Unit 9 Management Accounting Costing and Budgeting Assignment

Unit 9 Management Accounting Costing and Budgeting Assignment

Introduction

Unit 9 Management Accounting Costing and Budgeting Assignment

The Unit 9 management accounting costing and budgeting assignment will assist you in gaining a thorough understanding of the various expenses involved in running a firm. Students will learn about the tools and procedures used by businesses to assess costs and generate cost reports by reading this. The problem-solving activities also assist pupils in comprehending and making various costing and budgeting selections.

Task 1

To achieve their objectives and manage their businesses successfully, every company follows the cost structure involved in the business. For this, the firm must first comprehend and classify various costs under various overheads, as well as pay special attention to preparing various cost reports and budgets for the business process.

 

Buccaneers Ltd.’s production unit has been taken into account in this case study. The following is a cost categorization based on information about Buccaneers Ltd.

 

Let us first define cost before moving on to the different forms of costs. The term cost refers to the actual amount of money spent by a corporation on the production of goods and services, including expenses for raw materials, equipment, and supplies.

Cost may be broken down into three categories:

Unit 9 Management Accounting Costing and Budgeting Assignment

 

Direct/Indirect Labor- Direct/Indirect Expenses- Direct/Indirect Materials

Cost may be separated into two categories based on these factors: Product cost and Period cost.

 

Product costs – These are the costs of producing the item.

Period costs are costs other than production costs that are charged to or deducted from the income statement at different times.

‘Direct cost’ is included in the product cost. Direct costs are those that are directly related to the production of goods (Tyran, 1982). These are almost often variable costs. The following are examples of direct costs: – Direct Material Costs – These are costs spent during the production of a product, such as direct costs on raw materials. For example, the cost of plywood, textile fabric, wooden battens, and steel for the almirah.

Production or service labour that is assigned to a single production or cost centre is referred to as direct labour. Drillers, painters, sawyers, assemblers, and so forth.

Unit 9 Management Accounting Costing and Budgeting Assignment

Direct Expenditures – Direct expenses are an element of the cost structure, according to IAS 2 (International Accounting Standards). These are costs associated with a product that are incurred to improve its quality or design. Special machinery, for example, is purchased to update the look of tables and chairs (Farr, 2011).

Prime Cost is the sum of Prime Cost and Overheads, while Product Cost is the sum of Prime Cost and Overheads.

Overheads + Prime Cost = Product Cost.

 

Indirect Costs-Indirect costs are those that are incurred in the factory but are not directly related to the production of a product (Rouwendal, 2012). The following are examples of indirect costs:

Unit 9 Management Accounting Costing and Budgeting Assignment

Indirect Material – This category includes costs that have not been included in direct material.

Indirect Labor – Indirect labour costs are labour costs that are not directly related to production. Managers, supervisors, technicians’ cleaners, and so forth.

Indirect Expenditures – Indirect expenses are mostly made up of factory costs. Depreciation on machinery, power costs, rent, phone bills, council tax, insurance, and so on are examples. These mostly consist of overhead expenditures.

Period cost—Administrative, selling and distribution, and finance costs are all included in period cost.

 

Administration costs – These are the costs that encompass the organization’s administrative charges. Employee pay, office rent, Council tax, water costs, telephone bills, and other administrative costs are included (Farr, 2011).

Selling and distribution costs – These are the expenses involved in qualifying items for sale and carrying out various distribution operations. These expenses include advertising, market research, surveys, wages, bonuses, and so on.

Finance expenses — These are the costs associated with long-term, short-term, and permanent financing. Dividends, interest, long and short term loans, and other expenses are included in this cost.

Cost is further divided into the following categories:

Fixed expenses are costs that stay constant regardless of how the firm operates. It has no influence on the level of output (Underwood, 2006).

Variable costs: These are costs that fluctuate depending on Buccaneers Ltd’s production level (Czopek, 2004).

Unit 9 Management Accounting Costing and Budgeting Assignment

Costs that have both fixed and variable features are called semi variable costs.

Controllability: Controllability divides expenses into two categories: controllable costs that can be controlled by company management and noncontrollable costs that cannot be controlled by management.

 

Costs are split into two sorts based on their timing: historical expenses and predetermined costs.

Unit 9 Management Accounting Costing and Budgeting Assignment

Historical costs are those that were calculated in the past and are still being used now.

