
Company should try to achieve what they want to achieve by reducing the size of the
process.
Jeffrey and Son's should prepare various budgets in order to manage all its
operations. Along with this company should constantly monitor the progress of the
budget in order to analyse actual position of the business.
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Jeffrey and Son's should also try to use the available workforce to the full extent.
Company should make an attempt to motivate the workers by providing them the
training and development sections. In addition to this they should try to fulfil the needs
and wants of every staff members. Highly motivated workers will be able to generate
more quality of products with a short period of time. This in turn will reduce the wastage
and the cost of the production (Garrison and et.al., 2010).
Jeffrey and Son's should make efforts to use the latest technology in the
manufacture of its products. This in turn will aid the company to produce better quality
product at low cost. Company should focus on employing more skilled and talented
staffs in order to increase the value of its products. Company should also try to reduce
the cost of regulatory compliance. Some of the costs and value reduction strategies that
can be used by Jeffrey and Sons are Cost saving, Cost Avoidance, cost containment
and value Enhancement. Use of all these strategies in an effective manner will help
company to reduce the cost of its production and strategies (Hansen, Mowen and Guan,
2007).
TASK 3
3.1 Purpose and nature of budgeting
Budget is a quantitative statement prepared by every organisation in order to
project the returns generated from the business. These are prepared at the end and
starting of the every financial year.
Purpose for the preparation of the budgeting process
Budgets are prepared by the company in order to compute the profitability that is
going to earned by the company, income generated and expenditure incurred by the
company after the completion of the predetermined time period.
These statements are important to prepare because they help in computing the
profitability earned by the company. They aim towards preparation of various strategies.
The objective is to set standards goals and objectives related to the financial position of
the business.
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Budgets are prepared to compare the actual cost with the budgeted cost of
performance. The standards for performance improvement can be placed with the help
of budgeting performance (Jönsson and Lukka, 2005).
Nature of budgeting process
With regard to estimate the financial environment financial environment that can
occur during a specific time period, company should consider the previous budget
prepared by them.
Once previous budget has been compared then, company should realize the
amount of money which is going to be incurred at the time of selling the products and
services.
After that Jeffrey and Son's should define the amount of expenditure that can be
insured by them in terms of raw material, distribution, advertisement and promotion.
Once cost of expenditure has been calculated then, company can subtract the
estimated income generated by them from the estimated expenses in order to analyse
the condition of surplus and deficits.
At last the entire above step should be reviewed first and it should be submitted
for final implement.
Thus, at last when the process of budgeting is complete, comparison must be
made between the actual and the desired budget. Hence it will help in finding the actual
position (Kaplan and Atkinson, 2015).
3.2 Appropriate budgeting method need to be used by the organisation and its needs
Jeffrey and Son's should prepare the incremental budget in order to prepare
various different budgets that prove too advantageous for the company. Jeffrey and
Son's undertake the previous budget prepared by the them in order to alter new
incremental budget. Incremental budget that is alter by the Jeffrey and Son's has very
less importance now-days.
Thus, company should try to set up more realistic budget in order to conclude
actual results. This, in lieu of which company should start preparing Zero, based
budgeting. Zero based budgeting is the method of budgeting all the expense that is
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incurred by the company considering zero as a base (Langfield-Smith, Thorne and
Hilton, 2008)
3.3Formulation of production and material purchase budgets
Production budget: This kind of statement is prepared by the organisation in order
to analyse the number of units that they are going to produce during the financial year
(Lukka, 2007).
Production budget of Jeffery & Sons are as follows:
Particulars July August Septembe
r
October
Sales 105000 90000 105000 110000
Op. Stock 11000 13500 15750 16500
Total 94000 76500 89250 93500
Closing stock 13500 15750 16500 15000
Production 107500 92250 105750 108500
Working note:
The closing stock is computed on the basis of the fact that it is equivalent to 15% sales
of next year
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Material purchase budget: This kind of statement is prepared by Jeffrey and
Son's in order to represent quantity of finished goods that they need to produce during a
specific time period. Preparation of this budget helps company to smoothly operate and
manage all its activities without facing any difficulties (Modell, 2005).
