Management Accounting Report: Cost Allocation and Budget Analysis

This report provides an analysis of management accounting information, focusing on cost allocation, particularly the allocation of electricity costs within an organization. It details the methodology for allocating these costs across different departments, including mining, processing, and administration, based on electricity consumption. The report further examines various budgets, such as finished goods inventory, direct material, sales, production, direct labor, cash, administration, manufacturing overhead, and marketing budgets. It outlines the primary functions of budgeting, including forecasting, planning, motivation, evaluation, and control, and identifies the users of budgets both within and outside the firm, such as managers, top managers, and banks. The report includes references to support the analysis.

PROVIDE MANAGEMENT
ACCOUNTING
INFORMATION

TABLE OF CONTENTS
PROVIDE MANAGEMENT ACCOUNTING INFORMATION..................................................1
Part A Written assignment ..............................................................................................................1
1 Does the organization allocate total cost of electricity?......................................................1
2 Basis for allocation of total cost of electricity ....................................................................1
3 Calculating the percentage and cost of total cost of each allocation...................................1
Part B...............................................................................................................................................1
1 Title of report/Budgets........................................................................................................1
2 & 4 Department to which budget applicable.......................................................................1
3 Primary function of budget..................................................................................................8
5 Users of budget within and outside firm.............................................................................8
REFERENCES................................................................................................................................9

Part A Written assignment
1 Does the organization allocate total cost of electricity?
Yes, Rio Tinto allocate total cost of electricity across its different departments that are
mining, processing and administration department. It can be said that according to use of
electricity same is allocated among departments (Burkhard and et.al., 2012).
2 Basis for allocation of total cost of electricity
For allocation of total cost of electricity simply through meters units of electricity
consumed by mining, processing and other departments is identified separately is identified.
3 Calculating the percentage and cost of total cost of each allocation
Units
Mining department 1000 43%
Processing department 700 30%
Administration 600 26%
2300
Cost per unit 20
Mining department 20000
Processing department 14000
Administration 12000
It can be seen from the table that units consumed by mining department is 1000 and 700
units are consumed by processing departments as well as 600 units are consumed by the
administration. This reflects that 43% of units are consumed by mining department followed by
30% is consumed by processing departments followed by 26% is consumed by administration
department. From the cost table it can be seen that per unit cost is assumed to be 20 and overall
electricity bill for mining department is 20000, 14000 for processing department followed by
12000 is allocated to administration department.
Part B
1 Title of report/Budgets
Budgets for the Rio Tinto related to varied departments and operations.
1

2 & 4 Department to which budget applicable
Figure 1Finished goods inventory budget
(Source: Manufacturing budget, 2017)
Above given budget is prepared by the inventory department of an organization which is
Rio Tinto in order to keep track record of inventory that is in business.
2

Figure 2Direct material budget
(Source: Melillo. and et.al., 2011)
Direct material budget is prepared by the business firm inventory department in order to
identify units that are projected to be consumed at the workplace.
3

Figure 3Sales budget
(Source: Budgeting Systems for Management Accounting, 2017)
Sales budget is prepared by sales department of the firm in order to estimate the sales that
can be made in the upcoming time period.
Figure 4Production budget
(Source: Generate a production budget as part of your master budget, 2017)
Production budget is prepared by the firm for estimating number of units of goods and
services that will be produced at the workplace.
4

Figure 5Direct labor budget
(Source: Direct Labor Budget, 2017)
Direct labor budget is prepared by HR or production department of the firm in order to
make projection of future cash amount that will be incurred as labor cost in the business.
5

Figure 6Cash budget
(Source: Excel templates, 2016)
Cash budget is the one of the important budget that is prepared by the firms to reveal cash
inflow and outflow that happened in the business. This budgets prepare by the top managers.
6

Figure 7Administration budget
(Source: Sample business plan presentation, 2017)
Administration department: Administration budget is prepared by the mentioned departments to
keep track record of administrative expenses that are made in the business.
7

Figure 8Manufactruing overhead budget
(Source: Overhead Budget - Manufacturing Business, 2017)
Manufacturing department: Manufacturing overhead budget is prepared by the production
department to keep track record of manufacturing expenses.
Figure 9Marketing budget
(Source: Search Marketing Dwarfs Social Media in Interactive Marketing Budgets, 2017)
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Marketing department: Marketing department prepare the marketing budget for the business
firm to make allocation of funds across different channels of communication.
3 Primary function of budget
Primary functions of budget are given below. Forecasting: Budget is used to make forecasting of the business and under this prediction
is made about the cash flows that can be earned and made in the business. On the basis of
forecasting appropriate allocation of resources is done in the business. Planning: On the basis of forecast values estimation is made about the likely scenario
and accordingly planning is done by the business firm (Purkey and Johnson, 2010). Motivation: By making use of budget target for each individual employee is determined.
This motivate them to work hard for benefit of the organization. Budget play an
important role in improving performance of the employees. Evaluation: By comparing actual values with the budget firm performance is evaluated.
It can be said that employees performance is evaluated in systematic way and those
employees that need to improve their performance is identified.
 Control and coordination: Budget help firm in performing control function because by
comparing actual with previous in which direction firm and employees are performing is
identified. Accordingly, control measures are adopted to improve performance.
5 Users of budget within and outside firm Managers: Managers need budget in order to ensure that they make expenses within
determined limit and it will not prove costly to the business firm. By using budget
managers take prudent decisions. Top managers: Top managers need budget and actual results to access the firm
performance and to take strict action to control performance.
 Banks: Banks or creditors need to company report to measure the condition of the firm
and efficiency of management.
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REFERENCES
Books and journals
Burkhard, B. and et.al., 2012. Mapping ecosystem service supply, demand and budgets.
Ecological Indicators. 21. pp.17-29.
Wheaton, J.M. and et.al., 2010. Accounting for uncertainty in DEMs from repeat topographic
surveys: improved sediment budgets. Earth Surface Processes and Landforms. 35(2).
pp.136-156.
Purkey, S.G. and Johnson, G.C., 2010. Warming of global abyssal and deep Southern Ocean
waters between the 1990s and 2000s: Contributions to global heat and sea level rise budgets.
Journal of Climate. 23(23). pp.6336-6351.
Melillo, J.M. and et.al., 2011. Soil warming, carbon–nitrogen interactions, and forest carbon
budgets. Proceedings of the National Academy of Sciences. 108(23). pp.9508-9512.
Online
Manufacturing budget, 2017. [Online]. Available through:
<http://www.myaccountingcourse.com/accounting-dictionary/manufacturing-budget>.
[Accessed on 21st June 2017].
Budgeting Systems for Management Accounting, 2017. [Online]. Available through: <
http://managerialaccounting2.blogspot.in/2012/04/problem-21-1b.html>. [Accessed on 21st
June 2017].
Generate a production budget as part of your master budget, 2017. [Online]. Available through:
<http://www.dummies.com/business/accounting/generate-a-production-budget-as-part-of-
your-master-budget/>. [Accessed on 21st June 2017].
Direct Labor Budget, 2017. [Online]. Available through: <
http://olc.spsd.sk.ca/de/acct30/units/unit4/manubus/labourMan.html>. [Accessed on 21st June
2017].
Excel templates, 2016. [Online]. Available through :< http://www.xltemplates.org/business-cash-
budget-template/>. [Accessed on 21st June 2017].
Sample business plan presentation, 2017. [Online]. Available through: <
https://www.slideshare.net/nshafiqa/sample-business-plan-presentation-14630613/>.
[Accessed on 21st June 2017].
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