Comprehensive Accounting Management Report: Jeffrey & Son's Case Study

This report provides a detailed analysis of accounting management principles, focusing on cost classification, unit cost calculation, and the application of absorption costing techniques. It presents a case study of Jeffrey & Son's Ltd, calculating the cost of a product ('Exquisite') using absorption costi...Read More

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
2

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
3

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
6

Stores 15/50 x £50000 = £15000
Maintenance 5/50 x £50000 = £15000
Rent
Machinery X 10/50 x £100000 =f20000
Machinery Y 5/50 x £100000 =£10000
Assembly 15/50 x £100000 = £30000
Stores 15/50 x £100000 =£30000
Maintenance 5/50 x £100000 = £10000
Insurance & Machinery
Machinery X 800/1510 x £15000 = £7964
Machinery Y 500/1510 x £15000= £4966
Assembly 100/1510 x 15000 =£994 Stores
50/1510x£15000=f497
Maintenance 5/1510 x £15000= £596
Depreciation of Machinery
Machinery X 800/1510 x £150000 = £79470
Machinery Y 500/1510 x £150000 = £49669
Assembly 100/1510 x £150000 = £9934
Stores 50/1510 x £150000 = £497
Maintenance 60/1510 x £150000 = £596
Insurance of Buildings Machinery X 15/50 x £25000 — £5000
Machinery Y 5/50 x £25000 = £2500
Assembly 15/50 x £25000 = £7500
Stores 15/50 x £25000 — £7500
Maintenance 5/50 x £25000 = £2500
7

Salaries of works management Machinery X 3/10 x £80000 = £24000
Machinery Y 2/10 x: E80000 = £16000
Assembly 3/10 x £80000 = £24000
Stores 1/10 x £80000 — £8000
Maintenance 1/10 x £80000 = £8000
Reappointing workings: based on material issues
Machinery X 400/800* £79964 = £39982
Machinery Y 300/800 * £79964 = £29987
Assembly 100/800 * £79964 = £99995
Based on time spent
Machinery x 12/25 * £101056 = £48507
Machinery y 8/25 * £101056 = £32338
Assembly 5/25 * £101056 = £20211
Overhead absorption rate workings
Departments = Total / actual machine hours per department
Machinery X £ 434906/ 80000 = £5.44
Machinery Y £349960/ 60000 = £5.83
Assembly £250134/ 10000 = £25.01
Overhead absorption rate
Machinery X 434906/80000 =5.44
Machinery Y 349960/60000 = 5.83
Assembly 250134/10000 =25.01
Table 2: Allocation of cost of support departments on the basis of machine hours
Machine shop X Machine shop Y Assembly Total
Store £39982.00 £29987.00 £9995.00 £79964.00
Maintenance £45807.00 £32338.00 £20211.75 £101056.00
Total £434906.00 £349961.00 £250133.00
Table 3: Allocation of criteria of cost
Particulars Description
Indirect wages and supervision As per the provided amount.
Indirect materials As per the provided amount.
8

Light and heating On the basis of area occupied
Rent On the basis of area occupied
Insurance and machinery On the basis of book value of machine
Depreciation of machinery On the basis of book value of machine
Insurance of building On the basis of area occupied
Salaries of works management On the basis of number of employees.
Table 4: Units to be produced
Material cost £400000.00 £300000.00 £100000.00
Per unit material 8 8 8
A/B no. of units 50000 37500 12500
Table 5: Overhead absorption rate
Machinery X 434906/80000=5.44
Machinery Y 349960/60000= 5.83
Assembly 250134/10000=25.01
Computation of absorption rate
Table 6: Exquisite calculation
Particular £ £
Materials 8
Labour 15
Overheads
X (0.8*5.44) 4.34
Y (.6*5.83) 3.5
Assembly (.1*25.01) 2.5
Total cost 33.35
1.4 Analyzing cost of Exquisite
Table 7: Calculation of absorption rate on the basis of labor hours
Machinery X 434908/200000= 2.17
Machinery Y 349960/150000= 2.33
9

