Accounting for Managers Report: Budgeting, Variances, and Decisions

This report, designed for accounting managers, provides a comprehensive overview of key financial concepts and practices. It begins with a detailed analysis of various budgets, including sales, production, direct materials, direct labor, manufacturing overhead, ending finished goods inventory, and cost of goods sold, culminating in a budgeted income statement and cash budget. The report then delves into a case study involving alternative electricity production assets and their cost implications, contrasting the perspectives of managers Rita Aurther and Mr. Paulo on production strategies. Furthermore, the report includes a variance analysis, comparing budgeted versus actual costs for materials and labor, highlighting areas of overspending and underspending, and evaluating the effectiveness of operational performance. The conclusion summarizes the key findings and implications for managerial decision-making within the context of the presented data and scenarios.

Accounting for Managers

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
PART A...........................................................................................................................................1
a) Sales budget........................................................................................................................1
b) Production budget..............................................................................................................1
c) Direct material purchases budget.......................................................................................1
d) Direct labour budget...........................................................................................................2
e) Manufacturing overhead budget.........................................................................................2
f) Ending finished goods inventory budget............................................................................2
g) Cost of goods sold budget..................................................................................................3
h) Budgeted income statement...............................................................................................3
i) Cash budget.........................................................................................................................3
PART B............................................................................................................................................3
PART C ...........................................................................................................................................4
PART D...........................................................................................................................................1
CONCLUSION................................................................................................................................1
REFERENCES................................................................................................................................2

INTRODUCTION
Managers are responsible to manage the business and for that, it is needed that proper
accounting shall be done (DRURY, 2013). In this report, all the aspects which are present in
respect of accounting will be discussed. in preparation of budget, information is required and that
is to be collected by managers. On the basis of findings managers can run business in more
effective and efficient way. The impact of behavioural implication on an organisation is also
explained below.
PART A
a) Sales budget
Particulars January February March Total
Units 76380 61100 68740 206220
Selling price per
unit 7400 7400 7400
Total sales 565212000 452140000 508676000 1526028000
b) Production budget
Particulars January February March Total
Forecasted sales in units 76380 61100 68740 206220
Add: closing sock 36660 41244 54990 132894
Total units 113040 102344 123730 339114
Less: opening stock 48900 36660 41244 126804
Production units 64140 65684 82486 212310
c) Direct material purchases budget
Particulars January February March Total
Part 714
Production units 64140 65684 82486 212310
Material per unit 5 5 5
Total required material 320700 328420 412430 1061550
Add: Closing stock 12220 13748 18330 44298
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Less: opening stock 15276 12220 13748 41244
Budgeted material
purchases(units) 317644 329948 417012 1064604
Cost per unit 92 92 92
Total purchase cost for 714 29223248 30355216 38365104 97943568
Part 502
Production units 64140 65684 82486 212310
Material per unit 6 6 6
Total required material 384840 394104 494916 1273860
Add: Closing stock 12220 13748 18330 44298
Less: opening stock 15276 12220 13748 41244
Budgeted material
purchases(units) 381784 395632 499498 1276914
Cost per unit 122 122 122
Total purchase cost for 502 46577648 48267104 60938756 155783508
Total purchase cost 75800896 78622320 99303860 253727076
d) Direct labour budget
Particulars January February March Total
Total production units 64140 65684 82486 212310
Labour hours per unit 9 9 9
Total hours required 577260 591156 742374 1910790
cost per hour 50 50 50
Total labour cost 28863000 29557800 37118700 95539500
e) Manufacturing overhead budget
Particulars January February March Total
Total labour hours required 577260 591156 742374 1910790
Variable overhead per hour 153.87 153.87 153.87
Total variable overhead 88822996.2 90961173.72 114229087.38 294013257.3
Fixed manufacturing overhead:
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Indirect labour 34755020 34755021 34755022 104265063
Supervision 42770000 42770000 42770000 128310000
Depreciation 3818800 3818800 3818800 11456400
Rates and Utilities 3155800 3155800 3155800 9467400
Others 15275000 15275000 15275000 45825000
Total Fixed overheads 99774620 99774621 99774622 299323863
Total manufacturing overheads 188597616.2 190735794.72 214003709.38 593337120.3
