ASSIGNMENT Brief

Unit Number and title

Management Accounting : Costing and Budgeting

Qualification

BTEC HND Business (Level 4)

Term Start Date

14 September 2015

Assignment hand out date

Submission Deadline date

29th January 2016

TASK 1 to TASK 4: You are required to follow the instructions as specified towards each task and
support with a research by using supportive materials like books, websites, etc., and give a feedback
on the findings by relating your arguments to the relevant case studies as specified towards each
task:

LO 1. The student should be able to analyse cost information within the business of the chosen case
study.

TASK 1: Scenario
Jeffrey and Sons is a manufacturing company that manufactures many popular and brand product
called Exquisite. The company has many departments including two main service departments (Stores
and Maintenance), and Production departmentswhich is made up one Assembly and two Machines
departments.

The company wishes to reduce its operating costs as the business environment has become very
competitive. As part of the companys re-structuring exercise, you have been appointed as the new
management accountant and your main functions includes: costs control, effective communication and
coordination, performance monitoring, planning, organising, motivating and costs analysis. Jeffrey and
Sons is now considering using different cost classifications for better decision making.
Required
P1.1 Explain the different types of cost classification:

Element

Function

Nature

Behaviour

Note: (Explain each of these classifications, with examples of the type of costs that may be included.
You may use diagrams or numbers to support your argument or assertion.

Task 1.2
Jeffrey and Sons Ltd has provided cost data for Job 444 are as follows:

Direct materials 50 kg @ 4 per kg

Direct labour 30 hours @ 9 per hour

Variable production overhead 6 per direct labour hour

Fixed production overheads are budgeted as 80,000 and are absorbed on the basis of direct
labour hours. The total budgeted direct labour hours for the period are 20,000.

200 units is required for this job.

Required:
P1.2 Using Job costing method calculate the unit cost and total job cost for Job 444.

(Word count: approximately 700 words)

Task P1.3 and P1.4

Scenario

Jeffrey & Sons Ltd annual overheard costs for its three production departments( two
machine shops and one assembly shop) and two service departments (stores and
maintenance departments) are as follows:
()
Indirect wages and supervision
o Machine shop:

o Machine shop

100,000
99,500

()

Assembly

92,500

Stores

10,000

Maintenance

60,000

362,000

Indirect materials
o Machine shop : X

100,000

o Machine shop :

100,000

Assembly

40,000

Stores

4,000

Maintenance

9,000

253,000

Light and Heating

50,000

Rent

100,000

Insurance and Machinery

15,000

Depreciation of Machinery

150,000

Insurance of Buildings

25,000

Salaries of works management

80,000

420,000
1,035,000

The following information is also available:

Book Value

Area

Number of

Direct

Machine

Of machine

Occupied employees labour hrs.

hours

()

(Sq m )

Machine shop : X

800,000

10,000

30

200,000

80,000

Machine shop :

500,000

5,000

20

150,000

60,000

100,000

15,000

30

50,000

15,000

10

Assembly
Stores
Maintenance
1,510,000

200,000

10,000

60,000 5,000 10

50,000

100

Maintenance department records indicates that the amount of time spent on the maintenance
work in other departments was as follows

Machine shop : X
Machine shop :

12,000 hours

8,000 hours

Assembly

5,000 hours

25,000 hours
Details of total materials issues ( i.e. direct and indirect materials) to the production
departments are as follows:

Machine shop : X

400,000

Machine shop :

300,000

Assembly

100,000

800,000

Actual machine hoursused for production of 100,000 units

Machine shop : X 80,000 hours
Machine shop :

60,000 hours

Assembly

10,000 hours

Additional information
The cost sheet for producing the Exquisite is shown as follows;
Material cost

Labour 2hrs @ 7.50

15

Overheads are absorbed based on machine hours and product AB uses

Machine shop X: 0.8 machine hours
Machine shop Y: 0.6machine hours
Assembly: 0.1machine hour

Required
P1.3 Calculate the cost of Exquisite using absorption costing technique.

Guideline
a. Allocate and apportion overheads to the three production departments
b. Reapportion the service or support department costs to the production departments
c. Deduce overhead absorption rates for each of the production department X, Y and
Assembly using the using machine hours.
d. Use the absorption rate to calculate overhead charge to the product.
Note
(Word count: 500 approximately)
Task 1.4
Using the costs information and the results below, analyse the cost of Exquisite focusing on
the technique used by Jeffrey & Sons Ltd.

The Financial Director of Jeffrey and Sons is apparently not happy with the basis of
calculating the OAR. He is of the opinion that the company should absorb overheads on the
basis of direct labour hours.

The following information relates to the production of Exquisite.

Actual labour hours used for producing Exquisite.

Machine shop X2 hours

Machine shop Y
Assembly

1.5 hours

1 hour

Required
P1.4 Analyse cost data of Exquisite using appropriate techniques

Note
Learner need to re-calculate the OAR using direct labour hours and comment on the
difference of the unit cost of Exquisite when labour hours is used to absorb overheads.

