Unit 9 Management Accounting Assignment Jeffery and Son's Ltd

Unit 9 Management Accounting Assignment Jeffery and Son's Ltd

Unit 9 Management Accounting Assignment Jeffery and Son's Ltd


Diploma in Business

Unit Number and Title

Unit 9 Management Accounting Jeffery and Son's Ltd

QFC Level

Level 4


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.

Unit 9 Management Accounting Assignment - Jeffery and Son's Ltd

Task 1

P1.1 – Explain the different types of cost classification:

Element: - It segregate cost into three parts such as:

  • Material cost: Management make payment to purchase the material and the cost they pay is known as the material cost. Material is the essential element that get utilised in the production department.
  • Labour cost: Management pay the wages or salaries to their workforce against the job performed by them. The amount get paid to them is known as labour cost. Labour get the payment as a compensation against their hard work(Langfield-Smith, et. al., 2015).
  • Expense cost: Management make payments for the activities related to the production department such as research and development expenditure. This is the important activity as it helps in getting innovative ways or provide new product. So the payments made referred as expense cost.

Function: - It segregate cost into two parts such as:

  • Production cost: The payments made in the production department having direct impact over it termed as production cost. Such as payment made for material and labour force considered as the production cost as without these items it is not possible to make production(Langfield-Smith, et. al., 2015).
  • Non-production cost: The payments made in production department and it has indirect impact over it termed as non-production cost. Cost incurred over the administration or transportation and others get considered as non-production cost(Langfield-Smith, et. al., 2015).

Nature: - It segregate the cost into two parts such as:

  • Direct cost: Those part of cost that having direct impact over the production and sales of the product and in case of absence it affect the production or sales of the product. It is necessary to incur these costs for getting adequate level of returns with the sales of product.
  • Indirect cost:  Those part of cost that having indirect impact over the production and sales of the product and in case of absence it affect the production or sales of the product indirectly. These costs provide adequate level of support to the production process and sales of the production(Weetman, 2013).

Behaviour: - It segregate the cost into four parts such as:

  • Variable cost: The form of costs keeps on changing and didn't remain same is termed as variable cost. The cost get impacted with the external factors such as inflation rate, availability of  resources, etc. The cost of material is best suitable example as it didn't remain same for a longer period of time.
  • Semi-variable cost: The form of costs having a set limit till which they remain same after that they start changing and lots of variations are observed in it(Weetman, 2013).
  • Fixed cost:The form of costs remain same and didn't get changed at any level and with this feature it get denoted as fixed cost. This cost didn't get impacted with the external fluctuations and didn't show any movement in it.
  • Stepped fixed cost: The form of cost remain fixed for an individual group but for all groups it remain variable is termed as stepped fixed cost. This is an special cost and its best suitable example is maintenance cost(Weetman, 2013).

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

With the use of Job costing method unit cost and total job cost is calculated below for Job 444 such as:

Unit 9 Management Accounting Assignment Jeffery and Son's Ltd 1

Total cost = £770

Total units = 200

Unit cost = total cost / total units = 770 / 220 = 3.85

Unit cost for Job 444 = £3.85

Working note:

Fixed overhead rate = Total fixed overhead cost / total budgeted labour hours

= 80,000/ 20,000 = £4

Fixed overhead rate = £4(Bhimani, 2012)

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

 Allocate and apportion overheads to the three production departments

Unit 9 Management Accounting Assignment Jeffery and Son's Ltd 2

Reapportion the service or support department costs to the production departments

Unit 9 Management Accounting Assignment Jeffery and Son's Ltd 3

 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


Total cost

Machine hours



Dept. X


80,000 hrs

£434,906/80,000 hrs


Dept. Y


60,000 hrs

£349,959/60,000 hrs


Assembly Dept.


10,000 hrs

£250,133.47/10,000 hrs


With the help of above table different department overhead rate is calculated such as:


Overhead rate

Dept. X

£5.83/ hr

Dept. Y

£5.44/ hr

Assembly Dept.


Use the absorption rate to calculate overhead charge to the product.

Unit 9 Management Accounting Assignment Jeffery and Son's Ltd 4

Overhead rate with the use of absorption rate is £33.35

P1.4   Analyse cost data of Exquisite using appropriate techniques

Calculation of cost data of Exquisite is as follows such as:


Total cost

Labour hours



Dept. X


200,000 hrs

£434,906/200,000 hrs

£2.17/ hr

Dept. Y


150,000 hrs

£349,959/150,000 hrs

£2.33/ hr

Assembly Dept,


200,000 hrs

£250,133.47/200,000 hrs


The overhead rate with the use of labour hrs is as follows such as:


Overhead rate

Dept. X

£2.17/ hr

Dept Y

£2.33/ hr

Assemble Dept

£1.25/ hr

Unit 9 Management Accounting Assignment Jeffery and Son's Ltd 6

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.

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Task 2

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

September month cost report:

Unit 9 Management Accounting Assignment Jeffery and Son's Ltd 7

Flexed budget: -

Unit 9 Management Accounting Assignment Jeffery and Son's Ltd 8

Working notes:

Maintenance cost: -

Unit 9 Management Accounting Assignment Jeffery and Son's Ltd 9

Electricity cost:

Unit 9 Management Accounting Assignment Jeffery and Son's Ltd 10

Total cost calculation for 1900 units: -

Unit 9 Management Accounting Assignment Jeffery and Son's Ltd 11

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).

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

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: -

Unit 9 Management Accounting Assignment Jeffery and Son's Ltd 12

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).

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

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).

Task 3

P3.1- Explain the purpose and nature of the budgeting process to the budget holders of Jeffery and Son’s Ltd.

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).

