Management Accounting Sample - Assignment Prime Australia

MANAGEMENT

ACCOUNTING

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Table of ContentsINTRODUCTION .........................................................................................................................................................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 Son’s 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 Son’s 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 Son’s 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




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 Son’s manufacturing Ltd:

Calculation of cost and unit cost of Job 444

Particulars Amount (£)Direct cost Direct material 200Direct labour 270Indirect cost Variable production overhead 180

Fixed production overhead 120Cost per unit 770Units to be produced 200Total cost 770*200 154000

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 Service Department

Basis of Total Machine Machine Assembly Stores Maintenance

Apportioning Shop X Shop Y

000’s

Indirect

Wages

Allocated 362 100,000 99,500 92,500 10,000 60,000

Indirect

Materials

Area

occupied

253 100,000 100,000 40,000 4,000 9,000

Lighting

Heating

& Area

Occupied

50 10,000 5,000 15,000 15,000 5,000

Rent Area

Occupied

100 20,000 10,000 30,000 30,000 10,000

Insurance &

Machinery

Book value

of Machinery

15 7,947 4,967 993 497 596

Depreciation

of Machinery

Book value

of Machinery

150 79,470 49,669 9,934 4,967 5,960

Insurance of

Building

Area

Occupied

25 5,000 2,500 7,500

7,500

2,500

Salaries

Works

Mgmt.

of No.

employees

of 80 24,000 16,000 24,000 8,000 8,000

Sub Totals 1,035 346,417 287,636 219,927 79,964 101,056

Re-

of service

dept. costStores Dept. 39,982 29,987 9,995 (79,964)

Maintenance 48,507 32,338 20,211 (101,056)

Totals 434,906 349,961 250,133 0 0

P 1.4 Cost data of exquisite using appropriate techniques

Calculation of absorption rate on the basis of labor hours




Machinery X 434908/200000= 2.17Machinery Y 349960/150000= 2.33Assembly 250134/20000= 2.15

Calculation of Exquisite

£ £

Materials 8

Labour 15

Overheads

X (2*2.17) 4.34

Y (1.5*2.33) 3.5

Assembly (1*1.25) 1.25

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 SeptemberBudgeted cost Actual cost Variances

ParticularsUnits 2000 units 1900 unitsMaterial cost 24000 22800 -1200Labor cost 18000 19000 1000Fixed overhead 15000 15000 -Prime cost 57000 56800 -Electricity

Fixed portion 500 500 -Variable portion 7500 7125 375

Maintenance 5000 5000 -Total production cost 70000 69425

Calculation of standard budget at 1900 unitsBudgeted cost Budgeted cost

ParticularsUnits 2000 units 1900 unitsMaterial cost 24000 22800Labor cost 18000 17100Fixed overhead 15000 15000




Prime cost 57000 54900ElectricityFixed portion 500 500Variable portion 7500 7125Maintenance 5000 5000Total production cost 70000 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 customer’s 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 im-

proved 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 P urpose and nature of the budgeting process to the budget holders of Jeffery and Son’s 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 & Son’s 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).




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 July August September October

Sales 105000 90000 105000 110000

Less: opening stock 11000 13500 15750 16500

Add: Opening stock 13500 15750 16500 15000

Units to be produced 107500 92250 105750 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 August September October

Material usage 215000 184500 211500 217000

Less: Opening stock 52000 46125 52875Add: Closing stock 46125 52875 54250Purchases 209125 191250 212875

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

Material purchase budget of Jeffrey and Son's smake

Particulars July August SeptemberUnits to be produced 107500 92250 104250Material cost £3.50 £3.50 £3.50Material to be purchased £376,250.00 £322,875.00 £364,875.00Add: cost of material in ending inventory £80,718.75 £91,218.75 £91,218.75Total cost of material needed £456,968.75 £414,093.75 £456,093.75Less: Cost of material in beginning inventory -£166,400.00 -£80,718.75 -£166,400.00Cost of material to be purchased £290,568.75 £333,375.00 £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 July August SeptemberOpening balance of cash £16,000.00 £204,431.25 £192,306.25Received from debtors £333,000.00 £335,250.00 £330,750.00Cash sales £567,000.00 £486,000.00 £567,000.00Total receivable £916,000.00 £1,025,681.25 £1,090,056.25ExpensesPayment to creditors £290,568.75 £333,375.00 £289,693.75Direct wages £300,000.00 £300,000.00 £300,000.00Variable overhead £46,000.00 £100,000.00 £100,000.00Fixed overhead £75,000.00 £100,000.00 £100,000.00Total payable £711,568.75 £833,375.00 £789,693.75Closing balance of cash £204,431.25 £192,306.25 £300,362.50

Working notes




Computation of amount receivable from debtors

July August SeptemberAmount received for sales before a month 247500 236250 236250Amount received for sales before two months 85500 99000 94500Sum 333000 335250 330750

Computation of amount of overhead payment

Overhead payment July August SeptemberVariable overhead 46000 100000 100000Fixed overhead 75000 100000 100000

Computation of production cost

July August SeptemberMaterial cost £3.50 £3.50 £3.50Wages £3.00 £3.00 £3.00Variable overhead £1.00 £1.00 £1.00Total variable cost £7.50 £7.50 £7.50Fixed overhead £100,000.00 £100,000.00 £100,000.00Units to be produced 107500 92250 104250Total variable cost £806,250.00 £691,875.00 £781,875.00Total production cost £906,250.00 £791,875.00 £881,875.00

Sales budget

July August SeptemberUnits to be sold 105000 90000 105000Sale price 9 9 9Sales 945000 810000 945000

