Report On Jeffrey & Son's Ltd | Evaluation Of Cost Concepts

Accounting Management

TABLE OF CONTENTS
INTRODUCTION................................................................................................................................4
1.1 Description of cost classification...........................................................................................4
1.2 Calculating unit cost and total job cost..................................................................................5
1.3 Calculating the cost of Exquisite using absorption costing technique...................................5
1.4 Analyzing cost of Exquisite...................................................................................................9
TASK 2...............................................................................................................................................10
2.1 Preparing and analyzing cost report for month of September.............................................10
2.2 Using various performance indicator to identify areas of improvement.............................12
2.3 Suggesting ways to reduce cost, enhance value and quality................................................12
TASK 3...............................................................................................................................................13
3.1 Purpose and nature of budgeting process............................................................................13
3.2 Selecting appropriate budgeting methods for organization.................................................14
3.3 Preparation of different types of budget..............................................................................15
3.4 Preparing cash budget..........................................................................................................16
TASK 4...............................................................................................................................................20
4.1 Calculating variance............................................................................................................20
4.2 Preparing reconciliation operating statement......................................................................22
4.3 Findings to management in accordance with identified responsibility centres...................23
CONCLUSION..................................................................................................................................23
REFERENCES...................................................................................................................................25
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INDEX OF TABLES
Table 1: Unit cost.............................................................................................................................5
Table 2: Allocation of cost of support departments on the basis of machine hours........................8
Table 3: Allocation of criteria of cost..............................................................................................8
Table 4: Units to be produced..........................................................................................................9
Table 5: Overhead absorption rate...................................................................................................9
Table 6: Exquisite calculation.........................................................................................................9
Table 7: Calculation of absorption rate on the basis of labor hours................................................9
Table 8: Calculation of Exquisite..................................................................................................10
Table 9: Material purchase budget................................................................................................15
Table 10: Material purchase budget of Jeffrey and Son's..............................................................16
Table 11: Cash budget...................................................................................................................16
Table 12: Reconciliation operating statement................................................................................22
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INTRODUCTION
A procedure used for the analysis and interpretation of data collected by cost and
financial accounting is termed as management accounting. The major objective of this
accounting is to help the manager for making viable decisions so that aims and objectives of the
corporate can be achieved in an effective manner. Further, this kind of accounting helps in
reducing the unnecessary expenses because; it maintains a track over all the expenses and
surplus. Moreover, through this cash flow of the firm get improvised. This report focuses on the
evaluation of several concepts of cost by considering information of Jeffrey & Son’s Ltd.
Furthermore, this report also includes the theoretical description and practical application
regarding the cost computation, budget and variance analysis.
1.1 Description of cost classification
Cost can be described as an amount paid or payable by the company or business
organization for obtaining product or services. Thus, the classification of the cost can be done on
the basis of below mentioned factors: Element: This classification is mainly based on the objectives of cost. On the basis of
which cost can be classified into direct or indirect cost. Further, direct cost can be
incurred while doing production activities such as manufacturing, acquiring raw
materials, stocking of work in progress, etc (Burns and et.al, 2004). These activities are
necessary for conducting business. Moreover, indirect cost is incurred in order to attain
economic benefit so that efficiency and profitability of the business can be enhanced.
For Example: Direct cost incurred at the time of purchasing of raw material and indirect cost can
be the amount incurred on selling and distribution expenses. Nature: As per the nature of expenses, cost can be classified into three segments that are
material, labour and overhead expenses. Through this, identification of cost classification
can be done (Dekker, 2015).
For Example: Material cost can be referred to as the amount incurred on variables that are
required for manufacturing such as raw materials. Further, labour cost involves wages and
salaries. Moreover, overhead expenses include other related expenses such rent (Kastantin,
2005).

 Function: Functional activities carried out in the organization also lead to the increment
of cost. Thus, such cost can affect the profitability in a positive manner because this cost
improves the performance level of people employed in an organization.
For Example: Functional cost consists of production, marketing, administration and distribution
cost. Behaviour: The factor of behaviour can also be considered while classifying the cost. In
this, cost can be bifurcated into variable, fixed and semi-variable cost. Fixed cost remains
constant irrespective of the production units (Wildavsky, 2006). Whereas, variable cost
increases in direct proportion with number of units produced. Further, in semi-variable
cost characteristics of both fixed and variable cost are included.
For Example: Variable cost is per unit material cost, fixed cost refers to as the rental charges and
lastly; the semi-variable cost which involves the cost such as electricity expense (Youseef,
2013).
1.2 Calculating unit cost and total job cost
The unit cost and total job cost has been calculated as follows:
Table 1: Unit cost
Particulars Amount
Direct cost
Direct material £200
Direct labour £270
Indirect cost
Variable production overhead £180
Fixed production overhead £120
Cost per unit £770
Working note: 1
Fixed production overhead = (£80000 / 20000 hours) * 30 hours
=£120
According to the above table, it has been found that per unit cost of job 444 is £770.
1.3 Calculating the cost of Exquisite using absorption costing technique
Production
Departments
Service Department
Basis of Total Machine Machine Assembly Stores
5

Apportioning Shop X Shop Y Maintena
nce000’s
Indirect
Wages
Allocated 362 100000 99500 92500 10000 60000
Indirect
Materials
Area
occupied
253 100000 100000 40000 4000 9000
Lightin
g
& Area
Occupied
50 10000 5000 15000 15000 5000
Rent Area
Occupied
100 20000 10000 30000 30000 10000
Insurance
&
Book value
of Machinery
15 7947 4967 993 497 596
Depreciatio
n
Book value
of Machinery
150 79470 49669 9934 4967 5960
Insurance
of
Area
Occupied
25 5000 2500 7500
7500
2500
Salarie
s
of No.
employees
of 80 24000 16000 24000 8000 8000
Sub Totals 1035 346417 287636 219927 79964 101056
Re-
of
service dept.
Stores Dept. 39982 29987 9995 (79964)
Maintenanc 48507 32338 20211 (101056)
Totals 434906 349961 250133 0 0
Working Note
Lighting & Heating: Machinery X 10/50 x £50000 — f10000
Machinery Y 5/50 x £50000 — £5000
Assembly 15/50 x £50000 — f 15000
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