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Management accounting is regarded as an important business element that assists in providing accounting information to the managers in the firm. This is in order to offer them basis to develop informed business decision which would allow them to be equipped in their management and keep a track on the functions (Burgstahler and Eames, 2006). For More Information Read Our complete sample.
Process costing explained with examples free of cost .It is for students of managerial accounting ,read this to quickly go through process costing.
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Studied about the Amul Ice Cream Company situated in India and analyzed its cost sheet on the basis of various aspects to answer some of the most important questions pertaining to its manufacturing costs and cost sheet.
1.1 identify the type of accounting
1.2 difference between Cost Accounting , Cost Accountancy and Costing
1.3 understand the Management information needs
1.4 identify the objectives of cost accounting
1.5 difference between Cost Accounting Vs. Financial Accounting
1.6 identify the role of cost accountant
Activity based costing is considered to be useful only for Manufacturing Organizations whereas reality is that it is equally usefull to Service providers
Management accounting is regarded as an important business element that assists in providing accounting information to the managers in the firm. This is in order to offer them basis to develop informed business decision which would allow them to be equipped in their management and keep a track on the functions (Burgstahler and Eames, 2006). For More Information Read Our complete sample.
Process costing explained with examples free of cost .It is for students of managerial accounting ,read this to quickly go through process costing.
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Studied about the Amul Ice Cream Company situated in India and analyzed its cost sheet on the basis of various aspects to answer some of the most important questions pertaining to its manufacturing costs and cost sheet.
1.1 identify the type of accounting
1.2 difference between Cost Accounting , Cost Accountancy and Costing
1.3 understand the Management information needs
1.4 identify the objectives of cost accounting
1.5 difference between Cost Accounting Vs. Financial Accounting
1.6 identify the role of cost accountant
Activity based costing is considered to be useful only for Manufacturing Organizations whereas reality is that it is equally usefull to Service providers
Solution Manual Cost Accounting Planning and Control by Matz.Hammer and Usry ...Bushra Sultana Malik
This Solution manual Cost Accounting Planning and Control.
Chapter 3 is not Complete.But The Complete chapter is Uploaded See my other Uploads,Chapter 3 Problems are Available.
Sample Report On Operation Management in Business By Global Assignment HelpAmelia Jones
Operation management is the most important section of business management. In this process, management of business formulates various strategies for the assessment and optimum allocation of different kinds of resources and functions to get the desired outcomes. For more information regarding Operation Management in Business read our complete sample.
Activity-based costing (ABC) is a costing model that identifies activities in an organization and assigns the cost of each activity resource to all products and services according to the actual consumption by each: it assigns more indirect costs (overhead) into direct costs.
In this way an organization can precisely estimate the cost of its individual products and services for the purposes of identifying and eliminating those which are unprofitable and lowering the prices of those which are overpriced.
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Solution Manual Cost Accounting Planning and Control by Matz.Hammer and Usry ...Bushra Sultana Malik
This Solution manual Cost Accounting Planning and Control.
Chapter 3 is not Complete.But The Complete chapter is Uploaded See my other Uploads,Chapter 3 Problems are Available.
Sample Report On Operation Management in Business By Global Assignment HelpAmelia Jones
Operation management is the most important section of business management. In this process, management of business formulates various strategies for the assessment and optimum allocation of different kinds of resources and functions to get the desired outcomes. For more information regarding Operation Management in Business read our complete sample.
Activity-based costing (ABC) is a costing model that identifies activities in an organization and assigns the cost of each activity resource to all products and services according to the actual consumption by each: it assigns more indirect costs (overhead) into direct costs.
In this way an organization can precisely estimate the cost of its individual products and services for the purposes of identifying and eliminating those which are unprofitable and lowering the prices of those which are overpriced.
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Business management support to every activity of the organization which concerns with acquiring maximum prosperity with minimum efforts. Report on how to manage business activities to achieve results.
