Analyzing Cost Budget Management: A Case Study of Candy Buffet Co.

This report investigates the cost allocation methods employed by the Candy Buffet Company, an Australian manufacturer of candies, with a specific focus on electricity costs. It assesses the company's current practices, particularly the allocation of electricity costs based on direct labor hours for its soft and hard candy product lines. The report includes an analysis of the direct method used for cost allocation, calculating allocation percentages and costs for each product line. Furthermore, it outlines various types of budgets relevant to management accounting, such as direct materials purchases, cost of goods manufactured, sales, production, and factory overhead budgets, detailing their primary functions, applicable departments, supporting data, and user roles. The report aims to provide insights and recommendations to enhance the company's cost management and budgetary control processes, ultimately improving profitability and operational efficiency. Desklib provides access to similar solved assignments and study tools.

Running Head: COST BUDGET MANAGEMENT 1
The Candy Buffet Company Budget Management
Name
Institution

Cost Budget Management 2
Executive Summary
Profitability is not always attained in seconds, as much needs to be planned so that any
organization can enjoy huge profits in the end. Cost allocation is vital for most businesses, as
not including cost budgeting in any financial analysis will not highlight areas that will require
clarity. Effective cost allocation can entirely reap huge advantages for example the
managerial team not being deprived of various profits in day to day organizational operations.
Perils might happen if inadequate care is not paid on cost allocation processes, not being in a
position of updating prospective plans, as all plans must be effectively be planned since for
growth to be noticed resources such as labor, distribution of materials and additional services
must be included in the process (Dorta-Velázquez, De León-Ledesma & Pérez-Rodríguez,
2010). For this reason, the paper will focus on allocation electricity costs to the Candy Buffet
Company an Australian Company that manufactures Candy and its products. It is prospected
that with effective electricity cost allocation, it will help the company cut off extra expenses
which will augment the company sales. All criteria involved in the cost allocation process
will be highlighted in the sections below.

Cost Budget Management 3
Introduction
In this paper, the major focus of this assignment will specifically focus of cost allocation
process of the Candy Buffet Company in allocating electricity costs. Therefore, various
budgets will be designed and assessed so that efficient budgetary costs can be achieved in the
process. Additionally, the paper will assess the production line of the Candy Buffet company,
with its prospects of delivering electricity services to the firm (Gao, Chen & Shi, 2017) .
Hence, an effective budgetary costs will be implemented based on the recommended
resources required to be aligned by the company’s administrative staffs.
Part 1
Generally, cost allocation entails the identification, assigning, and aggregating various costs
to the cost budget. Basically, cost object is an event or a specific item that you may anticipate
to assess differently. The allocation of costs is entirely utilized in financial reporting events,
which is used in aligning costs within different inventory systems and departments.
Additionally, cost allocation if employed in computation of how a particular department or
unit is profitable, thus helps in the evaluation of various bonuses used in funding of various
activities in an organization. Consequently, cost allocation can also be used in attaining of
different prices amid various subsidiaries (Guevara-Cuellar, Soto & Molina-Echeverry,
2018). For this reasons, cost allocation is significant as the processes at which cost is incurred
in creating various products, or delivering a specific service may be computed. When cost is
not computed accurately, organizations will never understand the type of products that make
money and others that lead to loses in the end. On the other hand, when cost are misallocated
firms may be rendering inaccurate prices to its clients or on the other hand, they would be
worsening assets and company resources on items that are inaccurately grouped and not
profitable to the business.

