Comprehensive Management Accounting Report for Jeffrey & Sons

This report analyzes the management accounting practices of Jeffrey & Sons, covering various aspects of cost accounting and budgeting. It begins with a classification of different types of costs, followed by the calculation of unit costs and total job costs for a specific job (444) and the cost of Exquisite. The report then delves into cost analysis, preparing a cost report for September and identifying performance indicators for potential improvements. It also explores methods to reduce costs and enhance value and quality. Furthermore, the report examines the purpose and nature of the budgeting process, recommending an appropriate budgeting method for the organization and formulating production and material purchase budgets, along with a cash budget. Finally, it calculates variances, assesses costs, recommends corrective actions, and prepares operating statements to reconcile budgeted and actual results, providing findings to management based on identified responsibility centers. The report aims to provide a comprehensive understanding of management accounting principles and their application in a real-world scenario.

MANAGEMENT ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION .............................................................................................................1
Task 1.............................................................................................................................. 1
1.1 Classification of different types of cost...................................................................1
1.2Calculation of unit cost and total job cost for job 444..............................................3
1.3Calculation of cost of Exquisite ..............................................................................4
1.4 Analysing the cost data of Exquisite by using appropriate techniques...................5
Task 2.............................................................................................................................. 6
2.1Analyse and preparation of cost report for the month of September.......................6
2.2 Performance indicators to identify areas for potential improvements.....................8
2.3Ways to reduce costs and to enhance value and quality........................................8
Task 3.............................................................................................................................. 9
3.1Purpose and nature of the budgeting process to the budget holders of Jeffrey and
Son's............................................................................................................................ 9
3.2Appropriate budgeting method need to be used by the organisation and its needs
................................................................................................................................... 10
3.3Formulation of production and material purchase budgets...................................10
3.4 Preparation of cash budget..................................................................................11
Task 4............................................................................................................................ 12
4.1Calculation of variance, assessment cost and recommend corrective actions.....12
4.2Preparation of operating statements which reconcile both budgeted and actual
results........................................................................................................................ 14
4.3Finding to management in accordance with identified responsibility centres........15
Conclusion..................................................................................................................... 15
References .................................................................................................................... 15

INTRODUCTION
Accounting related to managerial activities is related with preparing different
types of financial statements in order to analyse the financial and statistics data. It is
performed to achieve long term as well as short term objectives. It can also be
considered as the activity of recording information which affects the business activities.
This report will talk about the different types of costs which are incurred in the
business. A company named Jeffrey & Sons has been considered. Along with that cost
of exquisite is also evaluated by using different kinds of approaches. Methods related to
cost improvements are also mentioned in the study.
In this report, purpose and nature of the budgeting process are discussed. Along
with this, appropriate budgeting method that can be used by Jeffrey & Son's is also
discussed. Further cash budget related to the company has been prepared in order to
find the amount of cash inflow and cash outflow. Along with this, variance is also
calculated (Abdel-Kader and Luther, 2008).
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TASK 1
1.1 Different types of costs
Following are the costs on the basis of behaviour
 Fixed cost:- It is the cost which does not change from time to time. Fixed cost
includes the cost of building, factory rent and legal bills.
 Semi-variable cost: - This cost is of fixe nature and remain fixed till
predetermined limit and then started changes. In other words it could be said that
the cost of the goods produced remain fixed till the certain limit is not cross and
once the limit exceeds the cost became variable. For example: Charges like
electricity, phone bills are considered semi-variable costs. Variable cost:- This kind of cost keeps on changing with the change in the
output. For example: - cost of purchasing goods (Ahrens and Chapman, 2007).
Following are the costs on the basis of functions Production cost: -. It is the cost which is beard by the firm during the production
of goods and services. Commercial cost: - This kind of cost is incurred by the firm while performing its
different types of operations and functions. Commercial cost includes the
administration and selling & distribution cost.