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BBA 2301, Principles of Accounting II 1 Course LeaCicelyBourqueju
BBA 2301, Principles of Accounting II 1
Course Learning Outcomes for Unit VIII
Upon completion of this unit, students should be able to:
7. Explain how financial information influences both short-term and long-term management decisions.
7.1 Describe the use of standard cost manufacturers and service businesses.
8. Discuss operational and capital budgets.
8.1 Describe capital budgeting methods.
8.2 Identify the use of intangible benefits in capital budgeting.
Course/Unit
Learning Outcomes
Learning Activity
7.1
Unit Lesson
Chapter 26, pp. 26-1 to 26-24
Webpage: Balanced Scorecard Basics
Video: What is a balanced scorecard: A simple explanation for anyone
Unit VIII Case Study
8.1
Unit Lesson
Chapter 27, pp. 27-1 to 27-19
Unit VIII Case Study
8.2
Unit Lesson
Chapter 27, pp. 27-1 to 27-19
Unit VIII Case Study
Required Unit Resources
Chapter 26: Standard Costs and Balanced Scorecard, pp. 26-1 to 26-24
Chapter 27: Planning for Capital Investments, pp. 27-1 to 27-19
In order to access the following resources, click the links below.
Balanced Scorecard Institute. (n.d.). Balanced scorecard basics. https://balancedscorecard.org/bsc-basics-
overview/
For the video resource below, a transcript and closed captioning are available upon accessing the video.
Marr, B. (2019, June 24). What is a balanced scorecard: A simple explanation for anyone [Video]. Cielo24.
https://c24.page/2s4pmxpj2kpwnprckg6p8tcjtu
Unit Lesson
Introduction
This final unit will conclude the study of managerial accounting. This lesson will share important content for
managers in manufacturing, merchandising, and service companies. Content includes estimating future costs,
implementing financial and non-financial performance measures, and incorporating capital budgeting.
Costing requires you to make estimates. As noted in a previous unit, many people are uncomfortable with this
task, as they are used to having objective numbers given to them. However, as much as the future is
UNIT VIII STUDY GUIDE
Management: Costs and Capital Investing
https://balancedscorecard.org/bsc-basics-overview/
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BBA 2301, Principles of Accounting II 2
UNIT x STUDY GUIDE
Title
unpredictable, we are still required to use our experience and judgment to chart a path forward. In this unit,
you will learn about standard costs. Partially based on prior period actual costs, they provide the basis for
budgeting and subsequent evaluation. Management accountants, no matter the title, are integral to the
development of standard costs, implementation of the balanced scorecard, and the capital budgeting process.
Pay attention as you read, review, and evaluate this unit as it is almost wholly transferable to any company.
Consider the following questions and how you would respond to each as you move through this unit.
As the chief accounting officer (CAO) or chief ...
Case study is a research method that involves detailed examination of a particular case. It involves descriptive and exploratory analysis and in-depth investigation of the selected case.
Operation management is important for the business entity which helps in running the business smoothly and make the more productivity in the corporation.
Management plays important role within the organisations to determine goals and objectives. It includes performing, planning and controlling functions in the enterprise which is related with goals and objectives.
The contemporary technological environment e-business is gaining a significant aspect in distributing and selling a wide variety of products to global customers.
Strategic management is a process of structuring of a keen understanding of how the world or business environment is changing. Read this report to know more about strategic management.
Various principles of costing and regulatory requirements are helpful to manage financial resources in health and social care sector. Read this report to know about Managing Financial Resources.
Structure and culture both plays key role in goal accomplishment for organization development. Read this report to know more about Organization structure.
Textual analysis is mostly used while conducting scientific studies on some relative topics of social science where it is mainly implicated by the researchers in the subjective area of communication.
Proper induction in the organization will make effective role of the employees. Sample report on how reflective account help in organization development.
Commercialization is procedure of launching new product into commerce, making it available in market and Innovation is result of successful commercialization. Read this document to know more about innovation and commercialization.
Companies face certain effects when any new changes are introduced in their organisational structure. Read this sample to know more about developments in business and management.
Strategic Marketing helped to develop an appropriate plan to create communicate with the customers and increase the demand of product. Read this report to know more about strategic marketing.
