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MANAGEMENT

ACCOUNTING

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Table of Contents
INTRODUCTION .........................................................................................................................................................3
TASK 1...........................................................................................................................................................................3
P1.1 Classification of different types of cost ...........................................................................................................3
P 1.2 Computation of unit cost by using unit costing method...................................................................................4
P 1.3 Cost of exquisite using absorption cost............................................................................................................5
P 1.4 Cost data of exquisite using appropriate techniques........................................................................................6
TASK 2...........................................................................................................................................................................7
P 2.1 Preparation and analysis of cost report for the month of September and variance analysis ...........................7
P 2.2 Various areas of potential improvements using performance indicators .........................................................8
P 2.3 Ways to reduce cost and enhancing value and quality .....................................................................................9
TASK 3...........................................................................................................................................................................9
P3.1 Purpose and nature of the budgeting process to the budget holders of Jeffery and Sons Ltd..........................9
P 3.2 Use of appropriate budgeting technique.........................................................................................................11
P 3.3 Preparation of production and material budgets ............................................................................................11
P 3.4 Preparation of cash Budget ............................................................................................................................12
TASK 4.........................................................................................................................................................................14
P 4.1 Calculation of variances, identify possible causes and recommend corrective actions.................................14
P 4.2 Operating statements includes both budgeted and actual results...................................................................16
P4.3 Responsibility centers......................................................................................................................................17
CONCLUSION ...........................................................................................................................................................17
REFERENCES ............................................................................................................................................................18
Appendix .....................................................................................................................................................................20
Working notes for task 1.3.......................................................................................................................................20
Working notes for task 3.1.......................................................................................................................................23

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INTRODUCTION
Management accounting, in general words, is referred to as the provision of financial data which is further
used to make decision, on behalf of an organization and its business development. Accounting information is used
by the managers for deciding the financial matters of company as well as to manage and control business functions
(Drury, 2008). From a long run, this tool is considered to be the important for solving the financial matters of a
business entity. The present report is going to explain about the different types of cost classification as well as
calculations of unit cost. This report is focused towards the case of Jeffrey and Sons manufacturing company.
Furthermore, calculation of cost is done exquisitely while using absorption costing technique. The other sections
show the cost report which is prepared with respect of manufacturing unit. Along with this, a specific consideration
is given to performance indicators for recommending the ways to improve financial positions. This unit also aims to
find the areas of improvements within the accounting systems. However, the major purpose of budgeting as well as
its process is explained in context to Jeffery and Sons Ltd. At last, the causes of negative variance are identified
while recommending the ways to improve the budgetary position of company.