Cost Budget Management 4
Therefore, in this paper the organization to be focused on it the Candy Buffet Company,
founded in Australia. Additionally, the company has two major product lines which are
provision of soft and hard candy. Considering the organizations operations, there was need to
allocate electricity costs so that the business operations can be effective. Hence the total costs
of electricity were anticipated to be about $55,000. This total budget is prospected to fully
meet the electricity cost allocation process of the business (Jaeeun Lee, 2014). Thus the
allocation of electricity cost for the Candy Buffet company is centered on direct labor for
each product lines.
Description Soft Candy Hard Candy
Direct Labor Hours 1,500 Hours 2,000 Hours
Revenues $ 350,000 $ 450,000
Production Capacity 70,000 Kg. 90,000 Kg.
In the process of allotting electricity costs, the Candy Buffet must ascertain that all costs are
reasonable and always have effective documentation processes. Thus the allotment technique
should be valid and reasonable and should effectively link to the relevant costs that have been
imposed (Larson, 2013). Although the documentation process should exhibit that the allotting
technique points out on the project advantages in amount and percentage shown.
Thus the allocation base must be a cause, or a driver considering the cost being allotted.
Therefore, a good indicator that shows a good allocation base is when different changes
happen during the allocation process which must effectively adhere to the actual price.
Additionally, when direct labor duration diminishes, then the actual costs should be incurred

Cost Budget Management 5
to the electricity costs respectively (Nikolaidi, Hatzikou & Geitona, 2013). Thus many firms
employ very minute numbers of the allocation bases in order to allot overhead costs, although
much thorough evidence based costing frameworks can utilize a huge number of such. Thus a
normal cost allotment scheme entails the list below:
● Ascertaining the object at which the costs have been allotted to
● Accruing different costs in dissimilar pools
● Assessing the most effective technique used in allotting of the relevant cost
Cost object – basically, a cost object is an item that a firm is required to estimate the cost
differently. Considering this case, the cost object is within the product line (Nikoofal &
Zhuang, 2011).
Cost Pool – on the other hand, cost pools are employed in accounting so that different costs
can be aligned into different segments. Consequently, cost object is the major reasons as to
why the firm is incurring such costs. Considering the case of Candy Buffet, the cost pool will
be the electricity cost. Thus the section of cost pool will rely of the total cost of the allocation
base utilized (Phelps & Madhavan, 2018). Relating to the Candy Buffet Company only one
allocation base was utilized as per the direct labor hours which narrowly explained the cost
pools.
Cost pools and firm’s costs – the main objectivity of creating the cost pools is to achieve a
process that has the same effects and causes on the cost objects. Such similar events may lead
to a decrease of an increase in the costs. In other terms, cost characteristics of same behaviors
would be in the same cost pool. On the other hand, the supply of assets used when operating

Cost Budget Management 6
the whole department of the firm which linked with the base level of the overhead prices. In
an event when resources, for instance, energy costs (electricity costs) rises or declines within
an effectively allotted based, then its overhead prices will relate consistently.
Hence, the primary reason for efficient allocation method is supplying costs based on the
advantage acquired, thus it is required to assess if there is an immediate of direct connection
amid the electricity costs and direct labor costs. For this case, there will be a connection, thus
the allotment process will be centered on the particular linkage.
The process of allocation different accounting processes, they must be effectively
documented and audible. Thus the documentation process must be supported for explicit
costs allocated and signify the allocation process which is precisely linked to the costs being
assigned to. Therefore, the support must be reserved by the division and be availed for
assessment. Forbidden allotment techniques may include various methodologies centered on
the funding systems, budget and the accessible funds (Standaert, Curran & Postma, 2014).
The Candy Buffet company must update its allocation techniques in an event where there is
transition in the advantages to the projects it prospects to venture into. When there is no
change linked to the method within 6 months, therefore there is no need for change. Whereas
is there is any monthly changes, then the accompanying computations should be recreated on
a monthly basis (Dorta-Velázquez, De León-Ledesma & Pérez-Rodríguez, 2010). Thus the
major key assessor for the cost allocation process should be comprehendible, supportable,
and reasonable centered on the advantages of each project receivables (Jaeeun Lee, 2014).
Recommendations of the appropriateness of the method
There is use of direct method by the Candy Buffet Company in allocating electricity costs.
The main reason is that direct method is the most effective and simplest method to be used