Assembly 250134/20000= 2.15
Table 8: Calculation of Exquisite
£ £
Materials 8
Labour 15
Overheads
X (2*2.17) 4.34
Y (1.5*2.33) 3.5
Assembly (1*1.25) 1.25
Total cost 32.09
The above mentioned tables depict that for finding total cost of product of Jeffery and
Son's, labor hour absorption is effective means. It aids to bring changes in per unit absorption
cost rate.
TASK 2
2.1 Preparing and analyzing cost report for month of September
The cost reports for the month of September have been prepared as follows. It is helpful
for management of Jeffrey & Sons Ltd to analyse the performance and issues faced by
corporation so-as-to take appropriate action on right time.
Budgeted cost Actual cost Variances
Particulars
Units 2000 units 1900 units
Material cost 24000 22800 -1200
Labor cost 18000 19000 1000
Fixed overhead 15000 15000 -
Prime cost 57000 56800 -
Electricity
Fixed portion 500 500 -
Variable portion 7500 7125 375
Maintenance 5000 5000 -
Total production cost 70000 69425
10

Budgeted cost Budgeted cost
Particulars
Units 2000 units 1900 units
Material cost 24000 22800
Labor cost 18000 17100
Fixed overhead 15000 15000
Prime cost 57000 54900
Electricity
Fixed portion 500 500
Variable portion 7500 7125
Maintenance 5000 5000
Total production cost 70000 67525
Variable cost per unit=3000/800=3.75 per unit
The aforementioned tables are showing that there will be no change in the maintenance
cost. This is because; this cost will increase only for each 500 units produced. However, in the
current scenario, corporation is planning to enhance production by 100 units. Owing to this,
changes will not take place in this particular cost.
Variance analysis Material variance-For producing 2000 units, cost of material is 2400 whereas for
producing 1900 units material cost is only 22,800. It depicts that Jeffery and Son's is
having positive variance of 1200. Thus, cost of material has been reduced while
producing 1900 units. Labor variance-The actual cost of labor for producing 1900 units is 19,000 but budget
was 17,100. It is showing that labor cost is high and company is getting negative
variance. Fixed overhead-There is no difference in fixed overhead in both cases. It shows that even
at the time of increase or decrease in number of units, cost of production will remain the
same (Vanderbeck, 2012).
 Electricity-According to the calculation it has been found that variable cost was estimated
to be 7125 and the actual cost is also the same. It depicts that there is no significant
difference in actual and expected cost.
11

2.2 Using various performance indicator to identify areas of improvement
The performance appraisal of organization is crucial task which assists management to
concentrate on key performance indicator (Key Performance Indicators, 2014). These key
performance indicators are the effective means through which improvement can take place in
internal or external environment of Jeffrey & Sons Ltd. Key performance indicators are
explained as follows- Qualitative indicators-Performance of corporation can be assessed with the help of
qualitative indicators like increased customer base, high sales turnover and retention of
buyers. In case the indicators are not shown, then company might take decision to bring
improvement in its internal business environment (Weygandt and et.al., 2009). It shows
that management needs to focus on potential areas like marketing strategies, retention etc.
Thus, qualitative performance indicators help to ensure continuous improvement at
workplace so-as-to deliver higher level of satisfaction among buyers.
 Quantitative indicators-The qualitative performance indicators include factors like high
rate of return, sales turnover and cost of production. According to findings, management
assess what kind of strategies could be adopted to ensure good performance (Elmassri
and Harris, 2011). Thus, all of these indicators depict that who should be improved and
how. Furthermore, high cost of production shows that company is not focusing on its
production activities. Therefore, changes can be done in an effectual manner.
2.3 Suggesting ways to reduce cost, enhance value and quality
There are different ways to reduce cost and enhance value as well quality of Jeffrey &
Sons Ltd. These are explained as follows- Total quality management- Under this, company can assess issues that are taking place
in production process. It assists management to ensure that good quality of products and
services are delivered to end users. On the other hand, as per the total quality
management, aspect management of Jeffrey & Sons Ltd can meet the expectations of
buyers in the most effective manner (Kate-Riin Kont, 2012). This in turn leads to increase
in rate of return and decrease in cost of production to a great extent. However, at the
initial stage, non-monetary cost can be incurred but it will enhance quality.
12