Health And Safety help the organization to fulfill the requirement of service users and retain the employees for a long period of time. Read this report to know more about Health And Safety.
Biological screening of herbal drugs: Introduction and Need for
Phyto-Pharmacological Screening, New Strategies for evaluating
Natural Products, In vitro evaluation techniques for Antioxidants, Antimicrobial and Anticancer drugs. In vivo evaluation techniques
for Anti-inflammatory, Antiulcer, Anticancer, Wound healing, Antidiabetic, Hepatoprotective, Cardio protective, Diuretics and
Antifertility, Toxicity studies as per OECD guidelines
Unit 8 - Information and Communication Technology (Paper I).pdfThiyagu K
This slides describes the basic concepts of ICT, basics of Email, Emerging Technology and Digital Initiatives in Education. This presentations aligns with the UGC Paper I syllabus.
Safalta Digital marketing institute in Noida, provide complete applications that encompass a huge range of virtual advertising and marketing additives, which includes search engine optimization, virtual communication advertising, pay-per-click on marketing, content material advertising, internet analytics, and greater. These university courses are designed for students who possess a comprehensive understanding of virtual marketing strategies and attributes.Safalta Digital Marketing Institute in Noida is a first choice for young individuals or students who are looking to start their careers in the field of digital advertising. The institute gives specialized courses designed and certification.
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The French Revolution, which began in 1789, was a period of radical social and political upheaval in France. It marked the decline of absolute monarchies, the rise of secular and democratic republics, and the eventual rise of Napoleon Bonaparte. This revolutionary period is crucial in understanding the transition from feudalism to modernity in Europe.
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In Odoo, the multi-company feature allows you to manage multiple companies within a single Odoo database instance. Each company can have its own configurations while still sharing common resources such as products, customers, and suppliers.
2024.06.01 Introducing a competency framework for languag learning materials ...Sandy Millin
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Published classroom materials form the basis of syllabuses, drive teacher professional development, and have a potentially huge influence on learners, teachers and education systems. All teachers also create their own materials, whether a few sentences on a blackboard, a highly-structured fully-realised online course, or anything in between. Despite this, the knowledge and skills needed to create effective language learning materials are rarely part of teacher training, and are mostly learnt by trial and error.
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2. TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
1.1 Classification of cost on the basis of nature..........................................................................3
1.2 Calculation of unit cost.........................................................................................................4
1.3 Calculation of the cost by using absorption costing technique.............................................5
1.4 Calculation of overhead absorption rate using direct labor hours.........................................6
TASK 2............................................................................................................................................7
2.1 Preparation of cost sheet and variance analysis...................................................................7
2.2 Various performance indicators used to identify the areas of potential improvements........8
2.3 Ways to reduce cost, enhance value and quality...................................................................9
TASK 3 ...........................................................................................................................................9
3.1 Nature and purpose of budgeting process.............................................................................9
3.2 Appropriate budgeting method for the organization and its need.......................................10
3.3 Material purchase budget and production requirement budget...........................................11
3.4 preparation of cash budget.................................................................................................12
TASK 4..........................................................................................................................................13
4.1, 4.2 Variance analysis and recommendation corrective actions.........................................13
4.2 Reconciliation statement ....................................................................................................15
4.3 Identifications of responsibility centers.............................................................................15
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17
INDEX OF TABLES
Table 1: Calculation of total cost and per unit cost for a job...........................................................5
Table 2: Calculation of overhead absorption rate using direct labor hours.....................................7
Table 3: Preparation of budgeted and actual cost (In £)..................................................................8
Table 4: Variance analysis................................................................................................................8
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3. Table 5: Production budget for July, August and September (In Units)........................................12
Table 6: Material purchase budget.................................................................................................13
Table 7: Reconciliation statement .................................................................................................16
Table 8: Responsibility centers......................................................................................................16
INTRODUCTION
Currently, firms are competing with each other on the basis of price irrespective of the
sectors in which they operate. This makes it inevitable for the firms to reduce their cost of
production and other costs. By doing management accounting firms are keeping stiff control on
its direct and indirect expenses. In the report, costs are classified in to various parts on the basis
of functions and elements of costs etc. After that some of the performance indicators like sales
and profit are explained in detail in the report. Apart from this, some of the measures that a
companies can adopt in order to reduce their costs are also explained in detail in the report. After
this, budget process and purpose for preparing it are also explained in the report. In the middle
part of the report, various budgets like production and material budget are prepared and
comments regarding same are made. Finally, at the end of the report responsibility center is
explained and relevant managers are made responsible for the variance in the budget.
