Management Accounting Assignment - Cost and Costing Method
Added on 2020-01-07
18 Pages5773 Words216 Views
Management Accounting 1
Table of ContentsINTRODUCTION................................................................................................................................3TASK 1.................................................................................................................................................31.1 Classifying different types of cost.............................................................................................31.2 Different types of costing methods............................................................................................61.3 Calculation of cost using appropriate techniques......................................................................71.4 Analyse cost data using appropriate technique..........................................................................8TASK 2.................................................................................................................................................92.1 Prepare and analyse routine cost reports....................................................................................92.2 Use performance indicators to identify potential improvements of Sparky Ltd......................102.3 Suggest improvements to reduce cost, enhance value and quality of Sparky Ltd...................10TASK 3...............................................................................................................................................113.1 Explain the purpose and nature of the budgeting process........................................................113.2 Select appropriate budgeting methods and its need ................................................................123.3 Prepare budgets according to the chosen budgeting methods.................................................133.4 Prepare a cash budget..............................................................................................................14TASK 4...............................................................................................................................................154.1 Calculate variances and identify possible causes and recommend corrective actions............154.2 Prepare an operating statement reconciling budgeted and actual results.................................164.3 Report findings to the management in accordance with identified responsibilities centres....16CONCLUSION..................................................................................................................................17REFERENCES...................................................................................................................................18Index of TablesTable 1: Inventory valuation as per LIFO, FIFO and AVCO...............................................................7Table 2: Inventory valuation as per weighted average cost .................................................................9Table 3: Calculation of weighted average price...................................................................................9Table 4: Cost report of Sparky Ltd.......................................................................................................9Table 5: Production budget of Sparky Ltd..........................................................................................13Table 6: Material purchase budget of Sparky Ltd..............................................................................13Table 7: Cash budget of Sparky Ltd...................................................................................................14Table 8: Calculation of variance of Sparky Ltd..................................................................................15Table 9: Operating statement reconciling budgeted and actual results of Sparky Ltd.......................16Illustration IndexIllustration 1: Classification of cost .....................................................................................................4Illustration 2: Cost classification on the basis of behaviour ................................................................5Illustration 3: Inventory valuation techniques .....................................................................................7Illustration 4: Closing inventory of Bike Ltd. .....................................................................................82
INTRODUCTIONManagement accounting is the process of evaluating and examining the businessperformance so as to frame strategic policies and take decisions related to gain better results (Malmiand Granlund, 2009). Businesses make use of cost sheets to take effective decisions and enlargeprofitability. Moreover, budgeting is also an important aspect of management accounting to predictfuture trend by the analysis of historical results. Sparky Ltd is a company which employs largenumber of electricians for rendering electricity services to the customers. In the present report,various types of cost and costing method as well as techniques will be applied to ascertain cost ofeach unit.. In addition, suggestions will be given for the cost curtailment and enhancing value andquality of Sparky Ltd. Furthermore, various methods to construct budget will be identified todetermine the most appropriate technique through which Sparky Ltd can prepare an effectivebudget. It enables the firm to analysis variance by comparing set budgeted targets with the actualresults. Through this, Sparky Ltd can take decisions to eliminate adverse variances and achievetargeted goals effectively. TASK 11.1 Classifying different types of costCost refers to the expenditures incurred by Sparky Ltd to deliver electricity services to thecustomers. There are different types of costs which are explained below:Illustration 1: Classification of costBehaviour:3
Illustration 2: Cost classification on the basis of behaviour Fixed cost: Expenditures which remain constant regardless to the changes in productionlevel are called fixed cost like depreciation and insurance. Semi-variable cost: These expenses remain fixed up to a certain level of production andthereafter it will increase according to the rise in Sparky Ltd's manufacture like electricitybill (VanDerbeck, 2012).Variable cost: These expenditures are directly related to the production and it will be eitherincrease or decrease with the rise or decline in the output level of Sparky Ltd like materialand labour cost. Nature:Direct cost: Expense which directly can be traced to the production unit is called direct cost.For instance, material which is used in production to get finished product is known as directmaterial. While, labour which is direct engaged in the production process of Sparky Ltd iscalled direct cost (Whitecotton, Libby and Phillips, 2013). Indirect cost: It is just inverse to the direct cost and this expenditure cannot be allocateddirectly to each production unit such as depreciation, factory supervision, supervisor's salary,glue, nails, lubricating oil etc.Function:Factory cost: All the expenses which Sparky Ltd incurs for the production of goods andservices are called as factory cost like factory lighting, unproductive wages etc (Chen and4
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