TASK 1
P1.1 Classification of different types of cost
There are various kinds of expenses that are incurred by manufacturing unit when producing goods and
services. These all operating cost is generally refereed as Cost. It is further classified into range of categories that
are based upon functions, behaviors, nature of expenses etc (Backer, 2004. ). This section is going to describe the
nature of expenses as well as the classification of various kinds of cost:
Different elements of cost: There are three major elements of cost i.e. material, labor and expenses. Use of
material is essential for the purpose of manufacturing finished goods. On the other hand, labor cost is associated
with the expense made on human resource which is involved in production process. However, all other expenses
incurred during the production of goods and services are known as elements of cost. All such expenses are further
divided into two categories such as direct and indirect variety i.e. direct labor and indirect material, etc
Nature of Expense: Material, labor and expenses are the three major categories of cost which are
involved in a production process. Manufacturing companies are witnessed with paying remuneration to workforce.
For successful completion of manufacturing process, the company is required to have skilled human resources or
labors. Thus, salaries and wages that are paid to such workforce are known as Labor cost. The specific cost which
is paid against the purchasing of raw material is considered to be Material cost. The other category of expenditure
is further known as expenses for a production unit (Griffith, Stephenson and Watson, 2014).
Functions/Activities: Within manufacturing organizations, one can find different departments which
pay consideration to certain functions. Hence, all the departments incur their individual cost. It is incurred
by different departments as per their functions that are generally known as expenses to respective
departments (Drury, 2008). As per the functions of various departments, the cost is classified into
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Manufacturing cost, Selling cost, Administration and Distribution cost, Marketing cost and Research and
development cost.
Behavior of Cost: The behavior of cost is to be decided as per the volume of production. In other
words, the cost which is based on the volume/units of production is generally known as behavioral cost. The
production volume of company depends upon the market demand as well as other factors. There are three
major types of cost that are classified as per behavior i.e. Fixed cost, Variable cost and Semi variable cost. The
cost which does not change at any level of production is called as fixed cost (Mistry, Sharma and Low,2014. ).
However, the cost remains same at every level of production, else whatever the production is at any point. The fixed
cost includes: rent, transportation. Variable cost, on the other hand, includes expenses that changes as per the
production level. The single alteration is production units that lead to change in cost of production. Semi-variable
cost is the combination of both kinds of costs including fixed as well as variable (Backer, 2004). In other words, it is
the cost which remains same at a specific level of production. However, it changes after certain limit and hence is
called as semi variable cost.
P 1.2 Computation of unit cost by using unit costing method
Job costing method is the most famous method of calculating cost for a job that is of unique nature. This
method is applied to the business manufactures specific types of goods and services and where the job is performed
as per specific requirements of consumers/clients. Job costing method allows manufactures make consideration
towards direct and indirect cost of a job (Method of costing. 2014). The following points represents the calculation
of per unit cost of job 444 for Jeffrey and Sons manufacturing Ltd:

Calculation of cost and unit cost of Job 444


Particulars
Direct cost
Direct material
Direct labour
Indirect cost
Variable production overhead

Amount ()

Fixed production overhead


Cost per unit
Units to be produced
Total cost 770*200

120
770
200
154000

200
270
180

Working note
Fixed production overhead= (Budgeted overhead / total direct labor hours) * Direct labor hours for Job 444
=(80000 / 20000 hours) * 30 hours
=120
The above calculation represents that total cost of job 444 is 770, to the flip side, per unit cost of job 444
is identified to be 3.85.
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P 1.3 Cost of exquisite using absorption cost


Production Departments
Basis of
Apportioning

Total

Service Department

Machine
Shop X

Machine
Shop Y

Assembly

Stores

Maintenance

000s
Indirect

Allocated

362

100,000

99,500

92,500

10,000

60,000

Indirect

Area

253

100,000

100,000

40,000

4,000

9,000

Materials

occupied
50

10,000

5,000

15,000

15,000

5,000

100

20,000

10,000

30,000

30,000

10,000

15

7,947

4,967

993

497

596

150

79,470

49,669

9,934

4,967

5,960

25

5,000

2,500

7,500

Wages

Lighting

&

Area

Heating

Occupied

Rent

Area
Occupied

Insurance &

Book

Machinery

of Machinery

Depreciation

Book

of Machinery

of Machinery

Insurance of

Area

Building

Occupied

Salaries

of

Works

value

value

No.

7,500
of 80

24,000

16,000

24,000

8,000

8,000

346,417

287,636

219,927

79,964

101,056

39,982
48,507
434,906

29,987
32,338
349,961

9,995
20,211
250,133

(79,964)

employees

Mgmt.
Sub Totals
Reof

2,500

1,035

service

dept. cost
Stores
Dept.
Maintenance
Totals

(101,056)
0

P 1.4 Cost data of exquisite using appropriate techniques


Calculation of absorption rate on the basis of labor hours
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Machinery X
Machinery Y
Assembly

434908/200000= 2.17
349960/150000= 2.33
250134/20000= 2.15
Calculation of Exquisite

Materials

Labour

15

Overheads
X

(2*2.17)

4.34

(1.5*2.33)

3.5

(1*1.25)

1.25

Assembly
Total cost

32.09

Fort calculating the cost of Exquisite. The changes held in absorption rate from machine hour to labour
hour are being considered. This was noticed that, it puts significant changes in actual cost of exquisite. From the
calculation, it can be said that labour hours method is the best for assessing final cost of Exquisite. The total cost
identified is 32.09.