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4. TASK 1
1.1 Classification of cost on the basis of nature
Following are the categories in which costs are classified.
Elements of the cost- There are three elements of cost namely material, labor and
overheads. Material cost refers to the expenses that are related to purchase of the raw
material. Raw material that is used for production may be like zinc and copper etc. labor
cost refers to the employee cost that is related to the employee’s that are working in the
production place (Schaltegger, Gibassier and Zvezdov, 2013). On the other hand, there
are overhead expenses that are indirectly related to the production process. These
expenses may include carriage expenses etc.
Function- On the basis of functions all expenses are classified on the basis of functional
departments like finance and production departments. Finance department may cover
expenses related to processing of documents and finance cost that is paid on the raised
amount (Jinga and et.al., 2010) . On other hand all marketing expenses are grouped by
the marketing manager. Similarly, all expenses are grouped under the relevant
departments in an organization.
Nature- On the basis of nature, costs is classified into two categories, namely direct cost,
indirect cost. Direct cost refers to the expenses that are related directly to the production
process. Purchase of raw material is a best example of direct cost. On the other hand,
there are indirect expenses which are those expenses that are not related to the production
process. The best example of the indirect cost is storage cost of the raw materials.
Behavior- On the basis of behavior cost is classified into three categories namely fixed,
variable and semi variable cost. Fixed cost refers to the cost that does not get changed
during the lifetime of the firm. Purchase of machine is the best example of fixed cost. On
other hand, variable cost refers to the cost that keeps on changing continuously and never
remains stable (Christ and Burritt, 2013). Purchase of raw material is a best example of
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5. variable expenses. At last, there is a semi variable cost whose some part remain fixed and
some remain variable. This sort of cost has a feature of both fixed and variable cost.
1.2 Calculation of unit cost
Unit cost is calculated by dividing entire cost by the number of units produced. For
calculating unit cost same approach is followed. Calculation of unit cost is given below.
Table 1: Calculation of total cost and per unit cost for a job
Job cost sheet for Job no. 444
Particulars Total cost
Direct material ( 50kg*200 units* 4£ per kg) 40000
Direct Labor ( 30 hours* 9£ per hour * 200 units) 54000
Fixed production overhead (80000£/20000*(200 Units *30
hours) 24000
variable production overhead ( 6£ *6000 hours) 36000
Total cost 154000
Unit cost (154000£/200 Units)
770
Interpretation
Here, per unit cost are 770 for 200 units that Jefferey & sons produced at their production
place. For this material, labor and fixed costs as well as variable costs are considered in the
calculation. First of all aggregate quantity of raw material and labor is computed and then value
is multiplied by the per unit cost of the material and labor. In this way cost of material and labor
is computed for final calculation. By doing calculation for fixed and variable expenses unit cost
is calculated for Jefferey & sons products.
1.3 Calculation of the cost by using absorption costing technique
a) Allocation and apportion of overhead into three production departments
Primary distribution
Producti
on
Service
departm
ent
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6. Basis of
allocation
Total in
(£)
Machine X
(£)
Machin
e Y (£)
Assembly
1 (£)
Stores
(£)
Mainten
ance (£)
Indirect wages and
supervision
362000.
00 100000.00
99500.0
0 92500.00
Indirect material
253000.
00 100000.00
100000.
00 40000.00
light and heating
Machine
hours
50000.0
0 26666.67
20000.0
0 3333.33
rent
Area
occupied
100000.
00 20000.00
10000.0
0 30000.00
30000.0
0
10000.0
0
insurance and
machinery
Book value
of machinery
15000.0
0 3529.40 2205.90 4411.80 2205.90 2647.06
depreciation
Book value
of machinery
150000.