 Stock management- It is one of the most effective aspect which depicts that organization
can focus on different techniques like economic order quantity and re-order etc. In this
regard, upgraded technologies may be used so-as-to reduce additional cost associated
with carrying stock (Macintosh and Quattrone, 2010). Moreover, stock can be managed
with the help of proper forecasting techniques. At this juncture, management can hire
competent workforce or experts who can better handle responsibility in the related field.
 Workforce management- For enhancing value and quality, Jeffrey & Sons Ltd can
provide training to its workforce. They should be directed with experts so that they can be
provided with right guidelines for their job. It proves to be effective in motivating
workforce and boosting their morale (Mock, Coram and Monroe, 2011). Similarly,
employees can be appreciated for their better performance with inclusion of monetary
and non-monetary rewards. It aids to retain them for longer time span.
TASK 3
3.1 Purpose and nature of budgeting process
Budget refers to process of monetary plan which is implemented by finance department
of organization. It is related to specific time span so that accordingly management can carry out
all its business activities. It is basically estimation of income and expenditure to be incurred in
future time span where company can have certainty in coming time period. The main purpose of
budget has been explained as follows- Financial framework-Budget assists organization to provide financial framework to
managers for decision making (Budget, Budgeting Process, and Variance, 2016). It
enables management to take decision in accordance with requirement of company. For
example, it provides information that how much amount to be borrowed and what actions
need to be taken in order to meet the set standard. Estimating income and expenses-Budgeting process is helpful in estimating income and
expenses which are related to future. Under this, management can target for particular
proportion of profitability (Schoute and Wiersma, 2011). Compare performance- This is the most important aspect which depicts that budgeting
process proves to be effective in analyzing the performance of company in marketplace.
For example, previous year's budget can be regarded as the basis to formulate budget for
13

current year. This is because; Jeffrey and Son's come to know about the variation in the
budget and accordingly strategic action can be taken for the same (Callahan, Stetz and
Brooks, 2011).
Nature of budgeting process
Budgeting process of Jeffrey and Son's considers financial environment in accordance
with last one. It helps to take into account certain circumstances which affect the overall
performance of company. Similarly, amount of profitability for coming time is also determined
in advance. On the other hand, expenditure on different elements of production like material,
production overheads and advertisement as well as marketing is considered in budget
(Baldvinsdottir, Mitchell and Nørreklit, 2010). Furthermore, forecasted expenses are deducted
from revenue so-as-to derive total outcome for corporation. In addition to this, after completion
of overall process of budgeting, final budget is submitted. However, the process of budget can be
different from organization to organization.
3.2 Selecting appropriate budgeting methods for organization
There are several kinds of budget that are used by corporation in accordance with their
need. It assists company to make necessary arrangement accordingly. These are explained as
follows- Zero based budget-It is the most imperative aspect of making budget in the corporation.
This kind of budgeting method is more suitable for businesses which are newly started. It
enables corporation to keep records related to current financial year in detail manner
(Ward, 2012). Furthermore, zero based budgeting is not prepared in accordance with
previous financial year. It requires active participation of all finance manager and
responsible departments. This in turn help corporation to ensure its growth and success in
the marketplace effectively. Traditional budget- This is another budgeting method which is used by many
corporations under which finance manager prepare budget on the basis of previous or last
budget. It enables management to carry out all business activities in right manner so as
not to repeat mistakes which took place in the previous year (Modell, 2010). For
preparing traditional budget, management may not focus on some serious issues which
14