Cost Budget Management 7
for each department for each cost allocation process. The allocation process is achieved
through the use of service flows directly to the production departments and assessing each
production section which share the same type of service. Considering the Candy Buffet
Company, the use of direct method is appropriate for each production department centered on
the direct labor hours (Gao, Chen & Shi, 2017). Evaluating an effective allocation method
always tends to be daunting. For instance, employing the labor hours might be ineffective for
the automated plant where labor is less the overall costs.
Assess the base to employ and the percentage used in allocation of the stated base. Thus the
firm needs to utilize the direct labor hours of the base. Therefore, for the soft candy
production line, Candy Buffet requires about 1500 direct labor hours. On the other hand, hard
candy production line the Candy Buffet Company requires 2000 labor hours precisely. Thus
when dividing the 1500 labor hours by the 3500 direct labor will be equated to the allocation
base of 42.86% for the soft candy production line. Thus 2000 direct labor hours will be
segmented in 3500 direct labor thus being equal to the allocation base of about 57.14% for
the hard candy production line (Guevara-Cuellar, Soto & Molina-Echeverry, 2018). Hence,
the overall costs will be multiplied with the allocation base. On the other hand, the soft candy
production line will be $55000 times 42.85% thus being equal to about $23673. Thus on the
other hand, the hard candy production line, $55000 will be times 57.14%equal to $31427.
Production Line Direct Labor hours
Allocation
Percentage
Allocation Cost
Soft Candy 1,500 42.86% $23,673
Hard Candy 2,000 57.14% $31,427

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Production Line Total Revenue Electricity Cost Percentage
Soft Candy $ 350,000 $23,673 0.0676 %
Hard Candy $ 450,000 $31,427 0.0698 %
Production Line Production Kg. Electricity Cost Cost per kg.
Soft Candy 70,000 $23,673 $ 0.338
Hard Candy 90,000 $31,427 $ 0.349
Part 2
Direct Materials Purchases Budget
Applicable
Department :
Purchase
Department
Supported data by :
Operation
Department
Primary Function : Indicates the cost of direct material purchased and expected cash

Cost Budget Management 9
payments for materials .
Budget Users :
Storekeeper, Stock Inventory Accountant, Operation Supervisor,
Purchase Officer, Financial Officer and AP Accountant
Cost of Goods Manufactured Budget
Applicable
Department :
Operation
Department
Supported data by :
HR and Accounting
Department
Primary Function : For examining the cost structure of company’s production operation.
Budget Users :
Operation Supervisor, Purchase Officer, Financial Officer, AP
Accountant, HR Officer and Maintenance Supervisor
Sales Budget

Cost Budget Management
10
Applicable
Department :
Sales Department Supported data by :
Accounting
Department
Primary Function :
Represents the total sales in physical quantities and values for a
future budget period. The purpose is not to estimate or guess what the
actual sales will be but rather to develop a plan with Cleary defined
objectives towards which operational efforts are directed.
Budget Users :
Operation Supervisor, Production Planner, Financial Officer, AR
Accountant, Sales forces and Marketing Officer
Production Budget
Applicable Production Supported data by : Store Department

Cost Budget Management
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Department : Department
Primary Function :
Estimates of the total volume of production with the scheduling of
operations by days, weeks and months.
Budget Users :
Operation Supervisor, Production Planner, Storekeeper and
Warehouse Officer
Factory Overhead Budget
Applicable
Department :
Accounting
Department
Supported data by :
Administrative
Department
Primary Function :
Estimated costs against actual costs to help company monitor and
control production costs to improve profit margin.
Budget Users : Accounting and Financial Officer, Purchase Officer, Administrative

Cost Budget Management
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officer, Production supervisor and HR Officer
Flexible Budget Performance Report
Applicable
Department :
Operation
Department
Supported data by :
Sales and
Accounting
Department
Primary Function :
Used to compare actual results for a period to the budgeted results
generated by a flexible budget. Management can then focus on the
significant variances to see if any actions should be taken to ensure
that actual results remain close to expectations.
Budget Users :
Accountant and Financial Officer, HR Officer and Operation
Supervisor
Cash Budget