00 35294.12
22058.8
0 44117.65
22058.8
0
26470.5
9
Insurance of building
Area
occupied
25000.0
0 5000.00 2500.00 7500.00 7500.00 2500.00
salaries of work
management
No. of
employees
80000.0
0 24000.00
16000.0
0 24000.00 8000.00 8000.00
103500
0.00 314490.19
272264.
70 245862.78
69764.7
0
49617.6
5
b). Reapportion of the cost of service department into the three production departments
Secondary distribution
Producti
on
Service
departm
ent
Basis of Total in Machine X Machin Assembly Stores Mainten
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7. allocation (£) e Y (£) 1 (£) (£) ance (£)
Primary distribution
(Earlier table) 1035000 314490 272264 245862 69764 49617
Stores
Direct
material 34882 26161 8720 69764 -
Maintenance
Direct
machine
hours 23816 15877 9923 - 49617
1.4 Calculation of overhead absorption rate using direct labor hours
Table 2: Calculation of overhead absorption rate using direct labor hours
Particular Production
Basis of
allocation
Total in
(£) Machine X Machine Y (£) Assembly 1 (£)
Primary
distribution
(Earlier table)
103500
0.00 314490.19 272264.70 245862.78
Stores Direct material 34882.35 26161.76 8720.59
Maintenance Labor hours 2:1.5:1 22052.29 16539.22 11026.14
Total Cost 371424.83 314965.68 265609.51
Calculation of overhead absorption rates
Machine Y = 314965.68/150000 labor hours = £ 2.10
Assembly = 265609.51/100000 labor hours = £ 2.66
Machine X = 371424.83/200000 Labor hours = £1.86
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TASK 2
2.1 Preparation of cost sheet and variance analysis
Table 3: Preparation of budgeted and actual cost (In £)
Budgeted Output ( 2000 Units) Actual Output ( 1900 Units)
Particular Per unit cost Total cost Per unit cost Total cost
Material 12 24000 12 22800
Labor 9 18000 10 19000
Fixed Overhead 15000 15000
Electricity (Fixed) 5000 5000
Electricity
(variable) 3.75*800 3000 3.75*700 2625
Maintenance 5000 4800
Total 35 70000 36.43 69225
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9. Variable electricity cost per unit= Difference in total cost/highest and lowest units
difference
= (8000£-5000£)/ (2000-1200)
= 3000£/800
= 3.75£ per unit
Fixed cost = 5000£
Variable cost= 3.75£*(1900-1200)
= 3.75£ * 700
= 2625£
Maintenance cost = 5000£ – (1000£/500*100)
= 5000£ – 200£ = 4800£
Variance Analysis
Table 4: Variance analysis
Particular
Budgeted cost
(2000) Actual cost (1900) 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
Interpretation
On analysis of the facts it can be seen that Jeffrey & sons variance is positive and on all
fronts it gives good performance. But variance on labor cost is negative because the actual
expenses are greater than projected expenses. If we look at these figures from different side then
it can be seen that this is not the firm achievement. This is because, the firm actual sales are 1900
units and budgeted sales was 2000 units. Firm produces less and due to this reason it requires
fewer amounts of resources at the production place. Due to this reason variance is positive in the
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10. table. But even though labor variance is negative and this happens because firm does not reduce
size of labor force employed in its production process. Hence, it can be said that there are
inefficiencies in an organization and Jeffrey & sons needs to make sound business decisions.
2.2 Various performance indicators used to identify the areas of potential improvements
Some of the performance indicators that can be used to measure areas of potential
improvements are as follows.
Profit- It is a part of that remain after deducting all expenses from the earned revenue. If
firm takes some of the steps that will lead to increase in company profit. Then firm can
use profit as a tool to measure effectiveness of the areas of the potential improvements
that were made to increase company profit. This is a parameter that is commonly used by
the firm to identify and measure effectiveness of the area of potential improvements
(Shah, Malik and Malik, 2011). Many times firm sales fall continuously and in such a
situation by identifying various factors that contributes to profit earning firm identify
areas of potential improvements. In such a situation companies by formulating a strategy
improve their performance in the areas where potential improvements were required.