might take place in the near future. This is because; assumption of previous year is taken
into account for preparing budget.
 Operating budget -This is another budget under which all departments of Jeffrey & Sons
make budget at their own level and accordingly the same is integrated into one. Under
this method, all departments take decision with detail discussion with each other. They
are also free to incorporate views of their subordinates. It facilitates them to compare
performance of company effectively and determine long run success of the same in the
marketplace (Lukka and Modell, 2010).
As per the detail discussion of all of the above budgets, it has been found that Jeffrey &
Sons Ltd applies operating method. It facilitates to provide freedom to all departments for taking
decision in their work areas and ensure inclusion of each responsibility centre in budgeting
process. Thus, for each department, company can effectively assess its performance. It proves to
be effective to select suitable strategy in achieving its long as well as short term objectives.
3.3 Preparation of different types of budget
Particulars July August September October
Sales 105000 90000 105000 110000
Less: opening stock 11000 13500 15750 16500
Add: Opening
stock 13500 15750 16500
15000
Units to be
produced 107500 92250 105750
108500
Closing Stock:
July 15% * August sales = 15%*90000 13500
August 15% * Sept. sales = 15%*105000 15750
September 15% * Oct. sales = 15%*110000 16500
October 15%*Nov. sales = 15%*100000 15000
Table 9: Material purchase budget
July August September October
Material usage 215000 184500 211500 217000
Less: Opening stock 52000 46125 52875
15

Add: Closing stock 46125 52875 54250
Purchases 209125 191250 212875
July opening stock = 52000 kg and closing = 25%* 184500 = 46125
Table 10: Material purchase budget of Jeffrey and Son's
Particulars July August September
Units to be produced 107500 92250 104250
Material cost £3.50 £3.50 £3.50
Material to be purchased £376250.00 £322875.00 £364875.00
Add: cost of material in ending inventory £80718.75 £91218.75 £91218.75
Total cost of material needed £456968.75 £414093.75 £456093.75
Less: Cost of material in beginning
inventory -£166400.00 -£80718.75 -£166400.00
Cost of material to be purchased £290568.75 £333375.00 £289693.75
Material usage budget
July material usage 107500 units * 2 kg 215000 kg
August material usage 92250 units * 2 kg 184500 kg
September material usage 105570 units * 2 kg 211500 kg
October material usage 108500 units * 2 kg 217000 kg
3.4 Preparing cash budget
Table 11: Cash budget
Particulars July August September
Opening balance of
cash £16000.00 £204431.25 £192306.25
Received from debtors £333000.00 £335250.00 £330750.00
Cash sales £567000.00 £486000.00 £567000.00
Total receivable £916000.00 £1025681.25 £1090056.25
Expenses
Payment to creditors £290568.75 £333375.00 £289693.75
Direct wages £300000.00 £300000.00 £300000.00
Variable overhead £46000.00 £100000.00 £100000.00
Fixed overhead £75000.00 £100000.00 £100000.00
Total payable £711568.75 £833375.00 £789693.75
Closing balance of cash £204431.25 £192306.25 £300362.50
Working note
July August September
Amount received for sales before a month 247500 236250 236250
16

Amount received for sales before two months 85500 99000 94500
Sum 333000 335250 330750
Overhead payment July August September
Variable overhead 46000 100000 100000
Fixed overhead 75000 100000 100000
July August September
Material cost £3.50 £3.50 £3.50
Wages £3.00 £3.00 £3.00
Variable overhead £1.00 £1.00 £1.00
Total variable cost £7.50 £7.50 £7.50
Fixed overhead £100000.00 £100000.00 £100000.00
Units to be produced 107500 92250 104250
Total variable cost £806250.00 £691875.00 £781875.00
Total production cost £906250.00 £791875.00 £881875.00
July August September
Units to be sold 105000
Key
Performanc
e Indicators.
201490000 105000
Sale price 9 9 9
Sales 945000 810000 945000
Particulars July (£) August (£) September (£)
Cash inflow
Sales receipts
(w.n.1)
900000 731250 864000
Cash outflow
Purchase 365969 334688 372531
Labor (w.n.2) 322500 276750 317250
Variable O/H
(w.n.3)
108500 98350 100350
Fixed O/H 75000 87500 87500
Net cash flow 28031 -66038 -13631
Opening balance 16000 44031 22007
Closing balance 44031 -22007 -35638
17