TASK 2
P 2.1 Preparation and analysis of cost report for the month of September and variance analysis
Cost report for the month of September
Budgeted cost
Actual cost
Particulars
Units
Material cost
Labor cost
Fixed overhead
Prime cost
Electricity
Fixed portion
Variable portion
Maintenance
Total production cost

2000 units
24000
18000
15000
57000

1900 units
22800
19000
15000
56800

500
7500
5000
70000

500
7125
5000
69425

Calculation of standard budget at 1900 units


Budgeted cost
Particulars
Units
Material cost
Labor cost
Fixed overhead

2000 units
24000
18000
15000

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Variances

-1200
1000
375
-

Budgeted cost
1900 units
22800
17100
15000

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Prime cost
Electricity
Fixed portion
Variable portion
Maintenance
Total production cost

57000

54900

500
7500
5000
70000

500
7125
5000
67525

Calculation of variable cost electricity = change in total cost / change in no of units to be produced
= (8000-5000) (2000-1200)
= 3.75

This was found that cost of production is not changed as after occurrence of slot of 500 and the increase of
production units up to 100 will not make huge change.
Variance analysis
Material variance - The material variance represents a favourable change in material use. This is all
because due to variable nature of material in production process. It could be said that decrease in material use lead
to material cost.

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Labour variance- In respect with the labour variance, an increase of 1000 is seen . nonetheless, 1900
was the found as labour variance as per unit cost was 9 and in actuality, it comes at 10. To overcome the
difference of labour cost was compensated against computing cost for actual 18000 units at 10 (Smith and Jacobs,
2011).
Fixed overhead- There was no single change in fixed expenses as these expenses are fixed in nature
Electricity- The expenses made on electricity are semi variable as these were fixed to a certain level of
production. In such expenses, there was no change in fixed proportion but a slight change was seen in variable
portion.
Maintenance- The maintenance charges are rendered to be stepped cost which increases with a level of
production. There were no single changes were found in maintenance cost as production of 100 units was reduced
(Zikmund, 2012).
P 2.2 Various areas of potential improvements using performance indicators
On the basis of various performance indicators, Jeffrey and Son's is able is recommended to make
potential improvements:

The financial analysis of company is used as the performance indicator which is used to assess the
improvements. A significant decline in sale and profitability is witnessed for company representing hence,
it has to take some steps for improving such position (Adler, 2013).

The customers comments over the product and services quality is that way of identifying improvements in
such areas. By assessing product quality and defective products allow company to make improvement in
manufacturing process. The operations of business are to be monitored for identify improvements. In
addition, the feedbacks and complaints of customers are to be accessed for making improvements in areas
of business (Key Performance Indicators., 2014).

P 2.3 Ways to reduce cost and enhancing value and quality


In order to enhance the values and quality of product that Jeffrey and Son's can move towards in different
areas.

The company can make use of TQM approach which will insures the quality of goods and better use of improved and innovative techniques. This is the most effective method of enhancing the quality of products
and making improvements in product quality and value (Burns and Scapens, 2000).

Furthermore , the company has to identify the major areas of business in which improvements are to be
made and the ways to reduce the cost of production.

Reduction into operational cost is must to improve value of products .

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In addition to that management audit is an another task of monitoring internal operations at the workplace
and bringing out changes wherever possible (Zikmund, 2012).