Turnover- It refers to the sales that a firm made at the end of the specific period. It is also
used to identify areas of potential improvements. Many times firm makes an efforts but
even though its sales does not grow at a fast pace. In such a situation all things that
contribute to sale are identified and firm prepare a tactics in order to give good
performance on the factors where it is weak (Morales and Lambert, 2013). In this way
areas of potential improvements are identified and firm performance is improved.
Customer satisfaction- This is another area of potential improvement which do not need
to be identified (Contrafatto and Burns, 2013). This is because it is an area where every
company needs to do lots of work in order to develop loyal customer base in order to
compete with competitors.
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11. 2.3 Ways to reduce cost, enhance value and quality
There are many ways to reduce cost and enhancement of value. In order to reduce cost
firm needs to generate economies of scale. It is a concept which is focusing on reduction of cost.
Under this some of the steps are taken that lead to cost reduction. This ultimately led to decline
in the cost of production (Papaspyropoulos and et.al, 2012). Hence, in this regard firm can
reduce its transportation cost. By using transportation problems technique Jefferey and sons can
identify shortest for transportation of the product. This will lead to reduction in the firm cost of
production. In order to enhance value and quality Jefferey and sons can undertake research and
development activity (Cadez and Guilding, 2012). By doing so, firm can bring many new
changes in the product and make it innovative in nature. This will also act as USP for the
company product.
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12. TASK 3
3.1 Nature and purpose of budgeting process
Process for preparing a budget is as follows.
Gather information- This is the first stage of the budget process and under this process
information that is required for preparing a budget is collected. This information may be
related to the several departments like production finance and HR etc (Coyne and et. al.,
2010). Relevant data is collected by the managers from his subordinates. After that he
proceeds for the next steps.
Recording all sources of income- In this of the budget preparation process all sources of
income is recorded. These sources may be sales, lease and investment that are made in
the financial products. In this stage managers evaluate current economic environment and
predict future scenario related to the same component of the business environment (Viere,
Schaltegger and von Enden, 2012). On the basis of this evaluation projections of the
income are made by the managers.
Creating a list of monthly income- Projection made in above step is on annual basis and
in order to estimate the monthly income entire projected earning is divided by the 12
months (van der Meer-Kooistra and Vosselman, 2012). By doing so managers came to
know about the per month income hat business can generate in the future.
Estimating expenses-In the fourth stage of the budget preparation a list of expenses is
prepared. In order to prepare this list project expenses are demanded from the all
departments of an organization. After receiving all these departments’ projections same
are included in the list. In this list of expenses is prepared by the managers.
Preparing a final budget- This is final stage of budget preparation and under this all
estimated figures of income and expenses is arranged in a systematic manner. First of all
income is recorded and then expenses are placed in the table (Faÿ, Introna and Puyou,
2010). After that expenses are deducted from income and balance is transferred to the
next time period. In this way, final budget is prepared by the manager.
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13. Purpose of preparing a budget
The main purpose of preparing a budget is to control cost and motivate employees to
achieve an objective. In the budget figure is determined for all expenses and main target of
Jeffrey and sons is to keep expenses below determined value. By doing this cost of production is
reduced for the product (Askarany, Yazdifar and Askary, 2010). On other hand, budget is also
used to motivate employees to work hard. These figures acts as a target for the employees and
due to this reason budget motivate employees to work hard. Hence, it can be said that budget has
a multi dimensional benefits for the firm.
3.2 Appropriate budgeting method for the organization and its need
The budgeting methods that Jeffrey and sons can used are as follows.