Learning outcome 2 ( LO 2)
Be able to propose methods to reduce costs and enhance value within the business

TASK 2: Scenario
Jeffrey & Sons Ltd has produced the following budgeted cost reportfor the month of
September. The actual results have also been provided.
Budgeted cost

Actual cost

2000 units

1900 units

Material

24,000

Labour

18,000

Fixed overheads

15,000

Electricity

8,000

Maintenance

5,000

Total

Variance

70,000

Additional information:
1. Material cost 12 per and this has not changed
2. Labour is paid by piece rate which is 10 per unit
3. Electricity is a semi-variable cost.The highest and lowest usage cost for the 12 months
Units

Total cost ()

Highest

2000

8,000

Lowest

1200

5,000

Difference

4. Maintenance is a stepped cost and increases by 1,000 for each 500 units produced.

Required:
P2.1 Prepare and analyse the cost report for the month of September by completing the
table above and comment on the variance.

Note: All workings must be shown

P2.2- Use various performance indicators used to identify areas for potential
improvements.

P2.3: Suggest ways to reduce costs, enhance value and quality

LO 3. Be able to prepare forecasts and budgets for the case study

TASK 3: Scenario

Jeffrey and Sons Ltd is about to commence work on the preparation of the forthcoming
years annual budget. The volatility of the market and other market forces is making it
difficult to for the business to plan ahead. The survival of the business depends on its ability
to make the right decisions at the right time and at the right cost.
As the newly appointed accounts manager, you have been asked to assist budget-holders and
to respond to any queries which they may raise in the course of submitting their budget
proposals.
The following notes are extracts taken from your organisations budget manual:
They key or principal budget factor in our organisations budgetary process is sales
volume... The need for co-ordination in the budgetary process is paramount... according to
the Marketing Manager.
The marketing manager is a budget holder and she has approached you with a number of
queries concerning the above extract.
Required

P3.1- Explain the purpose and nature of the budgeting process to the budget holders of

Jeffery and Sons Ltd.

P3.2- Select the appropriate budgeting methods for the organisation and its needs.

Note: Learner is required to explain the budgeting method used for the case study and
reflect its needs. Comment with your advice and suggestions

Task 3.3 and 3.4

Jeffrey and Sons manufactures a product called the R4 30. The budgeted monthly
production and sales are 100,000 units.

A standard cost has been estimated on the basis of direct costs of 3.50 for materials (2 kg
@ 1.75 per kg) and 3.00 for wages (half an hour @ 6 per hour). In addition, variable
overheads have been determined as 1.00 per unit and monthly fixed overheads are
100,000.
Monthly sales for the next five months of 2014 have been estimated as:
Units
July

105,000

August

90,000

September

105,000

October

110,000

November

100,000

Actual sales in recent months were: 95,000 in May and 110,000 in June.
Cash received from sales is based on previous experience and is expected to be received

60% in the month of sale, 25% in the following month and 10% two months after the
sale. It is expected that 5% will be irrecoverable and will be written off in the month of
sale, as bad debts. The selling price is 9 per unit.
Creditors for raw materials are paid at the end of the month of purchase.
Direct wages are paid in the month in which they are incurred.
Variable overheads are paid 60% in the month in which they are incurred, and 40% in
the following month.
Fixed overheads include 12,500 of depreciation and are paid one month after the costs
are incurred.
At the 1 July 2014 creditors for variable and fixed overheads are estimated as 46,000
and 75,000 respectively. The company intends to have finished stocks at the end of
each month equivalent to 15% of the following month's budgeted sales. For raw
materials stocks, the policy is to have 25% of the following month's production
requirements. Stocks at 1 July 2014 are estimated as 11,000 units of finished goods and
52,000 kg of raw materials. Finished goods are valued using a marginal cost of
production.
The cash balance at 1 July 2014 is estimated as 16,000.
Required:
P3.3 - Prepare the following budgets according to the chosen budgeting method for
the months of July, August and September 2014:
(a)

A production budget in units;

(b)

A materials purchases budget;

P3.4 Prepare a cash budget

Note; You will need to find the sales, labour, variable overheads budget
All workings must be shown

LO 4. Be able to monitor performance against budgets for the chosen case study.

TASK 4: Scenario

Jeffrey and Sonsmake a standard product, which is budgeted to sell at 4/ unit, in a

competitive market. It is made by taking a budgeted 0.4 kg of material, budgeted to cost
2.40, and working on it by hand by an employee, paid a budgeted 8/hour, for a
budgeted 6 minutes. Monthly fixed overheads are budgeted at 4, 800. The output for
May was budgeted at 4000 units.

The actual results for May were as follows:

Sales revenue (3,500 units)

13,820

Materials (1,425 kg)

(3,420)

Labour (345 hours)

(2,690)

Fixed overheads

(4,900)

Actual operating profit

2,810

No inventories of any description existed at the beginning and end of the month.
Address 4.1, 4.2, and 4.3 with the relevant information.
Required
P4.1 Calculate variances, identify possible causes and recommend corrective actions

Note: All workings must be shownYou mustshow the formulae and workings

P4.2 Prepare the operating statement reconciling budgeted and actual results
P4.3 Report the findings to management in accordance with identified responsibility
centres

Note: Your report should highlight again the possible causes, corrective actions and the
responsibility centres.