f) Ending finished goods inventory budget
Particulars January February March Total
Opening Finished goods inventory 48900 36660 41244 126804
Add: Production units 64140 65684 82486 212310
Less: Sales 76380 61100 68740 206220
Closing balance of finished inventory 36660 41244 54990 132894
g) Cost of goods sold budget
Particulars January February March Total
Material required for part 714 320700 328420 412430 1061550
Cost per unit 92 92 92
Total cost of material 714 29504400 30214640 37943560 97662600
Material required for part 502 384840 394104 494916 1273860
Cost per unit 122 122 122
Total cost of material 502 46950480 48080688 60379752 155410920
Total material cost 76454880 78295328 98323312 253073520
Total labour cost 28863000 29557800 37118700 95539500
Total manufacturing overheads 188597616.2 190735794.72 214003709.4 593337120.32
Total cost of goods manufactured 293915496.2 298588922.72 349445721.4 941950140.32
Add: Opening stock of finished goods 106602000 79918800 89911920 276432720
Less: Closing stock of finished goods 79918800 89911920 119878200 289708920
cost of goods sold 320598696.2 288595802.72 319479441.4 928673940.32
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h) Budgeted income statement
Particulars January February March Total
Sales 565212000 452140000 508676000 1526028000
Less: cost of goods sold 320598696.2 288595802.72 319479441.4 928673940.32
Gross profit 244613303.8 163544197.28 189196558.6 597354059.68
Less: expenses
Variable selling expenses 84781800 67821000 76301400 228904200
Fixed selling & administration 27495000 21996000 24745500 74236500
Net profit 132336503.8 73727197.28 88149658.6 294213359.68
i) Cash budget
Particulars January February March Total
Opening balance 3818800 379030960 816334760 1199184520
Cash received in month of sale 384344160 307455200 345899680 1037699040
Cash received in month after sale 180868000 169563600 135642000 486073600
Dividend paid -190000000 -190000000
Land purchased -39715000 -39715000
Closing balance 379030960 816334760 1297876440 2493242160
PART B
In the mentioned case, it has been seen that alternate electricity production assets are the
most innovative techniques that are used by each and every individuals in order to overcome
their excessive electricity costs for long period. While in the initial stages, the total fixed costs
incurred for implementation of these assets can enhance the productivity of the company that
helps in attaining business objectives. In the process of production there are various costs which
are incurred such as direct and indirect cost. The cost which are directly related and will be
deviating with the change in units of product. Another one is indirect that does not change in
direct proportion.
In the given case, propellers are produced by company which are used in manufacturing
of wind powered production equipment. There are various firms which manufacture these
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generators and so, company supplies its units to them (Nobes and Stadler, 2015). The sales
manager of company, Rita Aurther, is worried as some elections are going to be conducted and
there is possibility that the new government which will be framed can eliminate the wind-
generated division. Another major issue of her concern is that there are chances that market
which is present for alternate equipment may come to an end. Due to all these issues, she is
highly insecure about the company. There are chances that losses will be incurred because of it.
This is because if new product is introduced in market then competition will increase and in
order to deal with that various factors are to be analysed by the manager so that issues regarding
which she is concerned can be dealt in most appropriate manner.
On the other hand, Mr Paulo is there who wants to include advanced production services
in their business and for that, various plans are being made. By the introduction of this, all
operations will be carried out effectively and efficiently. With the help of this, they will be able
to carry out in house production. In this, assembling is purchased and in current state, the work is
carried out by labour and after making the process automatic, this problem can be resolved. All
the costs which are incurred for material and labour will be restricted by the automatic process
which is more effective. Thus, the cost related to them is saved and this is reduced by 25 percent
as material and labour are direct cost so as the production will be changing this will also deviate.
In spite of this, increase is noticed in relation to fixed production overheads up to 50 percent and
this is not considered to be a positive factor for business. The main reason which is identified for
this is increased production capacity. As the project is initially started so, the fixed cost is
increased and there are many benefits which will be received by business as cost related to
material and labour is decreased through the same. This will make the business more profitable
and also, effectiveness can be gained because of this that provides long term benefits. By the
analysation of cost it is possible for rita and Paulo to take the decisions as they will choose that
method in which cost will be minimised and profits are increased. In process of decisions only
those cost which are variable or direct are to be taken into consideration as they are ones that
affect the profits. Fixed cost remains same so that is not considered. In the given case the
decision of Paulo is right as by that material and labour cost are declining which is a good factor
and the fact that manufacturing expenses are increased is for one time as they are fixed and are
incurred for initial installation but after that they will remain at same level. So as the production
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will increase the saving will also increase which is good aspect for coming period in which there
are chances of new competitors coming in market.