The staff members are to be influenced for carrying out standard performance and accomplishing goals

TASK 3
P3.1 Purpose and nature of the budgeting process to the budget holders of Jeffery and Sons Ltd.
` The budgeting process is referred to as a systematic plan of deciding on future incomes and expenses. To
a general phenomenon, it is a process of preparing a financial plan that can be used by managers so as to
determine the anticipated expenses and incomes (Pandey, 2009.). The major purpose of budgeting is to make
estimations for possible incomes and expenses to a company for a specific time span. In respect to given case
of Jeffrey & Sons manufacturing Ltd, budgeting purpose is are used to find out incomes and expenditures
for the company for a specific time span. However, the main purposes of budgeting are defined in following
points:

The budgeting process purposes at estimating future financial gains and financial losses

To find out the profitability of business for a specific time of span

The major purpose of budgeting is to provide framework to the managers for effective decision
making (Fitzpatrick, 2005)

To make comparison between approximated output and actual figures

Nature of budgeting process


In the above description, budgeting process is explained as a financial plan used for preparing
estimations for future incomes and expenses. Further, this is to be ensured that budgeting process is adopted
for the purpose of identifying availability of cash within the company (McGowan, 2010). Now a days, budgeting
become the most important process which is used for controlling overall business expenses and reducing deficit.
The use of effective budgeting plan allows company to overcome negative variance that can harm future
financial positions. The nature of budgeting process is that it helps in assessing the financial situation of
company for future time period. With the help of budgeting process, the managers can identify the future
amount of cash made from the sales activities. Along with this, the cash generated from other activities can
also be identified through making use of budgeting process. In addition to that , the necessary future
expenditure made on business can be figure out with the help of such process. While preparing the budgets,
the organization can easily define surplus through deducting calculated expenses from forecasting revenues.
Furthermore, reviewing and revising budget is the next step pf budgeting. At last, the actual outcome are
compared with budgeted figures that is called as variance analysis (Holtzman, 2013).

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For given case scenario, it is essential for Jeffrey & Son's through forecasting expected incomes and
expenditure for near future. The budgeting process allows managers of manufacturing department to put
attention towards sales and preparing policies to enhance the sales. The mentioned company can take major
steps towards reduction of costs so as to earn higher profits (Loo, Verstegen and Swagerman, 2011). However,
business has to make coordination between different activities of budgeting process. While investigating
budget for Jeffrey & Son's , it is noticed that incremental budgeting technique is used to prepare budgets.
With the help of above mentioned budgeting process, company anticipates future incomes and expenditures
while comparing actual results with budgeted figures while determining variance and taking corrective
actions to overcome negative variance.
P 3.2 Use of appropriate budgeting technique
With an in-depth investigation in to the variance represents that Jeffrey & Son's manufacturing company is
recently using incremental budgeting system. However, the major problem associated with such budgeting process
is that the company is neglecting volatility of the market. It puts significant affects in budgetary process as well as
the figures of budgets. This is the major reason for with company is not accessing favorable variance. Hence, a huge
difference is found in budgeted and actual figures. Now for getting better results, it is recommend to use Zero base
budgeting (Zero-Base Budgeting. 2016).
The positive impacts of using Zero base budgeting are as follows :

It will allow company to overcome the limitations of incremental budgeting

The market volatility can be considered at the time of preparing budgets

The business entity can have positive variance between budgeted and actual figures.

It allows actual estimation of operational cost and anticipate revenues

P 3.3 Preparation of production and material budgets


Production budget

Particulars
Sales
Less: opening stock
Add: Opening stock
Units to be produced

July
105000
11000
13500
107500

August
90000
13500
15750
92250

September
105000
15750
16500
105750

October
110000
16500
15000
108500

Closing Stock:
July = 15% * August sales = 15%*90000 = 13500
August = 15% * Sept. sales = 15%*105000 = 15750
September = 15% * Oct. sales = 15%*110000 = 16500
October = 15%*Nov. sales = 15%*100000 = 15000
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Material purchase budget