Working notes
Working Note-1
Sales (£) July (£) August (£) Septemb
er (£)
May 855000 85500
June 990000 247500 99000
July 945000 567000 236250 94500
August 810000 486000 202500
September 945000 567000
July: 105000*9 = 945000
August: 90000*9 = 810000
September = 105000*9 = 945000
July receipts August receipts September receipts
10%*855000 May 10%*990000 June 10%*945000 July
25%*990000 June 25%*945000 July 25%*810000 Aug.
60%*945000 July 60%*810000 Aug. 60%*945000 Sept.
Working Note-2
Labour
July 1075000*3 = 32250 Key Performance Indicators
20140
August 92250*3 = 276750
September 105750*3 = 317250
Working Note-3
Variable overhead
July August September
June £44000
18

July £64500 £43000
August £55350 £36900
September £63450
Total £108500 £98350 £100350
40%*110000 units = 44000*1 = £44000 from June and payable in July
60%*107500 units = 64500*1 = £64500 from July and payable in July
40%*107500 units = 43000*1 = £43000 from June and payable in Aug.
60%*92250 units = 55350*1 = £55350 from June and payable in Aug.
40%*92250 units = 36900*1 = £36900 from July and payable in Sept.
60%*105750 units = 55350*1 = £63450 from June payable in Sept.
(d) Budgeted profit and loss account
July August September Total
Sales £945000 £810000 £945000 £2700000
Less: bad
debts
£47250 £40500 £47250 £135000
£897750 £769500 £879750 £2565000
Total MC of
production
£806250 £691875 £793125 £2291250
Add:
opening
stock
£82500
Less: closing
stock
£123750
Cost of sales £2250000
Contributio
n
£315000
19

Fixed
overheads
£300000
Profits £15000
July August September Total
Materia
l
£376250 £322875 £370125 £1060500
Direct
labour
£322500 £276750 £317250 £916500
Variabl
e O/H
£107500 £92250 £105750 £305500
Total
MC of
produc
tion
£806250 £691875 £943125 £2582500
TASK 4
4.1 Calculating variance
Variances of sales, labour and material have been calculated as follows. Furthermore,
working note for all variances are also given in detail manner-
1. Sales variances
Sales volume variance (4160- 3040) = (1120) (A)
Sales prices variance (14000- 13820) = (180) (A)
(Budgeted: 35000*£4- Actual sales)
2. Material prices variances
AQ (1425Kg) X AR (£2.40) = £3420
Material prices variances 0(A)
AQ (1425Kg) X SR (£2.40) = £3420
Material usage variance 60(A)
20