Material purchase budget of Jeffrey & Son's are enumerated below:
July August September October
Material Require (2 per kg) 215000 184500 211500 217000
Less- Opening stock 52000 46125 52875
Total 163000 138375 158625
Add- Closing stock 46125 52875 54250
Purchase 209125 191250 212875
3.4 Preparation of cash budget
Cash budget This kind of budget is prepared by Jeffrey and Son's for the purpose
of estimating the different revenue and expenses incurred in the business during the
financial year (Otley and Emmanuel, 2013).
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Particulars July(£) August(£) September(£)
Cash Inflows
Sales receipts 900000 821250 864000
Cash outflows
Purchase 365969 334688 372531
Labour 322500 276750 317250
Variable overhead 108500 98350 100350
Fixed overhead 75000 87500 87500
Net cash flow 28031 -66038 13631
Opening balance 16000 44031 -22007
Closing balance 44031 -22007 -35638
From the above prepared cash budget, it can be interpreted that cash outflow is
more as compared to the cash inflow. It is seen that sales in the month of August has
been reduced as compared to other month sales. This can be one of the main reasons
for the negative cash balance of company. Along with this, it is also seen that in the
month of September, expenses of Jeffrey and Son's has been increased as compared
to the expenses made in the July. Due to this reason, a high negative balance has
been seen in the month of September. In addition to this, it is also seen that in month of
August, material and labour cost of the company have been decreased as compared to
July and September. This is turning resulted in the cash deficit. Hence for the purpose
of overcoming such issue, company is required to adopt several types of strategies.
This will also lead to improvement in the financial position (Scapens, 2006).
TASK 4
4.1Calculation of variance
Variance is considered as a difference between the actual and budgeted
performance of the organisation. Variance can be in both positive and negative
terms.
Particular Budgeted Fixed Actual
Sales 16000 14000 13820
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Material 3840 3360 3420
Labour 3200 2800 2690
Fixed overhead 4800 4800 4900
Profit 4160 3040 2810
Sales variance
Particulars Variance
Sales volume variance ( 4160 - 3040) 1120 (A)
Sales price variance ( 14000 - 13820) 180 (A)
Material price variance
Particulars Variance Net variance
Material price variance (1425 * 2040 ) 3420 (A)
Material usage
variance
[( 3500 * .4) * (2.40)] 3360 (A)
60 (A)
Labour variance
Particulars Variance Net variance
Actual hours *
Actual rate
345 *7.8 2690
70 (f)
Labour rate
variance
345 * 8 2760
40 (f)
Labour efficiency
variance
350 hrs * 2.40 2800
Fixed overhead variance
Particulars Variance Net variance
Actual fixed overhead 4900
Fixed overhead expenditure variance 100 (A)
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Budgeted fixed production overhead 4800
Causes of deviations: - As per the above calculation it can seen that the cost of
material has reduced from 3840 to 3420. This in turn has resulted into the positive
variance for 420 units of the unit produced during a financial year. In addition to this it is
seen that actual units produced by the Jeffrey and Son's is 3500 which is less than the
budgeted units i.e. 4000. This in turn shows the positive deviations due to decrease in
the labour cost. As per the budgeted illustration, per hour labour rate is £8 but Jeffrey
and Son's pay only £7.8 to its labour. In adverse of this, it is seen that overhead
expenses shows the negative variance of £100. This in turn shows that Jeffrey and
Son's have acquired the high level of expenses on selling & distribution and
administration of product and services (Ward, 2012).
Recommended actions:-In order to overcome the various problems that are
faced by the Jeffrey and Son's they should make efforts to undertake the following
recommendation. Some of the recommendation is as follows:-
Jeffrey and Son's should attempt to motivate its workforce to perform effectively and
efficiently within the organisation and to contribute their best towards the operations of
the organisation.
Jeffrey and Son's should also make efforts to increases its cost of production. In
addition to this they should also try to reduce the expenses and at the same time
attempt to increase the cost of selling. Therefore, by doing this Jeffrey and Son's will be
able to reduce the cost of sales variance.