July
215000
52000
46125
209125

Material usage
Less: Opening stock
Add: Closing stock
Purchases

August
184500
46125
52875
191250

October
217000

September
211500
52875
54250
212875

July opening stock = 52000 kg and closing = 25%* 184500 = 46125


Material purchase budget of Jeffrey and Son's smake
Particulars
Units to be produced
Material cost
Material to be purchased
Add: cost of material in ending inventory
Total cost of material needed
Less: Cost of material in beginning inventory
Cost of material to be purchased

July
107500
3.50
376,250.00
80,718.75
456,968.75
-166,400.00
290,568.75

August
92250
3.50
322,875.00
91,218.75
414,093.75
-80,718.75
333,375.00

September
104250
3.50
364,875.00
91,218.75
456,093.75
-166,400.00
289,693.75

Material usage budget


July material usage= 107500 units * 2 kg = 215000 kg
August material usage= 92250 units * 2 kg = 184500 kg
September material usage= 105570 units * 2 kg= 211,500 kg
October material usage= 108500 units * 2 kg = 217,000 kg
P 3.4 Preparation of cash Budget

Cash budget of Jeffrey and Son's smake


Particulars
Opening balance of cash
Received from debtors
Cash sales
Total receivable
Expenses
Payment to creditors
Direct wages
Variable overhead
Fixed overhead
Total payable
Closing balance of cash

July
16,000.00
333,000.00
567,000.00
916,000.00

August
204,431.25
335,250.00
486,000.00
1,025,681.25

September
192,306.25
330,750.00
567,000.00
1,090,056.25

290,568.75
300,000.00
46,000.00
75,000.00
711,568.75
204,431.25

333,375.00
300,000.00
100,000.00
100,000.00
833,375.00
192,306.25

289,693.75
300,000.00
100,000.00
100,000.00
789,693.75
300,362.50

Working notes
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Computation of amount receivable from debtors


July
247500
85500
333000

Amount received for sales before a month


Amount received for sales before two months
Sum

August
236250
99000
335250

September
236250
94500
330750

Computation of amount of overhead payment


Overhead payment
Variable overhead
Fixed overhead

July
46000
75000

August
100000
100000

September
100000
100000

Computation of production cost


July
Material cost
Wages
Variable overhead
Total variable cost
Fixed overhead
Units to be produced
Total variable cost
Total production cost

August

3.50
3.00
1.00
7.50
100,000.00
107500
806,250.00
906,250.00

3.50
3.00
1.00
7.50
100,000.00
92250
691,875.00
791,875.00

September
3.50
3.00
1.00
7.50
100,000.00
104250
781,875.00
881,875.00

Sales budget
July
105000
9
945000

Units to be sold
Sale price
Sales

August
90000
9
810000

September
105000
9
945000

Cash budget of Jeffrey and Son's


Particulars
Cash inflow
Sales receipts (w.n.1)
Cash outflow
Purchase
Labour (w.n.2)
Variable O/H (w.n.3)
Fixed O/H
Net cash flow
Opening balance
Closing balance

July ()

August ()

September ()

900000

731250

864000

365969
322500
108500
75000

334688
276750
98350
87500

372531
317250
100350
87500

28031
16000
44031

-66038
44031
-22007

-13631
22007
-35638

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TASK 4
P 4.1 Calculation of variances, identify possible causes and recommend corrective actions

Computation of variances of Jeffrey and Son's smake


Particulars
Per unit
Sales revenue (A)
Material Cost (a)

4 per unit
2.4 per kg

Labor charges (b)


Fixed overheads (c)
Total Cost (a + b + c)
Actual profit (A-Total cost)

8 per hour

Budgeted
Total
Per unit
3.95 per
14000
unit
3360
2.4 per kg
7.80 per
2800
hour
4800
10960
3040

Actual
Total

Variance

Nature of
variance

13820
3420

-180
60

Adverse
Adverse

2690
4900
11010
2810

-110
100
50
-230

Favorable
Adverse
Adverse
Adverse

Sales volume variance (4160- 3040) = (1120) (A)