SQ (3500 Units x 0.4) X SR (£2.40) = £3420
3. The labor variances
AH(345Hrs) X AR (£7.8 ) =£2690
Labor variance rate 70 (F)
AH (345Hrs) X SR (£8.0) =£2760
Labor efficiency variance
SH (3500 Units x0.1)350hrs X SR (£2.40) = £2800
4. Fixed overhead sending
Actual fixed o/d = £4900
Fixed overhead expenditure variances 100(A)
Budgeted fixed production o/d = £4800
Budget
Original Flexed Actual
Output (Production and
sales units )
4000 3500 3500
Sales revenue £16000 14000 13820
Raw materials -(3840) (3360) (1400)Kg (3420)
(1425Kg)
Labor -3200 (2800)(350Hrs) (2690)
(345Hrs)
Fixed overheads -4800 -4800 -4900
Operating profit £4160 £3040 £2810
The above tables depict that actual and expected amount of budget is varying at rapid
speed. It shows that sales revenue was estimated to be 14000 but the actual is 13820.
Accordingly, Jeffrey and Son’s is having variation in its results. Furthermore, material consumed
is 3420 but it was expected to be 3360. It reflects that budgeted operating profit is also reduced
to 2810 from 3040.
The potential causes behind low return issues of Jeffrey and Son’s is high expenditure
and low profitability (Figge and Hahn, 2013). Also, it can be said that estimation has not been
done properly which in turn greater variance is there between actual and expected outcome.
21

According to the above findings, it can be said that Jeffrey and Son’s needs to bring
improvement in its current work related areas. It can be suggested to corporation that workforce
should be provided time to time training so they can speed up in the productivity. It enables
organization to increase flow of production. Similarly, company can also focus upon
technological up gradation so that good quality of products and services can be provided to large
number of buyers.
4.2 Preparing reconciliation operating statement
Reconciliation operating statement for Jeffrey and Son’s has been prepared as follows. It
assists management to assess the performance of corporation in the marketplace so-as-to carry
out all business activities in an effectual manner.
Table 12: Reconciliation operating statement
Particulars Amount
Budgeted profit £3040
Less: Variance of sales -£180
Less: Variance of cost -£60
Add: Labor £110
Less: Overhead -£100
Actual profit £2810
Favorable Adverse
Sales volume variance £1120
Sales price variance £180
Material price variance 0
Material usage variance £60
Labor rate variance £70
Labor efficiency variance £40
Fixed overhead expenditure
variance
£100
Total variance £110 F £1460A
Total net variance -£1350
Budgeted operating profit £4160
22

Less: Net variance -£1350
Actual operating profit £2810
The operating statement of Jeffrey and Son’s is showing downward results due to adverse
variance. Here, the main reason of variance behind variation is low price for product and
services. Owing to this, total additional expenses are increasing and rate of return is going down.
However, there is favorable variance of labor.
4.3 Findings to management in accordance with identified responsibility centres
According to the analysis of different statement, it has been found that Jeffrey and Son’s
can bring improvement in following listed areas. Owing to this, responsibility centres like
marketing, finance and sales as well as production department will be integrated for resolving
issues faced by corporation- Production department- This is the most important department of organization under
which production manager needs to lay emphasis on waste management (Figge, and
Hahn, 2013). It helps to reduce additional cost of production and enhance profitability of
firm in the marketplace. In addition to this, production manager of corporation can also
shed light into recycling process which leads to increase in overall sales turnover. Finance department- Finance manager has the prime responsibility to adopt effective
pricing strategy and suggest alternative ways to reduce cost. In this regard, finance
department should focus on cost effective sources of finance. Similarly, department of
finance can focus on different kinds of cost effective strategies thereby company can
increase overall rate of return (Becker, Messner and Schäffer, 2010).
 Human resources department- This department of company is one of the most important
sector which helps to boost productivity of corporation. In this regard, management of
Jeffrey and Son’s needs to focus on providing training among personnel. It leads to
delivery of good quality services to large number of buyers (Management accounting,
2014).
CONCLUSION
After preparing this report, it can be concluded that there are several tools and approaches
of costing by considering the business information of Jeffrey & Sons Ltd. Conclusively, it can be
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said that in this report, management is required to optimize their cost in order to maximize their
revenue and profitability. For this purpose, the business organization can make use of cost report
and budgetary statements which will aid the managers in maximizing revenue for the firm.
Moreover, they must monitor the performance of employees so-as-to assure standard
performance. In addition to this, enterprise should calculate variances in order to find out the
differences between actual and expected outcome for taking necessary steps for future
improvement.
24

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