Question-   UNIT 2 Assignment on Management Accounting

Solution-

Assignment Two: Management Accounting

 

                                                                                                                                

QUESTION 1

 

A) Calculate the following variances for materials in HoneyCake:

(i) Total materials usage variance;

(ii) Total materials mix variance;

(iii) Total materials quantity (yield) variance.

 

 

i) Total material usage variance = Standard Quantity Allowed - Actual Quantity used) x Standard Price per unit

                                                

ii)

 

 

 iii)     Total materials quantity (yield) variance = Actual cost – standard cost

                        (22000+ 1,400+ 1050) -  10100(1.10) = £ 13340

B)   

i) Expenditure variance = Actual expense - Expected Budgeted value

                              (320000+360+60000) - (264000+330+52800) = £ 63230

 

ii) Efficiency Variance = (Number of hours worked per unit) – (number of hours budgeted to work per unit value)

 

(c) Briefly outline the steps involved in allocating overheads using activity based costing,

 

Activity base costing is a method used to calculate overhead cost by allocating overhead to multiple activity cost pools and assigns activity cost pools to production by means of cost drivers. “An activity cost pool is the overhead cost attributed to a distinct type of activity such as ordering materials and setting up of machines while a cost driver is any factor or activity that has a direct cause-effect relationship with the resources consumed”(Weygandt J., Kimmel P. D. and Kieso D. E., 2010, Chapter 23. p.1). In other to developactivity-based costing system four steps are involve:

(1) Identify and classify the major activities involved in the manufacture of specific products, and allocate manufacturing overhead costs to the appropriate cost pools.

(2) Identify the cost driver that has a strong correlation to the costs accumulated in the cost pool.

(3) Compute the overhead rate per cost driver.

(4) Assign manufacturing overhead costs for each cost pool to products or services using the overhead rates. Also activity cost allocates overhead costs in two stages.

1.Overhead costs are allocated to activity cost pools.

2.The overhead costs allocated to the cost pools is assigned to products using

 

 

QUESTION 2

A budget is a management written plan statement aim at executing certain project within a specific  period of time and it is expressed using financial terms, it is necessary for an establishment to draw a budget plan in other to speedy up the company activities. Budgeting also improve efficiency and improve performance because it help in measuring company performance. Budgeting is used primarily to communicate agreed upon objectives needed to arrive at a target goal throughout the organization rather than scorekeeping, attention, directing or problem solving. The major benefits of budgeting are:

  1. It gives employees motivation by driving employees towards already established plan and objective
  2. It helps management to plan ahead in other to meet the target and achieve organization designs goals. Planning is one the major primary benefits of budgeting because every budgeting activity starts with a written plan.
  3. In other to arrive at the established goals each departmental activities need to be coordinated so the each goals from company segment fuse with overall company objectives
  4. It established objectives for measuring performance at each level of responsibility.
  5. Budgeting gives early warning/signs to company activities that is likely to retard or prevent organization to achieve its aim.
  6. In participative budgeting management awareness of all the entity’s overall operations and the impact on operations of external factors, such as economic trends.

 

Basically budgeting is always plan toward period of month, quarter and a year while long time planning are usually for a long period of time .The time period involved between budgeting and long range planning are different. Also budgeting mainly focuses on achieving short-term goals while long range planning focuses on a long term goal and use strategic planning to achieve those goals. While talking about the detail information contained in the long range planning and budgeting, long range plans contain less detail compare to budgeting.“The primary objective of long-range planning is to develop the best strategy to maximize the company's performance over an extended future period”, (Weygandt J., Kimmel P. D. and Kieso D. E., 2010, Chapter 23. p.1).

Budgeted performance is better than past performance because Past performance is often the starting point from which future budget goals are formulated. During project planning a lot will have be done to correct mistake and problem encountered in the pass performance. Budgeted performance will be planned to yield goals that have already been planned to reduce past errors. Also Sale budget has the first budget to prepare is derived from sale forecast. Sale forecast reflect the potential sales for the industry and the company sales expectation in the future.Sales forecasting involves factors like market research studies, technological developments, industry trends, previous market share and changes in prices. Also, the input of sales personnel and top management is essential to the sales forecast. All other budgets depend on Sale budget and represent company stipulated sales revenue for the period of budget.

Budgeting is a necessary part of any establishment activities be it profit or nonprofit organization. Budgeting help to engage different employees in different department of the organization by setting already planned goals that need to be accomplished with a define time period and directly attached the responsibilities of achieving this goals to each employees. By doing these employees will need to tailor his day to day activities to already defined goal. During the course of daily activities employees will encounter problem that will serve as obstacle to the organization goal and these problems need to be solve in other to achieved organization goals.  Therefore employees should not see project as unnecessary burden for day to day problems.

Spreadsheets are application software package used in modeling data for the purpose of data analysis, forecasting, and decision making. MS Excel as an example of spreadsheet is a useful tool in financial statement analysis, cash recording, cost calculation and budgeting. It has made very easy collection of .data and variable calculation and also in record keeping. Spreadsheet gives error free result during sensitive data analysis unease human error is involve.

 

 

 

 

 

 

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