Sales prices variance (14000- 13820) = (180) (A)
(Budgeted: 35000*4- Actual sales)
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The material prices variances


AQ (1425Kg) X AR (2.40) = 3420
The material prices variances

0(A)

AQ (1425Kg) X SR (2.40) = 3420


The material usage variance

60(A)

SQ (3500 Units x 0.4) X SR (2.40) = 3420


The labor variances
AH(345Hrs) X AR (7.8 )

=2690

The labor variance rate

70 (F)

AH(345Hrs) X SR (8.0 )

=2760

the labour efficiency variance


SH (3500 Units x0.1)350hrs X SR (2.40)

= 2800

Fixed overhead sending


Actual fixed overheard

= 4900

The fixed overhead expenditure variances


Budgeted fixed production overhead

100(A)
= 4800
Budget

Original

Flexed

Actual

3500

3500

Sales revenue

16000

14000

13820

Raw materials

-(3840)

(3360) (1400)Kg

(3420) (1425Kg)

Labour

-3200

(2800)(350Hrs)

(2690)(345Hrs)

Fixed overheads

-4800

-4800

-4900

Operating profit

4160

3040

2810

Output (Production and 4000


sales units )

From the represented calculation, it was accessed that the current sales performance of company is not
good as the prices are too low. This can also be said that the organization is making wrong estimation for sales price.
The materiel cast was increased and the production manager had not estimated such huge cost. The labour variance
was seen somewhat favorable. This is the reason for which profitability of mentioned company came down and to
improve the financial position, it is required to reduce consumption of material.
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P 4.2 Operating statements includes both budgeted and actual results

Reconciliation operating statement of Jeffrey and Son's


Particulars
Budgeted profit
Less: Variance of sales
Less: Variance of cost
Add: Labor
Less: Overhead
Actual profit

Amount (in )
3040
-180
-60
110
-100
2810

The above reconciliation operating statement Jeffrey and Son's representing that that actual profit made by
the mentioned entity is less than 230. However, decrease in per unit sales price is seen as the major reason behind
this reduction. To some extant material and overhead cost were increased.
Operating statement for May

Favorable

Adverse

Sales volume variance

1120

Sales price variance

180

Material price variance

Material usage variance

60

Labor rate variance

70

Labor efficiency variance

40

Fixed
overhead
expenditure variance
Total variance

100

110 F

1460A

Total net variance

-1350

Budgeted operating profit

4160

Less: Net variance

-1350

Actual operating profit

2810

P4.3 Responsibility centers


The responsibility centre for production department is that the manager of department has to reduce the
excess material consumption in manufacturing process. For this, the respective department has to employ advanced
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tools and tactics. Furthermore, production manager is responsible for reducing wastage for which utilizing of
proper resources in the most effective manner (Smith and Jacobs, 2011). The human resources are seen effective in
the whole process as labour variance was favourable for attain the profitability the company is recommended for indulging into forecasting variance and maintaining favourable labour charges.

CONCLUSION
In this report, classifications of costs and calculation of the unit costing are shown while using Job Costing
method. It was mentioned that financial analysis and customers comments are to be used as the performance
indicator which define improvements in business practices. It was found that Jeffrey & Son's manufacturing
company was using incremental budgeting but the company is advised to use Zero base budgeting for gaining
positive outcomes. Some of the cost controlling tactics are to be used by the company to improve existing position.

