Management Accounting (Article Sample)

MANAGEMENT ACCOUNTING
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Table of Contents TOC \o "1-3" \h \z \u Introduction………………………………………………………………………………………..3Task 11.1Classify the different types of costs……………………………………………………………31.2 Using job costing method..........................................................................................................41.3 Calculate the cost of Exquisite using appropriate techniques…………………………………51.4 Using the costs information and the results below, analyses the cost of exquisite focusing on the technique used by Jeffrey & Son’s Ltd………………………………………………………..6Task 22.1 Prepare and analyses the cost report for the month of September by completing the table above and comment on the variance………………………………………………………………72.2 Use various performance indicators used to identify areas for potential improvements……...82.3 Suggest ways to reduce costs, enhance value and quality…………………………………….9TASK 33.1 Explain the purpose and nature of the budgeting process to the budget holders of Jeffery and Son’s Ltd…………………………………………………………………………………………113.2 Select the appropriate budgeting methods for the organisation and its needs.........................123.3Prepare the following budgets according to the chosen budgeting method for the months of July, August and September 2014.................................................................................................133.3 Prepare Cash Budget PAGEREF _Toc436718537 \h 13Task 4 PAGEREF _Toc436718539 \h 144.1Variances Analysis, their Causes and Possible correction actions PAGEREF _Toc436718540 \h 144.2Operating Statement reconciling budgeted and actual results PAGEREF _Toc436718570 \h 184.3 Report the findings to management in accordance with identified responsibility centers…..19Conclusion PAGEREF _Toc436718575 \h 19References PAGEREF _Toc440539403 \h 19
Introduction
Management accounting is an accounting practice which involve in the cost ascertainment and allocation of cost into different activities (Ward & Neal, 2011). It requires the management to allocate costs into different categories according to their nature, element, and function and even cost behavior (Titman and Martin, 2010).In this report; there is an explanation of different types of costs such as direct costs and indirect costs. In addition, it highlights purpose and nature of budget for the business organization. This therefore helps the learners to know the need for budgeting and its role in the business organization (Arnold & Estrada, 2009). It is also seek to conduct variance analysis by comparing the budget with the actual result of the business organization. In addition it provides information regarding appropriate budgeting methods that the company can use to develop a good budget.
1.1Classify the different types of costs
Cost can be classified according to their nature, element, function and cost behavior. Each of these categories of cost has different types of costs such as fixed cost and variable costs.
By Element
The element of costs include direct materials cost which is the cost of purchasing materials which are used in the production of goods and services. Direct labor cost is the cost of man and machine power that the company incurs during production. It involves payment of wages for production workers, the cost of fuel for the production machine and other production expenses.
By Nature
Cost can also be classified according to their nature. This cost classification categorizes costs as direct and indirect costs (Arnold & Estrada 2006). Direct costs are costs which have close association with the product while indirect costs are those which cannot easily be identified with the product. The example of direct cost is the cost incurred when buying raw materials and when paying workers (Drury, 2007). Indirect cost is those such as employee’s salaries, repairs and other overheads costs.
By Cost Behavior
There classification of cost can also be done according to their behavior (Drury, 2007). All cost which do not vary with the variation in the level of production are classified as fixed costs while those costs which varies with the variation in the level of production are classified as variable costs (Block and Hirt, 2008). The example of variable costs includes direct materials and direct labor while fixed cost includes cost of purchasing a building.
By Function
Different cost is also classified according to their functions. Such cost includes production costs and they include all costs which are incurred during the production of products. It also includes manufacturing cost, selling and distribution costs and equipment costs (Block and Hirt, 2008). All the costs which have the same function and role are grouped under one class.
1.2 Using job costing method.
Calculate the unit cost and total job cost for Job 444
Items of cost

Cost

Total

Materials costs

£ 4.00

 

Capacity

50.00 kg

 

Units

200.00units

 

Total cost of materials

 

£ 40,000.00

Labor rate

£ 9.00

 

Hours

30.00 hours

 

Units produced

200.00 units

 

Total labor cost

 

£ 54,000.00

Overhead cost

 

 

Overhead rate

£6.00

 

Hours worked

14,000 hours

 

Overhead cost

 

£ 84,000.00

Total variable Cost

 

£ 178,000.00

Fixed Cost

 

£ 80,000.00

Total cost

 

£ 258,000.00

Production capacity

 

200.00

Unit cost

 

£ 1,290.00

1.3 Calculate the cost of Exquisite using appropriate techniques
a) Allocate and apportion overheads to the three production departments
Details

Basis of app

X

Y

Assembly

Store

Main

Total

Indirect wages


100000

99500

92500

10000

60000

362000

Indirect materials

100000

100000

40000

4000

9000

253000

Lightening and heating

Floor area

10000

5000

15000

15000

5000

50000

Rent

Floor area

20000

10000

30000

30000

10000

100000

Insurance and Machinery

Book value

7947

4967

993

497

596

15000

Depreciation of machinery

Book value

79470

49670

9930

4970

5960

150000

Insurance of buildings

Book value

13245

8278

1656

828

993

25000

salaries of works mgt

No of employee

24000

16000

24000

8000

8000

80000

Total


354662

293415

214079

73295

99549

1035000

b) Reapportion the service or support department costs to the production departments
Item of Cost


X

Y

Assembly

Maintenance

47784

31856

19910

Store

36648

27486

9162

Total costs after reapportionment

439094

352757

243151

Material cost

 

400000

300000

100000

Direct labor cost

600000

450000

75000

Total departmental cost

1439094

1102757

418151

c) Deduce overhead recovery rates for each of the production department ...