Along with the above suggestions Jeffrey and Son's should focus on preparing
various strategies and policies. This in turn will help the company to reduce its cost of
selling and distributing the product and services
Therefore, by considering all the above suggestion Jeffrey and Son's will be able
to achieve the success in the corporate world (Weygandt, Kimmel and Kieso, 2015).
4.2 Preparation of operating statements
The operating statement is formulated by the company for the purpose of
comparing the desired performance with the actual performance.
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Operating statement for the month of May
£ £ £
Favourable Adverse Net
Budgeted operating
profit
4160(sales-total
cost=16000-11840)
Sales volume
variance
520
Sales price variance 180
Material price
variance
0
Material usage
variance
60
Labour rate variance 70
Labour efficiency
variance
40
Fixed overhead
expenditure
variance
100
Fixed overhead
volume variance
600
Total variances 110 F 1460 A
Total net variance 1350
(-) Total net
variance
-1350
Actual operating
profit
2810
From the above calculation, it can be concluded that cost per unit of the product
has been increased. This in turn resulted in negative variance of material. On the other
hand, cost of labour per hour has decreased which in turn will prove beneficial for the
company. Due to this situation, profit margin of the Jeffrey and Son's reduces and cost
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of production increases. Thus, from the calculation it is seen that actual cost of per unit
is 3.14 and on the other hand, budgeted cost is 2.96. Hence, organisation should make
efforts to control its expenditure. This in turn will help company to offer customers cost
effective products and at the same time, it will aid to increase its profitability aspects.
4.3 Finding
From the above findings it can be concluded that two responsibilities centres have been
established. This centre undertakes all the responsibility which has to be fulfilled by the
company during the financial year. It manages all the financial matter activities performed within
the business.
. In addition to this, it has also been found that the cost centre in organisation is
only responsible for defining the actual cost and budgeted cost. Thus, it has also been
found that spoilage and wastage of material are the main causes of increase in price
variance. After reducing wastage, Jeffrey and Sons will be able to eliminate the negative
variance. Along with this, it was found that labour variance indicates the favourable
variance in turn shows that labour hours are less than the estimated budget. Further,
this in turn will affect the business in a positive manner. Selling of scrap product in
market will assist company to generate more revenue. In this respect, an organisation is
required to assess the actual profit earned and in case of loss, manager has to take
decisions which may affect the cost and revenue of business. Therefore, at last, it can
be said that cost centre is only responsible for devising effective marketing planning
which in turn will increase the customer demand and sales (Zimmerman and Yahya-
Zadeh, 2011).
CONCLUSION
From the following report it can be concluded that Jeffrey and Son's should learn
more about different type of costs in order to make various necessary decision. In
addition to this it is also suggested that company should prepare various budgeting by
using Zero based budgeting method in order to analyses its financial position. At last it
19

can be concluded that management accounting help the company to reduce its cost of
production and at the same time increase its level of profitability.
20

REFERENCES
Books and Journals
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management accounting practices: A UK-based empirical analysis. The British
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Ahrens, T. and Chapman, C. S., 2007. Management accounting as practice.
Accounting, Organizations and Society. 32(1). pp.1-27.
Bisbe, J., Batista-Foguet, J. M. and Chenhall, R., 2007. Defining management
accounting constructs: a methodological note on the risks of conceptual
misspecification. Accounting, organizations and society. 32(7). pp.789-820.
Cohen, D. A., Dey, A. and Lys, T. Z., 2008. Real and accrual-based earnings
management in the pre-and post-Sarbanes-Oxley periods. The accounting
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evidence and performance implications from early-stage/startup companies. The
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Garrison, R. H. and et.al., 2010. Managerial accounting. Issues in Accounting
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Hansen, D., Mowen, M. and Guan, L., 2007. Cost management: accounting and control.
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Kaplan, R. S. and Atkinson, A. A., 2015. Advanced management accounting. PHI
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Modell, S., 2005. Triangulation between case study and survey methods in
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Otley, D. and Emmanuel, K. M. C., 2013. Readings in accounting for management
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