P 1.2 –the different costing methods

 

An organisation can use a variety of various costing strategies. In order to manage a profitable firm in ordinary circumstances. These are the details:

 

Work costing: This approach is used by industries that have a variety of occupations, and the cost of each job may be computed using this method. For instance, a builder who serves homeowners, a factory owner, a store owner, and so on (Lucey, 2002).

Contract costing is a method for calculating the cost of a given initiative or contract, such as the cost of building bridges or buildings.

Process costing: This strategy is employed by businesses that follow multiple processes to create completed goods. For example, in the textile industry, several processes such as spinning, weaving, and colouring are used to create final products (cloth).

Service costing: This strategy is appropriate for service businesses. For the advantage of the service organisation, a distinct costing approach is developed (Baum, 2013).

The job costing approach was used to determine the cost of the specific work in this case study for Buccaneers Ltd.

P1.3 – How is the cost calculated, using appropriate techniques? What is the costing technique used to calculate its costs

Unit 9 Management Accounting Costing and Budgeting Assignment

When a company wants to create an extra unit, it uses the marginal costing approach. Variable costs are levied on individual products under this system, whereas fixed costs are wiped off in the organization’s income statement (Harris, 1995).

 

The Marginal Cost is calculated using the following equation:

 

Fixed Cost + Variable Cost Equals Marginal Cost.

Absorption costing: Absorption accounting is a cost approach used in management accounting. The production cost is absorbed by the units manufactured. This cost might be constant or variable, and it is allocated to different cost centres where absorption rates are calculated (Rouwendal, 2012). Costs incurred are recovered from the selling price of goods and/or services when this approach is used. This method covers costs associated with production that are directly paid to products and services.

Task 2

P 2.1- What are the various performance indicators used to identify its potential improvements

A performance indicator is a sort of measuring scale used to assess an organization’s progress.

 

The following are some of the different performance indicators used by businesses to assess their performance:

 

  1. Balance scorecard—the most significant instrument for evaluating performance since it incorporates both financial and non-financial metrics. It assesses the organization’s strategy.

 

Gross profit margin, net profit margin, and operating margin are examples of financial measurements.

The gross profit margin is a financial indicator used to assess a company’s financial health by determining the amount of money left over after deducting costs of products sold. Simply said, it is the difference between revenue and cost before additional costs are factored in. This statistic is useful for estimating the firm’s health as well as comparing the firm’s position to that of its rivals.

Revenue (Sales) – Cost of Goods Sold = Gross Profit.

Unit 9 Management Accounting Costing and Budgeting Assignment

After operational expenditures, interest, taxes, and preferred stock dividends have been deducted from total revenue, the net profit margin is the proportion of revenue that remains (Wilkinson, 1999).

Operating margin is a metric for determining a company’s efficiency. More profit is indicated by a greater operating margin.

Customer happiness, number of units manufactured, goodwill, and other non-financial criteria are examples. Positive customer feedback indicates an improvement, whereas negative feedback indicates the reverse.

P 2.3- If you were their Management accountant what would you suggest to reduce its costs, enhance value and quality?

 

The real reduction in the cost of products created and services supplied is referred to as cost reduction. These expenses can be cut in two ways:

 

By lowering the manufacturing unit cost

By boosting productivity

As a management accountant, I would recommend the following strategies for lowering costs while increasing value and quality:-

Unit 9 Management Accounting Costing and Budgeting Assignment

Target costing identifies the real cost price of a product from which profit may be made.

Expected selling price-desired profit=target costs

 

Value engineering is an advanced method or strategy for lowering costs. Manufacturing, production, development, design, and building are all domains where it may be used.

Economic order quantity—a amount that reduces inventory ordering and carrying costs (Wilkinson, 1999).

Activity-based management focuses on controlling the activities associated with cost rather than the cost itself. Controlling activities aids in cost management in the long term.

Its goal is to produce the desired item in the requisite quantity and quality at the appropriate time. It aids in cost reduction by-

Inventory is nil.

There are none.

Unit 9 Management Accounting Costing and Budgeting Assignment

It saves time and effort to order in bulk.

Avoiding actions that do not bring value

Total quality management (TQM) aids in cost reduction by ensuring that a good quality product is produced the first time without wasting resources and by avoiding additional costs associated with inspection, scrapping, and rework (Wilkinson, 1999).