PART C
In business, there are various tools which can be used for the purpose of increasing
effectiveness. In given situations, budgets are made in which all the expenses and incomes are
estimated on the basis of past data and other relevant aspects which are there in relation to
coming period. With the help of them, it is possible to manage all the transactions in an
appropriate manner as limit of them is already specified. In the budgets which are made above
along with the actual figures, there are certain deviations which are noted. So, in order to draw
proper conclusions from them, variances are provided as below:
Particulars Budgeted Actual variances
Material cost of 714 97943568 145275360 -46331792
Material cost of 502 155783508 99271500 56512008
Labour cost 95539500 150793200 -55253700
The above table represents variances which are there and from this, it can be noted that
for part 714, the actual amount incurred is more than the cost which was budgeted. So, it can be
said that company is not following plan in a proper manner as adverse variance is determined at -
46331792. In case of part 502, actual expense which is made is less than what was decided in
budget. Here, the variance is favourable at 56512008 which shows that all expenditures are made
in accordance with budgets and therefore, they are under control which is a positive sign for
business. The labour cost which is there in company is more in actual terms than the budgeted
amount and variance is calculated at -55253700.
So, the spending made on labour is much higher than what was decided and this is not
good as by this, profit of company is reduced. So, on the basis of all of these, it can be said that
operations are not performed in an effective manner. Due to this, variances are calculated so that
they can be evaluated in a proper manner and causes because of which it is happening can be
determined. It will be possible to earn more profits if favourable variances are gained. Proper
plan shall be formulated by taking into consideration all factors which are affecting the working
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of business. In this, various tools are to be used by which variables which affect the functioning
are analysed and controlled. By undertaking all of them, it is possible for business to improve its
position and this will lead to bring improvements in the coming period.
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PART D
The implications of behavioural impacts on business organization
The manner in which employees of an organizations work is different from their attitude
and behaviour that is followed in a social environment. There are different factors which
influence an organizations behaviour (Collier, 2015). It mainly consists of various structure,
policies and regulations along with other aspects which are present in the business. All these
things can motivate the employees to work according to their strengths and contribute maximum
to company. It will be more effective as they are getting more accurate and reliable data in order
to achieve higher productivity and competitiveness.
The reason behind all those impacts is lazy working ability of employees as they do not
take interest in their work. The behavioural implications of accounting system are very much
new that clarifies the role, management control and tendency of employees to be lazy and
hampering resources as categorized in the business. Company needs to prepare an effective
budget that will be able to convert the goals and objectives of and organization into valuable
data. Budgets are said to be one of the most effective aspects of decision making for any
company. It is simply a blueprint for making management strategies and plan.
With the help of budgets, most of the operations which are performed by company during
the coming year are determined and controlled. Performance of an individual as well as company
is analysed through use of actual budget with the standards (An Introduction to Business
Accounting for Managers, 2017). The budgets help managers to reach at a destination through
moving from starting point to set objectives. Some of the planning control measures a company's
management follow are:
I) An imposed budget approach: It refers to those budgets which are formulated by the
top management with few resources and no other inputs from the operating personnel are
used. It is mainly considered as Top- Down budgeting. It is based on estimating the cost
of maximum level activities at the first and using these information to constrain the
estimate of lower activities.
Advantages:
 It takes less time to formulate and determine the results from the particular budgets.
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 It will be helpful in addressing objectives of an organization which are making maximum
impact on the profitability of company.
ii) A participative budgets approach: Under this process, the manner in which funds shall
be used for growth of business is decided (Ahmed and Duellman, 2013). Here various
budgets are prepared such as municipal and capital budgets. These types of budgets are
called as bottom - up which works from lower level of management to higher level.
Advantages:They help in increasing the level of motivation among employees.
 It helps to develop better communication among various departments.
 The senior managers are required to concentrate on the plan and strategies that are made
in order to attain objectives.
CONCLUSION
From the above mentioned report, it can be concluded that by use of budgets, all
operations can be carried out in the most profitable manner and results are used to draw
interpretations. It has also been identified that there are various ways in which accounting is to
be done by managers and this will help them in making the decisions for betterment of business.
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