Incremental budgeting- Under this type of budgeting an increment is made to the past
budget. In this past budget is considered by the managers. Firm determined a growth rate
and that rate are added to the past data in order to compute new budget. This type of
budgeting is widely used by the mangers because with passage of time business grows
and expenses also grow (Victoravich, 2010). Due to this reason incremental budget is
very popular among the business firms. In order determine growth rate many economic
data are considered. These economic data are GDP data and inflation rate data. A business
cannot run at a rate greater then nation GDP. Hence, by using GDP growth rate
projections can be made. On the other hand, by using inflation rate future expenses can
be estimated by the managers. Hence, by making use of these data budgets can be
prepared in the proper manner.
Zero based budgeting- In this budgeting technique inputs are taken from the
departments. Until departments will not send projected expense statement to the top
management no amount will be allocated to the specific department. These departments
also need to justify their assumptions in order to get budget from the top management.
Hence, it can be said that in this budget cautious approach is followed and accurate
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14. budget is prepared (Libby and Lindsay, 2010). Due to this reason this approach of budget
preparation is widely used by the business managers.
Top down budgeting- In this type of budgeting two level of management work on the
budget and these levels are top and middle level of the management. In case of this kind
of budget top management prepare a budget and communicate same to the middle level
of the management (Quinn, 2014). Then middle level managers allocate budget amount
among all departments and these allocations are communicated to the middle level of the
top level of management for approval. After approval from the management the budget
amount is allocated among the all departments.
3.3 Material purchase budget and production requirement budget
Table 5: Production budget for July, August and September (In Units)
July August September October
Sales 105000 90000 105000 110000
Op. Stock 11000 13500 15750 16500
94000 76500 89250 93500
Cl stock (15% of the following
month) 13500 15750 16500 15000
Production 107500 92250 105750 108500
Interpretation
From analysis of figures it can be seen that in the month of August production decline
and as a result sales of the firm also decline. But in the next month again production increases. In
last month same trend is observed in the budget. This reflects that firm is thinking that some of
the short term fluctuations can be observed in demand. Otherwise, in ling term there will be
demand for the product.
Table 6: Material purchase budget
Material Require (2 per kg) 215000 184500 211500
Less- Opening stock 52000 45000 52500
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15. Total 163000 139500 159000
Add- Closing stock 46125 52875 54250
Purchase 209125 191250 212875
Working note; Material requirement = Production * material required per unit
July = 107500 * 2 = 215000 Kg
August = 92250 * 2 = 184500 kg
September = 105750 * 2 = 211500 kg
Closing Stock = It is required to 25% of the next month requirements.
July = 92250 Units*2 Kg*25% = 46125 Kg
August = 105750 units*2kg *25% = 52875 Kg
September = 108500 Units*2Kg*25% = 54250 Kg
Interpretation
On analysis of figures it can be seen that production and purchase budget are going in
same direction. This is happening because purchase budget is closely linked to the production
budget. This budget is prepared by considering future demand for the company product. Hence,
it can be said that this budget is prepared in proper manner.
3.4 preparation of cash budget
Cash budget is prepared by estimating cash inflow and cash outflows for a certain period.
July August September
Cash inflows 900000 731250 864000
Sales receipt
Total cash inflows 900000 731250 864000
Cash outflow
Purchase 365969 334668 372531
Labor 322500 276750 317250
Variable overhead 108500 98350 100350
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16. Fixed overhead 75000 87500 87500
Total cash outflow 871969 797288 877731
Net cash flow 28031 66038 13631
Opening cash balance 16000 44031 22007
Closing cash balance 44031 22007 35638
Interpretation
In the month of July balance is negative and this happens because expenditures exceed
receipts. Then negative amount is charged on the next month cash inflows. In the next month
again expenses exceed income and due to this reason in the month of August negative balance
are charged to the next month cash receipt. In the month of September again same trend is
repeated. Due to negative business conditions budget is in deficit for the mentioned months.
