Term 3 2017: Management Accounting ACC203 Budgeting Case Study

This document presents a comprehensive solution to a management accounting case study focused on Exhibition Furniture, a desk manufacturer. It includes a detailed revenue budget, production budget, direct material usage and purchase budget, direct manufacturing labor budget, and manufacturing overhead budget. The solution calculates the manufacturing overhead rate and cost, closing inventory value, cost of goods sold, and presents a budgeted income statement and balance sheet. Additionally, it provides a memo to the CEO outlining strategies for improving budgeting, such as using a balanced scorecard, implementing Just-in-Time (JIT) inventory management, and adopting activity-based costing. The analysis emphasizes the importance of properly treating non-manufacturing costs to enhance the accuracy of financial evaluations.

Running Head: Management accounting
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Project Report: Management Accounting

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Part 1:
a) Revenue Budget:
Revenue budget
Sales (Units) 2000
SP 800
Total Revenue 1600000
b) Production budget:
Production Budget
Expected Sales 2000
Add: Closing Stock of desk 300
Less: Opening Stock of Desk -200
No. of units to be produced 2100
c) Direct material usage and purchase budget:
Direct material usage and purchase budget
Direct material usage Quantity Oaks tops Oaks Legs
No. of desks 2100
Square meters per desk 3
No. of Legs per desk 4
Direct material requirement 6300 8400
(2100*3) (2100*4)
Purchase Budget
Oaks tops Oaks Legs
Productions Required 6300 8400
ADD: Closing 24 80
Less: Opening -40 -100
Units to be purchased 6284 8380
d) Direct manufacturing labour budget:

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Direct Manufacturing Labour budget
No. of desks 2100
No. of hours per desk 3
Total hours required 6300
Rate per hour 20
Total Labour cost 126000
e) Manufacturing overhead budget:
Manufacturing overhead budget
No. of units to be produced 2100
Variable manufacturing cost
Labour cost (2100*20*3) 126000
Fixed manufacturing cost 50000
Total manufacturing overhead 176000
f) Manufacturing overhead rate:
Manufacturing overhead rate
Total manufacturing overhead 176000
Total hours required 6300
Manufacturing overhead rate 27.94
g) Manufacturing overhead cost:
Manufacturing overhead cost
Total Manufacturing overhead 176000
Units produced 2100
Manufacturing overhead cost for
output 84
h) Closing inventory:
Value of closing stock unit
Direct Material Unit cost
Oak Tops (120*3) 360
Oak Legs (7*4) 28 388

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Direct Labour (55*3) 165
Manufacturing overhead 83.81
Value of closing stock unit 636.81
i) Direct material and finished goods inventory:
Closing Inventory budget
Direct Material Inventory Units Rate Amount
Oak Tops 24 120 2880
Oak Legs 80 7 560
Finished Goods Inventory
Desks 300 636.81 191042.9
j) Cost of goods sold:
Cost Sheet
Opening Finished goods inventory 80000
ADD: Direct Material
Opening Stock 4000 500
Direct Material Purchases 754080 58660
758080 59160
Closing Stock 2880 560
755200 58600 813800
ADD: Direct Labour 346500
ADD: Manufacturing cost
Variable 126000
Fixed 50000 176000
Less: Closing Inventory 191042.9
Cost of goods sold 1225257
k) Budgeted income statement:
Income Statement
sales 1600000

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cost of sales 1225257
Gross profit 374742.9
Marketing costs 2000
Non Manufacturing cost 10000
Net Profit 362742.9
l) Budgeted balance sheet:
Balance Sheet
Assets
Current Assets
Cash 382742.9
Inventory 194482.9
Non Current Assets
Property Plant Equipment 550000
Total 1127226
Liabilities
Current Liabilities 30000
Non Current Liabilities 59340
Suspense account 25143
Equity 1012743
Total 1127226

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Part 2:
To: Chief Executive Officer,
From: Financial Analyst.
Date: 07 Feb 2018.
Re: Strategies for Budgeting
The Budgeting reports which have been prepared last time by your company showcases about
the huge cost and less profitability position of the company. More, it explains that the cost of
the company could be reduced through adopting various new strategies. Such as, the
approach of balance scorecard would assist the company to reduce the about cost and it
would also enhance the efficiency of the existing labour so the fixed cost of the company
could also be reduced. Balance scorecard is a system which connects the strategy of the
company with its mission and vision so that it becomes easy for the company to manage the
performance and the position of the company (Macintosh & Quattrone, 2010).
Further, the approach of JIT would assist the company to maintain the inventory strategy of
the company (Ward, 2012). It enhances the efficiency of the company and its production
system and reduces the waste of the company. This method would also assist the company to
forecast the demand and manage the production accordingly (Zimmerman & Yahya-Zadeh,
2011).
More to it, the company could also adopt the strategy of activity based costing to identify the
total cost of the company and the relevant cost of the product. It makes it easy for the
company to make better decision about the performance and the position of the company.
This system would recognize the relationship among the activities, products and the cost of
the company (Higgins, 2012). It would assign all the indirect cost to the products which are
less arbitrary.
Non manufacturing cost of the company should be treated in a different way by the company
so that a better evaluation could be done on the total cost of the company. Non manufacturing
cost is not directly related to the total cost of the company and thus the treatment of non
manufacturing cost should not be recorded in the cost of goods sold statement of the
company and must be receded into the income statement of the company (Schaltegger &
Burritt, 2017).

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Thank you for giving us the opportunity to evaluate the performance of your budgeting
system. The current system of your company is also good and it would help you to meet your
objectives.
My sincerely congratulation to the company for success and achievements!

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References:
Higgins, R. C. (2012). Analysis for financial management. McGraw-Hill/Irwin.
Macintosh, N. B., & Quattrone, P. (2010). Management accounting and control systems: An
organizational and sociological approach. John Wiley & Sons.
Schaltegger, S., & Burritt, R. (2017). Contemporary environmental accounting: issues,
concepts and practice. Routledge.
Ward, K. (2012). Strategic management accounting. Routledge.
Zimmerman, J. L., & Yahya-Zadeh, M. (2011). Accounting for decision making and
control. Issues in Accounting Education, 26(1), 258-259.