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REFERENCES
Books and Journals
Adler, R., 2013. Management Accounting. Routledge.
Backer, S., 2004. Introduction: Marginal Costing as a Management Accounting Tool. Management Accounting
Quarterly. 5(2).pp.7
Banks, A., 2008. Budgeting. 3rd ed. McGraw-Hill Australia
Burns, J. and Scapens, R.W., 2000. Conceptualizing management accounting change: an institutional
framework. Management accounting research, 11(1), pp.3-25.
Drury, C., 2008. Management and cost accounting. Routledge.
Fitzpatrick, T., 2005. Management and cost accounting .U.S. Patent Application
McGowan, A., 2010. Managerial accounting. Issues in Accounting Education, 25(4), pp.792-793.
Griffith, A., Stephenson, P. and Watson, P. , 2014. Management systems for construction. Routledge
Holtzman, P. M., 2013. Managerial Accounting For Dummies. John Wiley & Sons.
Loo, D. I., Verstegen, B. and Swagerman, D., 2011. "Understanding the roles of management accountants".
European Business Review. 23(3). pp.287313.
Mistry, V., Sharma, U. and Low, M., 2014. "Management accountants' perception of their role in accounting for
sustainable development: An exploratory study". Pacific Accounting Review. 26(1/2). pp.112133.
Pandey, M. I., 2009. Management Accounting, 3E. Vikas Publishing House Pvt Ltd.
Smith, D. and Jacobs, K., 2011. Breaking up the sky: The characterisation of accounting and accountants in
popular music. Accounting, Auditing & Accountability Journal. 24(7) pp.904-931.
Zikmund, W., 2012. Business research methods. John Wiley & Sons.
Online
Method of costing. 2014.

[Online]. Available at: <http://www.svtuition.org/2012/09/method-of-costing.html>.

th

[Accessed on 28 January 2016].


Key Performance Indicators., 2014. [Online]. Available at: <http://blog.claytonmckervey.com/blog/2011/01/24/keyperformance-indicators/> [Accessed on 28th January 2016].
Zero-Base Budgeting. 2016. [Online]. Available at: <http://www.accountingtools.com/zero-based-budgeting>.
[Accessed on 28th January 2016].

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Appendix

Working notes for task 1.3

Lighting & Heating:

Machinery X

10/50 x 50,000 f10,000

Machinery Y

5/50 x 50,000 5,000

Assembly

15/50 x 50,000 f 15,000

Stores

15/50 x 50,000 = 15,000

Maintenance

5/50 x 50,000 = 15,000

Rent

Machinery X 10/50 x 100,000 = f20,000 Machinery


Y 5/50 x 100,000 = 10,000 Assembly 15/50 x
100,000 = 30,000 Stores

15/50 x 100,000=

30,000 Maintenance 5/50 x 100,000 = 10,000


Insurance & Machinery

Machinery X

800/1510 x 15,000 = 7,964

Machinery Y 500/1510 x 15,000 4,966 Assembly


100/1510 x :E15,000 994 Stores
15,000= f 497 Maintenance

50/1510 x
5/1510 x f15,000=

596
Depreciation of Machinery Machinery X

800/1510 x 150,000 = 79,470

Machinery Y 500/1510 x 150,000 = 49,669 Assembly


100/1510 x 150,000 = 9,934 Stores
50/1510 x 150,000
Maintenance
Insurance of Buildings

Machinery X

497

60/1510 x 150,000 =

596

15/50 x 25,000 5,000

Machinery Y 5/50 x 25,000 = 2,500 Assembly


15/50 x 25,000 = f7,500 Stores
15/50
Maintenance
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25,000

7,500

5/50 x 25,000 = 2,500


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Salaries of works mgmt. Machinery X

3/10 x 80,000 = 24,000

Machinery Y
Assembly

2/10 x :E80,000 = 16,000


3/10 x 80,000 = 24,000 Stores
1/10

Maintenance

80,000

8,000

1/10 x 80,000 = 8,000

Reappointing workings: based on material issues


Machinery X 400/800* 79,964 = 39,982
Machinery Y 300/800 * 79,964 = 29,987
Assembly 100/800 * 79,964 = 9,9995
Based on time spent
Machinery x 12/25 * 101,056 = 48,507
Machinery y 8/25 * 101,056 = 32,338
Assembly 5/25 * 101,056 = 20,211
Overhead absorption rate workings
Departments = Total / actual machine hours per dept
Machinery X = 434,906/ 80,000 = 5.44
Machinery Y = 349,960/ 60,000 = 5.83
Assembly = 250,134/ 10,000 = 25.01
Overhead absorption rate
Machinery X= 434906/80000=5.44
Machinery Y= 349960/60000= 5.83
Assembly=250134/10000=25.01
Computation of absorption rate