Cash budget of Jeffrey and Son's

Particulars July (£) August (£) September (£)Cash inflowSales receipts (w.n.1) 900000 731250 864000Cash outflowPurchase 365969 334688 372531Labour (w.n.2) 322500 276750 317250Variable O/H (w.n.3) 108500 98350 100350Fixed O/H 75000 87500 87500

Net cash flow 28031 -66038 -13631Opening balance 16000 44031 22007Closing balance 44031 -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 Budgeted Actual VarianceNature ofvariance

Per unit Total Per unit Total

Sales revenue (A) 4 per unit 140003.95 per

unit 13820 -180 Adverse

Material Cost (a) 2.4 per kg 3360 2.4 per kg 3420 60 Adverse

Labor charges (b) 8 per hour 28007.80 per

hour 2690 -110 Favorable

Fixed overheads (c) 4800 4900 100 Adverse

Total Cost (a + b + c) 10960 11010 50 Adverse

Actual profit (A-Total cost) 3040 2810 -230 Adverse

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

Sales prices variance (14000- 13820) = (180) (A)

(Budgeted: 35000*£4- Actual sales)




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 100(A)

Budgeted fixed production overhead = £4800

Budget

Original Flexed Actual

Output (Production andsales units )

4000 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

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

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P 4.2 Operating statements includes both budgeted and actual results

Reconciliation operating statement of Jeffrey and Son's

Particulars Amount (in £)

Budgeted profit 3040

Less: Variance of sales -180

Less: Variance of cost -60

Add: Labor 110

Less: Overhead -100

Actual profit 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 0

Material usage variance 60

Labor rate variance 70

Labor efficiency variance 40

Fixed overheadexpenditure variance

100

Total variance 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




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 in-

dulging 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.287–313.

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.112–133.

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>.

[Accessed on 28th January 2016].

Key Performance Indicators., 2014. [Online]. Available at: <http://blog.claytonmckervey.com/blog/2011/01/24/key-

performance-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 50/1510 x

£15,000= f 497 Maintenance 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 — £497

Maintenance 60/1510 x £150,000 = £596

Insurance of Buildings Machinery X 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 x £25,000 — £7,500

Maintenance 5/50 x £25,000 = £2,500




Salaries of works mgmt. Machinery X 3/10 x £80,000 = £24,000

Machinery Y 2/10 x :E80,000 = £16,000

Assembly 3/10 x £80,000 = £24,000 Stores

1/10 x £80,000 — £8,000

Maintenance 1/10 x £80,000 = £8,000

Reappointing workings: based on material issues Machinery X 400/800* £79,964 = £39,982Machinery Y 300/800 * £79,964 = £29,987Assembly 100/800 * £79,964 = £9,9995

Based on time spent Machinery x 12/25 * £101,056 = £48,507Machinery y 8/25 * £101,056 = £32,338Assembly 5/25 * £101,056 = £20,211Overhead absorption rate workingsDepartments = Total / actual machine hours per deptMachinery X = £ 434,906/ 80,000 = £5.44Machinery Y = £349,960/ 60,000 = £5.83Assembly = £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 8

Labour 15

Overheads

X (0.8*5.44) 4.34

Y (.6*5.83) 3.5

Assembly (.1*25.01) 2.5

Total cost 33.35

Allocation of cost of support departments on the basis of machine hoursMachine shop X Machine shop Y Assembly Total

Store £39,982.00 £29,987.00 £9,995.00 £79,964.00Maintenance £45,807.00 £32,338.00 £20,211.75 £101,056.00Total £434,906.00 £349,961.00 £250,133.00




Allocation of criteria of costParticulars DescriptionIndirect wages and supervision As per the provided amount.Indirect materials As per the provided amount.Light and heating On the basis of area occupiedRent On the basis of area occupied

Insurance and machinery On the basis of book value of machineDepreciation of machinery On the basis of book value of machineInsurance of building On the basis of area occupiedSalaries of works management On the basis of number of employees.

Units to be producedMaterial cost £400,000.00 £300,000.00 £100,000.00per unit material 8 8 8A/B no. of units 50000 37500 12500 Overhead absorption rate Machinery X 434906/80000=5.44Machinery Y 349960/60000= 5.83Assembly 250134/10000=25.01

Computation of absorption rate Exquisite calculation

£ £

Materials 8

Labour 15

Overheads

X (0.8*5.44) 4.34

Y (.6*5.83) 3.5

Assembly (.1*25.01) 2.5

Total cost 33.35

Working notes for task 3.1

Working Note-1

Sales (£) July (£) August (£) September (£)May 855000 85500June 990000 247500 99000July 945000 567000 236250 94500August 810000 486000 202500September 945000 567000

July: 105000*9 = 945000

August: 90000*9 = 810000




September = 105000*9 = 945000

July receipts August receipts September receipts10%*855000 May 10%*990000 June 10%*945000 July25%*990000 June 25%*945000 July 25%*810000 Aug.60%*945000 July 60%*810000 Aug. 60%*945000 Sept.

Working Note-2

Labour

July 1075000*3 = 322500August 92250*3 = 276750September 105750*3 = 317250

Working Note-3

Variable overhead

July (£) August (£) September (£)June 44000July 64500 43000August 55350 36900September 63450Total 108500 98350 100350

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

July (£) August (£) September (£) Total (£)Sales 945000 810000 945000 2700000Less: bad debts 47250 40500 47250 135000

897750 769500 879750 2565000

Total MC of

production

806250 691875 793125 2291250

Add: opening stock 82500Less: closing stock 123750




Cost of sales 2250000Contribution 315000Fixed overheads 300000Profits 15000

July (£) August (£) September (£) Total (£)Material 376250 322875 370125 1060500Direct labour 322500 276750 317250 916500Variable O/H 107500 92250 105750 305500Total MC of

production

806250 691875 943125 2582500




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Date post:	14-Apr-2017
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