Delivery in day(s): 5
Diploma in Business
Unit Number and Title
Unit 9 Management Accounting Jeffery and Son's Ltd
Management of an organisation is engaged into various activities and one of their activities managing costs is the necessary activity as it is beneficial for them in controlling their cost. In the below report different kind of costs will be discussed. Management utilise different methods in order to evaluate their performance. In below report different performance indicators and different types of budget will be discussed. Jeffery and Son's facing some problems related to their performance and in order to attain their competitive advantage bank they follow performance evaluation technique. In below report for this purpose variance analysis will be made and help in evaluating their performance and suggests way of improvements.
Element: - It segregate cost into three parts such as:
Function: - It segregate cost into two parts such as:
Nature: - It segregate the cost into two parts such as:
Behaviour: - It segregate the cost into four parts such as:
With the use of Job costing method unit cost and total job cost is calculated below for Job 444 such as:
Total cost = £770
Total units = 200
Unit cost = total cost / total units = 770 / 220 = 3.85
Unit cost for Job 444 = £3.85
Fixed overhead rate = Total fixed overhead cost / total budgeted labour hours
= 80,000/ 20,000 = £4
Fixed overhead rate = £4(Bhimani, 2012)
Allocate and apportion overheads to the three production departments
Reapportion the service or support department costs to the production departments
Deduce overhead absorption rates for each of the production department X, Y and Assembly using the using machine hours.
It is an three step procedure for the purpose of deduce overhead absorption rates for every production department. The process is as follows such as:
Step 1; - allocate available cost among all departments
Step 2: - Service department costs get allocated into manufacturing department
Step 3: - Manufacturing department costs get multiplied with machine hours and results into absorption overhead rate(Langfield-Smith, et. al., 2012).
Overhead rate = total cost / machine hours
With the help of above table different department overhead rate is calculated such as:
Use the absorption rate to calculate overhead charge to the product.
Overhead rate with the use of absorption rate is £33.35
Calculation of cost data of Exquisite is as follows such as:
The overhead rate with the use of labour hrs is as follows such as:
The cost attained with the use of the labour hrs is £32.09
Analysis: - There are two costs attained by the management of Jeffery and Son's Ltd management such as £33.35 & £32.09. The high cost is calculated by using machine hours whereas low cost is calculated by using labour hours. accounting Management use the low cost as they want to attain high profit margin and it become possible when they use low cost in their pricing decisions.
September month cost report:
Flexed budget: -
Maintenance cost: -
Total cost calculation for 1900 units: -
Analysis of cost report: Jeffery and Son's prepare cost report for September month in order to render adequate path for processing different activities and attain their desired results. They also make use of it for comparing their results and as per this it is concluded that they are not performing their activities accordingly. Firstly they not produce as per their set limit and fall short by 100 units. Secondly their labour cost is also exceeding the set limit by £1,000 as it results into negative balance instead of getting revenues or profits. Except these two factors they are getting favourable results(Lee & Epstein, 2013).
Their management also prepare flexible budget in order to make alternative analysis of their overall performance. In this analysis or comparison also they attain unfavourable results in labour efficiency of £2,000. Except this all things render set favourable results and shows adequacy in their performance.
Conclusion: - In both the analysis it is clearly observed that they are getting adverse results in their labour efficiency. Management of Jeffery and Son's Ltd. need to implement corrective measure to improve their labour efficiency in order to attain favourable results. Without improving their labour efficiency they are not able to attain set profits(Lee & Epstein, 2013).
Performance indicators: These are such factors that help in evaluating the performance of the organisation. These indicators get segregated into two parts that get discussed below such as: -
Financial indicators: - These indicators focuses over the financial activities in order to measure the overall performance(Bou?ková, 2015). In the below table effective calculations are made for evaluating performance such as: -
As per the results shown in the above table it get analysed that all departments except labour department perform in effective manner. They render favourable results but labour department fail to do so. The variance is of 5.55% and it is considered as huge. It shows that management make use of unskilled labour force that increases the only cost instead of production capacity. Without enhancing their labour force they are not able to attain their set targets. For making improvement they need to hire skilled labours or provide training and development program to the existing labour. skilled labour helps in reducing the labour cost as well as they make effective use of available material for production and reduce the ratio of normal wastage.