Following are the costs on the basis of elements Material:- This kind of expenses arises while the course of conversion of raw
materials into the finished goods. Labour:-It is the cost which is related to the human resource. It includes the cost
of wages and salaries to the employees, employees insurance and tax benefits. Overhead:- This kind of expense cannot be conveniently traced to or identified
with any particular cost unit (Bisbe, Batista-Foguet and Chenhall, 2007).
1.2 Calculation of unit cost and total job cost for job 444
Cost sheet is documented in order to accumulate the costs related information
with the product.
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Hence the company is required to obtain £770 for the production of units.
(Purpose and nature of budgeting, 2016).
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1.3 Calculation of cost of Exquisite
A) Allocation and apportion of overhead to the production department of machine X. Y
and assembly
Production department
Service
department
Particular
s
Basis of
allocatio
n
Total in
(£)
Machi
ne X
(£)
Machi
ne Y
(£)
Assemb
ly 1 (£)
Store
s (£)
Maintenan
ce (£)
Indirect
wages and
supervisio
n
Allocated 362000.
00
100000 99500 92500 1000
0
6000
Indirect
material
Allocated 253000.
00
100000 100000 40000 4000 9000
light and
heating
Area
occupied
50000.0
0
20000 5000 15000 1500
0
5000
rent Area
occupied
100000.
00
20000 10000 30000 3000
0
10000
insurance
and
machinery
Book
value of
machiner
y
15000.0
0
7947 4,966 9933 497 5 96.096
depreciatio
n
Book
value of
machiner
y
150000.
00
79.470 49,668 99933 4970
5960
Insurance
of building
Area
occupied
25000.0
0
5000 2500 7500 7500 2500
salaries of
work
No. of
employe
80000.0
0
24000 16000 24000 8000 8000
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managem
ent
es
Sub totals 346,41
7
287634 219927 7996
7
101056
Re-
apportionin
g of
service
dept. cost
0 0 0 0 0
Store
departmen
t
39989 29988 9996 0 0
maintenan
ce
48507 32018 20211 0 0
Total cost 434908 349649 259134 0 0
B) Reapportion of the cost of service and support department to the production
department
Particulars Production
Basis of
allocation
Total
in (£)
Machine
X
Machine Y
(£)
Assembly 1 (£)
Primary
distribution
(Earlier table)
1035
000.0
0
314490.
19
272264.70 245862.78
Stores Direct
material
39982 29987 9995
Maintenance Machine
hours
48506.8
8
32337.92 20211.2
Total 434905.
88
349960.92 250133.2
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C)
The overhead absorption rate for Machine X, Y is calculated by using the machine
hours.
Rate of overhead absorption = Fixed overhead / machine hours
Calculation of the overhead absorption rate for each of the production department is as
follows:
The computation for OAR for each of the production department are as follows:
Machine shop X = = 346417 + 39982 + 48506.88/80000
= £ 5.44
Machine shop Y =287636+29987+32337.92/ 60000
= £5.83
Assembly = 219927 + 9995+ 20211.2/10000
= £25.01
Thus, on the basis of above calculation, it can be concluded that overhead
absorption rate of department X is £4.66 whereas for department Y, it is £5.24. Thus, in
lieu of which assembly needs to absorb their overhead rate at £4.41.
D) Calculating the overhead charge to the product by using the absorption rate
Total overhead cost = 5.44*0.8= 4 .35
5.83*0.6=3.50
25.01*0.1=2.50
£4.35 + £3.50 + £2.50 = 10.35£
Cost of product may be defined as the sum up of material, labour and overhead
expenses.
Total cost of the product: Material + Labour + Overhead
= 8+ 15+ 10.35£
= £33.35
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1.4 Analysing the cost data of Exquisite by using appropriate techniques
Particulars Production
Basis of
allocation
Total
in (£)
Machine
X
Machine Y
(£)
Assembly 1 (£)
Primary
distribution
(Earlier table)
1035
000.0
0
314490.
