Management Accounting Costing & Budgeting Assignment
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Added on 2019-12-03
Management Accounting Costing & Budgeting Assignment
Added on 2019-12-03
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Unit 9 Management AccountingCosting and Budgeting
TABLE OF CONTENTSIntroduction................................................................................................................................1TASK 1......................................................................................................................................1AC 1.1 Classification of cost............................................................................................1AC 1.2 Preparation of job cost sheet................................................................................2AC 1.3 Calculation of cost of Exquisite...........................................................................3AC 1.4 Calculation of overhead absorption rate using direct labour hours......................5AC 2.1 Preparation of cost sheet for 1900 units for variance analysis.............................5AC 2.2 performance indicators used to identify the potential improvements..................7AC 2.3 Ways to reduce cost, enhance value and quality..................................................8TASK 2......................................................................................................................................8AC 3.1 Purpose and nature of budgeting process.............................................................8AC 3.2 Appropriate Budgeting method for the organization and its need.......................9AC 3.3 Production and material purchase budget of Jeffrey & Son's Ltd........................9AC 3.4 Cash budget of Jeffrey & Son's Ltd...................................................................10AC 4.1 Calculation of variances, possible causes and corrective actions......................11AC 4.2 Operating statement reconciling budgeted and actual results............................12AC 4.3 Responsibility centres.........................................................................................12CONCLUSION........................................................................................................................13REFERENCES.........................................................................................................................14
INTRODUCTIONManagement accounting plays a very important role in the organization success andgrowth. It helps to manage the business operation in an effective manner. It is the financialdata analysis technique that helps to take necessary decisions in order to control the cost forbusiness development purpose. This report will help us in identifying the importance andsignificance of management accounting for Jeffrey and Son's. Jeffrey & Son's is a manufacturing concern that produces many products calledExquisite. Further, the report will discuss that how the company can get benefited throughapplying different management tools such as budgeting process, cost sheets and varianceanalysis. The present report mainly aims at determining the importance of management andcost accounting techniques for the business. It aims at identifying that how techniques help toreduce the cost, enhance business incomes and take good business decisions. In this report,various techniques such as budgeting, variance analysis and cost allocation will be discussedfor the given scenario. 1
TASK 1AC 1.1 Classification of costThere is various type of cost that is incurred in the organization that is described below:Basis ofclassificationType of costsElementsThere are three types of cost elements that are material, labour andoverhead cost. Direct material for Jeffrey & Son's is the cost ofpurchasing raw material for the production of goods and services suchas timber used for furniture production and fabrics for the clothing.However, direct labour includes the expenditures required to be paidto the workers who are employed for producing the product, Exquisiteinclude wages. Further, all the other expenditures that directly can beattributed to the specific product or services known as directexpenses. For instance, expenditures incurred on tools andconsumables are direct expenses. FunctionOn the basis of function it can be classified to production or factory,administration and selling and distribution expenses. In the factoryoverhead, it includes productive or unproductive wages, factory rentand power, heating and lighting expenditures (Khan and Jain, 2006).However, office or administration cost involves staff salary,stationery and staff welfare expenditures. Further, all the efforts thatare made for selling the products into the market comes under theselling and distribution overhead such as advertisement and marketingexpenses. Production expenses includes all the business expendituresthat have been incurred in the manufacturing process of Jeffrey &Son's for instance, factory rent, machinery depreciation and wages ofhelpers. While non production expenditure involves all theexpenditures that do not related to the business production hence,cannot be charged to the specific product. NatureDirect and indirect cost.Expenditures that can be charged to a specific cost object such asproduction and department. It involves cost of raw material, labour'swages and cost of purchasing other equipment such as moulds.2
However indirect cost cannot be attributes to a specific cost object.(Dechow and Skinner, 2000). It is appropriate on the basis of somecosts such as direct machine hours and direct labour hours. It includespostage, printing, advertisement, lighting and marketing expenses. BehaviourFixed, variable and semi variable cost are prevails under this basis.The expenditures which do not get changes with the productionchanges are known as fixed cost includes building rent, insurance, anddepreciation and watchmen salaries. However, variable cost isdirectly related to the production and gets changed according to it(Adler, 2013). For example, raw material and labour's wages. Oncontrary, semi variable cost is remaining constant up to a certainquantity of production and gets changed after this point with theproduction changes such as electricity bill. Stepped fixed cost remainsfixed up to a fixed level of activity. Once, the upper level of activityreached then fixed cost tends to reach at a higher level such aswarehousing cost and wages of supervisors. AC 1.2 Preparation of job cost sheetCost sheet: It helps to determine the total cost and per unit cost of the job (Cost andManagement Accounting, n.d.). The job cost sheet is prepared here for Jeffrey and son's jobno. 444 for 200 units:Job cost sheet for Job no. 444Particulars Total costDirect material 40000Direct Labour54000Fixed production overhead24000variable production overhead36000Total cost154000Unit cost770Necessary working note:Direct material = 50kg* 4£ per kg.*200 units= 400000£ Direct labour costLabour hours = 30 hours per unit*200 Units = 6000 Hours6000 hours * 9£ per hour = 54000£3
Calculation of fixed overhead= Total fixed production overhead/Total budgeted labour hours*Labour hours for job= 80000£/20000 hours* 6000 hours= 24000£Calculation of variable production overhead = 6£ per hour * 6000 hours= 36000£Cost per unit = Total cost/ number of units= 154000£/200 Units = 770£ cost per unitAC 1.3 Calculation of cost of ExquisiteProduction Servicedepartment BasisofallocationMachine X(£)Machine Y(£)Assembly 1 (£)Stores(£)Maintenance(£)TotalIndirect wages andsupervisionGiven 100000.0099500.0092500.001000060000362000.00Indirect materialGiven100000.00100000.0040000.0040009000253000.00light and heatingArea occupied1000050001500015000500050000.00RentArea occupied20000.0010000.0030000.0030000.0010000.00100000.00insurance andmachineryBook value ofmachinery 7947.024966.89993.38496.69596.0315000.00depreciationBook value ofmachinery 79470.249668.879933.774966.895960.26150000.00Insurance ofbuildingArea occupied5000.002500.007500.007500.002500.0025000.00salaries of workmanagementNo. ofemployees24000.0016000.0024000.008000.008000.0080000.004
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