Materials

Labour

15

Overheads
X

(0.8*5.44)

4.34

(.6*5.83)

3.5

Assembly

(.1*25.01)

2.5

Total cost

Store
Maintenance
Total

33.35
Allocation of cost of support departments on the basis of machine hours
Machine shop X
Machine shop Y
Assembly
Total
39,982.00
29,987.00
9,995.00
45,807.00
32,338.00
20,211.75
434,906.00
349,961.00
250,133.00

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79,964.00
101,056.00

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Allocation of criteria of cost


Particulars
Indirect wages and supervision
Indirect materials
Light and heating
Rent

Description
As per the provided amount.
As per the provided amount.
On the basis of area occupied
On the basis of area occupied

Insurance and machinery


Depreciation of machinery
Insurance of building
Salaries of works management

On the basis of book value of machine


On the basis of book value of machine
On the basis of area occupied
On the basis of number of employees.

Material cost
per unit material
A/B no. of units

Units to be produced
400,000.00
8
50000

Overhead absorption rate


Machinery X
Machinery Y
Assembly

300,000.00
8
37500

100,000.00
8
12500

434906/80000=5.44
349960/60000= 5.83
250134/10000=25.01

Computation of absorption rate


Exquisite calculation

Materials

Labour

15

Overheads
X

(0.8*5.44)

4.34

(.6*5.83)

3.5

Assembly

(.1*25.01)

2.5

Total cost

33.35

Working notes for task 3.1


Working Note-1
May
June
July
August
September

Sales ()
855000
990000
945000
810000
945000

July ()
85500
247500
567000

August ()
99000
236250
486000

September ()

94500
202500
567000

July: 105000*9 = 945000


August: 90000*9 = 810000
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September = 105000*9 = 945000


July receipts
10%*855000 May
25%*990000 June
60%*945000 July

August receipts
10%*990000 June
25%*945000 July
60%*810000 Aug.

September receipts
10%*945000 July
25%*810000 Aug.
60%*945000 Sept.

Working Note-2
Labour
July
August
September

1075000*3 = 322500
92250*3 = 276750
105750*3 = 317250

Working Note-3
Variable overhead
June
July
August
September
Total

July ()
44000
64500

August ()

September ()

43000
55350

108500

36900
63450
100350

98350

Based on Junes Sales = 40% * 110000 and it should be based on production of June and the difference is in
immaterial.
40%*110000 units = 44000*1 = 44000 from June and payable in July
60%*107500 units = 64500*1 = 64500 from July and payable in July
40%*107500 units = 43000*1 = 43000 from June and payable in Aug.
60%*92250 units = 55350*1 = 55350 from June and payable in Aug.
40%*92250 units = 36900*1 = 36900 from July and payable in Sept.
60%*105750 units = 55350*1 = 63450 from June payable in Sept.
(d) Budgeted profit and loss account
Sales
Less: bad debts

July ()
945000
47250
897750

August ()
810000
40500
769500

September ()
945000
47250
879750

Total ()
2700000
135000
2565000

Total MC of

806250

691875

793125

2291250

production
Add: opening stock
Less: closing stock

82500
123750

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Cost of sales
Contribution
Fixed overheads
Profits

Material
Direct labour
Variable O/H
Total MC of

2250000
315000
300000
15000
July ()
376250
322500
107500
806250

August ()
322875
276750
92250
691875

September ()
370125
317250
105750
943125

Total ()
1060500
916500
305500
2582500

production

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