TASK 4
4.1 Variance analysis and recommendation corrective actions
Calculation of Budgeted cost for 4000 Units are as follows:
Particular Per unit cost Budgeted
Sales (A) 4 16000
Material 0.96 3840
Labor 0.8 3200
Fixed Overhead 4800
Total Cost (B) 2.96 11840
Profit (A - B) 1.04 4160
Working Note:
Sales = 4000 * 4£ = 16000£
Material cost = 0.4kg*2.40£*4000 = 3840£
Labor cost = 8£*6/60*4000 = 3200£
Fixed overhead = 4800£
Calculation of variance
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17. Particular Budgeted Fixed Actual
Sales 16000 14000 13820
Material 3840 3360 3420
Labor 3200 2800 2690
Fixed overhead 4800 4800 4900
Profit 4160 3040 2810
Sales variance
Particulars Variance
Sales volume variance ( -50*1.04) -520 (Adverse)
Sales price variance ( 14000 - 13820) 180 (A)
Particulars Formula Calculation Net variance
Material price
variance
AQ*(SP-AP) 1425(2.4£ - 2.4£) Zero
Material usage
variance
(SQ-AQ)*SP [( 3500 *0.4)-(1425)*
(2.40)]
60(Adverse)
Total 60 (Adverse)
The labor variance
Particulars Formula Variance Net variance
Labor rate variance (SR-AR)*SH [(8£-7.8£)*350] 70 (f)
Labor efficiency
variance
(SH-AH)*SR [(3500*0.1)-(345)]*8£ 40(f)
Fixed overhead variance
Particulars Variance Net variance
Budgeted fixed
production overhead
4800
Actual fixed overhead 4900
Fixed overhead Budgeted -Actual 4800 - 4900 100 (A)
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18. expenditure variance
Interpretation
On analysis of figures it can be seen that firm sale less products then it intends to sales in
the market. On other hand, in case of material and labor variance is positive and this reflects that
firm produces less quantity be envisaging that in future there will be less demand for the product.
This is proved from the reduced amount of sales. Fixed overhead of the firm get increase and it
means that firm make an over expense on fixed assets. Thus, it can be said that firm is not able to
make accurate prediction regarding budget.
4.2 Reconciliation statement
Table 7: Reconciliation statement
Favorable Adverse Total
Budgeted profit
(4000*1.04)
4160
Sales price variance -180
Sales margin volume
variance
-520
Material price variance 0
Material usage
variance
-60
Labor rate variance 70
Labor efficiency
variance
40
Fixed overhead
expenditure variance
-100
Fixed overhead
capacity variance
-600
Total variance 110 -1460 -1350
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19. Actual profit 2810
4.3 Identifications of responsibility centers
Table 8: Responsibility centers
Variance Who is responsible
Sales price variance Sales manager
Sales margin volume variance Sales manager
Material price variance Buying manager
Material usage variance Production manager
Labor rate variance HR manager
Labor efficiency variance Production manager
Fixed overhead expenditure variance Various managers
Fixed overhead capacity variance Various managers
Responsibility center refers to the making someone responsible for the mistakes
committed by the specific department (Holtzman, 2015). Managers that are giving leadership are
made responsible for the failure of the department. For sales price variance sales manager is held
responsible under this concept. In same way for material usage variance production manager is
made responsible. Sometimes it is not possible to held manager responsible for specific mistake.
In such a situation multiple managers are made responsible for the mistake that is committed in
an organization.
CONCLUSION
On the basis of entire discussion it is concluded that there are many types of costs and
some of them are fixed and variable in nature. Firms must try to identify the variable costs and
should make an effort in order to reduce their cost of production. In respect to this, firms need to
adopt cost control techniques at the facility. In order to reduce cost firms can prepare a budget
and for this lots of data need to be collected from the internal sources of information.
Management needs to prepare some of the steps that can be taken in order to keep costs under
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20. control. By doing this chances of negative variance can be eliminated to large extent. If negative
variance comes in existence then management can do deep analysis of the business operations in
order to identify the reasons due to which this variance comes in existence. By doing so,
company can be managed in proper manner.
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21. REFERENCES
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22. Schaltegger, S., Gibassier, D. and Zvezdov, D., 2013. Is environmental management accounting a
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Online
Holtzman, P. M., 2015. [Online]. Management accounting: Types of responsibility centers.
Available through: < http://www.dummies.com/how-to/content/managerial-accounting-
types-of-responsibility-cent.html>. [Accessed on 28th
January 2016].
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