19
272264.70 245862.78
Stores Direct
material
34882.3
5
26161.76 8720.59
Maintenance Labour hours 2:1.5:
1
22052.2
9
16539.22 11026.14
Total Cost 371424.
83
314965.68 265609.51
Calculation of the overhead absorption rate as per the labour hours is as follows:
Production department Overhead absorption rate in the form of
labour hours
Machine X = 371424.83/200000 labour hours =
1.86£
Machine Y = 314965.68/150000 labour hours =
2.10£
Assembly = 265609.51/100000 labour hours =
2.66£
From the above calculation it can be interpreted that maintenance cost assembly
and machine appears high if it is computed with regard to labour cost. On the other side
the maintenance cost for machine X is less when it is computed with regard to labour
cost. When machine hours are taken into consideration, then cost of maintenance
appears to be very high. For machine X the cost is 23816.4, for Machine Y is 15877.65
and for assembly, it is 9923.53. Change in the cost of maintenance also puts an impact
on the per unit cost of the product. The per unit cost of the product is also affected when
the cost of maintenance keeps on changing,
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TASK 2
2.1Analyse and preparation
In the given scenario the labour, material and overhead cost of the products are 2000 units.
On the other side the cost of material, labour and overhead are 1900 units. Thus, following
calculation has been mentioned below:-
Particulars Formula Calculation
Material cost Total number of units*material
price per unit
= 1900 units* 12£ =
22800£
Labour cost Total number of units*Piece rate = 1900 units * 10£ =
19000£
Electricity: Electricity is the semi variable expense that remains fixed to the
definite point and then it becomes variable when the definite limit has been crossed.
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The cost related to maintenance has reduced because of change in the units of
the production. It has reduced from 1000 to 5000 units.
Analysis of the variances is as follows:
Particular Budgeted cost (2000
units)
Actual cost at 1900
units
Variance
Material 24000 22800 1200
Labor 18000 19000 -1000
Fixed
Overhead
15000 15000 0
Electricity 8000 7625 375
Maintenance 5000 4800 200
Total 70000 69225 775
From the above calculation it can be interpreted that units produced within
the business decreases from 2000 to 1900. This in turn shows that positive variances
have been emerged for the operations. While on the other side labour variance has an
negative impact on the costs of products and services. Hence in order to overcome
such variance, the company should make efforts to motivate the workers. It will lead to
9

increase in the productivity and profitability. Due to less production, positive variation
has occurred in electricity and maintenance cost. Main cause for positive variance is
that Jeffrey and Son's has produced only 500 units instead of 1000units. In order to
justify the labour cost, Jeffrey and Son's should prepare various strategies and policies
(Cohen, Dey and Lys, 2008).
2.2 Performance indicators to identify areas for potential improvements
Different types of areas can be highlighted for potential improvements within the
business. These are as follows:
Satisfying the employees by motivating the customers: - For the purpose of motivating
the employees, useful training session can be given at regular intervals. It is expected
that highly motivated employees will deliver their best at all the levels. This in turn will
improve the quality of the product. At the same time cost of production will also be
reduced because wastage of the raw material will decrease.
Company should also try to reduce the sales revenue. This in turn will aid the
company to reduce its cost of production and manufacturing (Davila and Foster, 2005).
In order to increase the level of profitability, they are required to adopt appropriate
accounting practices. The preparation of the financial statements must be in accordance
with IFRS and GAAP standards. Performance can also be improved by appointing
skilled and efficient workers for the business.
2.3 Ways to reduce costs and to enhance value and quality
There are several ways which can help the Jeffrey and Son's to reduce its costs
and to enhance value and quality of the product. Some of them are listed below:-
Jeffrey and Son's should try to optimize the utilisation of the production process.
Company should try to achieve what they want to achieve by reducing the size of the
process.
Jeffrey and Son's should prepare various budgets in order to manage all its
operations. Along with this company should constantly monitor the progress of the
budget in order to analyse actual position of the business.
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