Non-financial indicators: - These indicators are other than financial indicators and plays a vital role in getting the success for their organisation. Management gather the information from their market and as per their information they get to know that their sales ratio is falling as well as their customers are not satisfied with their products and services. As per their internal information it is analysed that there is fall noted down in their employees performance. These are serious concerns and management need to take corrective measures. They need to motivate their employees in order to perform effectively and make production of high quality products. Management need to prepared effective marketing strategies in order to promote their product within their market so that the ratio of their sales get increased and with the effect of high quality they become capable to make their customers satisfy(Bou?ková, 2015).
Cost reduction, enhancing value and quality is necessarily required for the purpose of attaining competitive advantage and compete with existing competitors. There are effective techniques are available in order to reduce cost, enhance value and quality such as balanced scorecard approach, lean system and total quality management. For reducing cost they make use of balanced score card, for enhancing their value they make use of lean system and in order to improve their quality they make use of total quality management(Takeda & Boyns, 2014).
Balanced scorecard is utilised by them in order to make reduction in their unnecessary expenditure that helps them a lot in reducing their cost. By using lean system they improve their working procedures, minimize their errors and mistakes. Lean system helps in making their process error free and it results into enhancing their value. Their management implement the total quality management for the purpose of improving their quality level. as per this they set quality standards for their production and services so that their employees perform accordingly. With the effect of benchmarking there is effective level of improvement is noted down in their employees performance as well as quality level of products and services.
Jeffery and Son's Ltd. implement these techniques in their organisation as with the effect of these methods they become much capable in processing their activities. Their employees become much effective as they utilise their funds and available resources in effective manner that reduces their overall cost. They make effective improvement in their processing standards that results into high quality production. These all improvements lead towards increase in loyal customer base and they become much competitive against their competitors(Hirsch, et. al., 2015).
Budget is the report that get prepared by the management in order to make plans, allocate resources and set paths in order to perform the activities that helps in effective decision making in order to maximise their revenues and market share in the set time period. Budgeting process is the process of preparing these budgets.
Jeffery and Son's Ltd. make use of this budgeting process for the purpose of making predictions related to their cash flows. Along with this their management utilise it in their decision making process so that they prepare adequate and effective strategies in order to attain the rapid growth in their respective market(Gamsakhurdia & Maisuradze, 2015).
There are five different budgeting methods are available and from these adequate and appropriate method get utilised by Jeffery and Son's Ltd. such as: -
A production budget in units;
Working notes: -
Closing inventory is 15% of monthly budgeted sales such as: -
90,000 units * 15%
10,5000 units * 15%
110,00 units * 15%
A materials purchases budget;
Working note: -
Closing inventory is the 25% of the monthly purchased material such as:
185,500 units * 25%
211,500 units * 25%
217,500 units * 25%
Cash budget is prepared as follows such as: -
Working notes: -
1. Calculating direct wages:
wage rate is given as £3.00
Calculation is in below table such as: -
2. Cash sales calculations: -
3. Variable overhead calculations: -
Variance calculation is made in the below table such as: -
Summary of results such as:
Analysis of the above gathered variances such as: -
Operating statement reconciling are as below such as: -
Budgeted profit = budget unit * SPM
= 4,000 * £1.04 = £4,160
Budgeted profit = £4,160
Net variance = 113 (F) - 1,460 (A)
= 1,347 (A)
Actual operating profit = Budgeted profit - Net variance
= £4,160 - £1,347
Actual operating profit = £2,813(Li, et. al., 2014)
Conclusion: As per the results and discussion over variance analysis, it is concluded that business is facing various challenges in order to perform their activities accordingly. Management of Jeffery and Son's Ltd. need to focus over recommendations made in order to make effective improvement in their functioning and helps in getting desired results as per their set budgeted.
In the end it get concluded that there are various costs available and it get segregated into four main parts such as element, nature, behaviour and function. These four costs also get segregated into further parts such as element cost (material, labour and expense cost), nature cost (direct and indirect cost), function cost (production and non-production cost) and behaviour cost (variable, semi variable, fixed and stepped fixed cost). Jeffery and Son's Ltd. is facing problems in order to run their business activities and attain results according to their budgeted results. With the use of the adequate budgeting process they effectively enhance their processing. As per the variance analysis it get analysed that they are not performing well. They need to hire employability skills labour force or train the existing so that they perform as per their set targets.
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