  • Purpose of budgeting process in Jeffery and Son's Ltd: The main purpose of budgeting process for Jeffery and Son's Ltd. to make forecasting related to their income and expenditure of near future. They also predict the adverse situations or emergencies so that they get prepared for them also in order to reduce their impact when the occur. The budgeting process is also utilised by them for the purpose of monitoring their performance and activities. They evaluate their actual performance with their budgeted performance and if they attain adverse results then make effective level of improvement in their performance(Gamsakhurdia & Maisuradze, 2015). With the use of budgeting process they make effective allocation of their available resources, make effective reduction in their expenditure and minimise the total cost. Budgeting process build effective communication and coordination among their department that helps in improving various functions such as planning, organising, staffing, controlling and directing. Employees get effective level of support and motivation as they clearly known their roles and responsibilities. It results into effective production(McVay, 2015).
  • Nature of budgeting process: Jeffery and Son's Ltd. make use of their budgeting process for decision making as they make use of previous year's data for the purpose of comparing the actual and current results in order to make identification of the required changes. With the use of the previous data they effectively forecast the receipts and payments of future and also took corrective decisions related to their growth. Nature of budgeting process makes inclusion of the strategic goals and objectives and strategic changes in their respective organisation. The budgeting nature renders a framework of authority and responsibility of every individual in organisation so that they perform in effective manner(McVay, 2015).

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

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: -

  • Zero based budgeting method: As per this budgeting process fresh budget is prepared as it get started from zero. While preparing budget no data related to previous year get utilised and no consideration is given to the previous year's performance for their lower cost. Generally this method is utilised by the new firms but Jeffery and Son's Ltd. make use of this budgeting process for the purpose of making improvement in their productivity and make adequate level of allocation of their available resources.
  • Top down budgeting method: As per this budgeting process top level management engaged into budget preparation. They prepare budget with the use of the information available and one it get prepared they make allocation of financial funds among different departments that results in effective communication between every organisational department. With the use of this method Jeffery and Son's Ltd. allocate the work among their different departments in order to make effective work collaboration and took effective decisions for the purpose of attaining organisational growth (Guerrero-Baena, et. al., 2013).
  • Incremental budgeting method: As per this budgeting process management make some effective changes in their previous year budget in order to attain better performance of their organisation. This helps in making required and effective level of improvement in their performance. With the use of it Jeffery and Son's identify the required improvements that are necessary to enhance their overall work performance and employees efficiency.
  • Bottom up budgeting method: As per this method the preparation of budget starts from the lower level or operational level. This budget seems to be accurate as the employees engaged in to operation prepare it. They make effective and accurate estimations related to their receipts and expenditure. This processing helps in resolving the grievances among their employees. Jeffery and Son's Ltd. make use of this statement in order to motivate their employees (Guerrero-Baena, et. al., 2013).
  • Activity based budgeting method: This budgeting method renders that all such activities get identifies that get projected to provide adequate level of support to the production and sales. With the help of it they become able to estimate cost related to every activities of their production process. It helps in making identification of the unit numbers that required related to each activity. Jeffery and Son's follow this method to make identification of the activities required in their production at different level(Karanovic, et. al., 2010).

P3.3 - Prepare the following budgets according to the chosen budgeting method for the months of July, August and September 2014:

A production budget in units;

Unit 9 Management Accounting Assignment Jeffery and Son's Ltd 13

Working notes: -

Closing inventory is 15% of monthly budgeted sales such as: -


Budgeted sales




90,000 units

90,000 units * 15%

13,500 units


105,000 units

10,5000 units * 15%

15,750 units


110,000 units

110,00 units * 15%

16,500 units

 A materials purchases budget;

Unit 9 Management Accounting Assignment Jeffery and Son's Ltd 14

Working note: -

Closing inventory is the 25% of the monthly purchased material such as:


Purchased material




185,500 units

185,500 units * 25%

46,125 units


211,500 units

211,500 units * 25%

52,875 units


217,500 units

217,500 units * 25%

54,375 units

P3.4 – Prepare a cash budget

Cash budget is prepared as follows such as: -

Unit 9 Management Accounting Assignment Jeffery and Son's Ltd 15

Working notes: -

1. Calculating direct wages:

wage rate is given as £3.00

Calculation is in below table such as: -

Unit 9 Management Accounting Assignment Jeffery and Son's Ltd 16

2. Cash sales calculations: -

Unit 9 Management Accounting Assignment Jeffery and Son's Ltd 17

3. Variable overhead calculations: -

Unit 9 Management Accounting Assignment Jeffery and Son's Ltd 18

Task 4

P4.1 – Calculate variances, identify possible causes and recommend corrective actions

Variance calculation is made in the below table such as: -

Unit 9 Management Accounting Assignment Jeffery and Son's Ltd 19

Summary of results such as:

 Unit 9 Management Accounting Assignment Jeffery and Son's Ltd 20

Analysis of the above gathered variances such as: -

  • Sales variance: - The variance results are adverse which shows that sales department of Jeffery and Son's Ltd. fails to perform according to the set targets. They are not able to sold units according to the set units that results into adverse variances and now sales management need to think over it(Butt, 2010).
  • Reason of adverse results: - The main reason behind adverse results in lack of promotional activities and inadequate or outdated marketing strategies or utilisation of old machinery that produce low quality products (Butt, 2010).
  • Suggestions: - There are few suggestions are made to improve their sales such as: -
  1. Make effective promotion of the products in the market so that customers get to know about their products.
  2. Need to revised their marketing strategies so that they effectively present their product in their respective market. They become capable to capture the larger share of market
  3. Need to replace the existing machinery with new and advanced technology so that they make production of high quality and effective products(Miao, et. al., 2015).
  • Material variance: - The variance calculation shows adverse results as production department or management not able to perform according to the set budget. as they didn't utilise the material as per their set limit as they utilised material more than allotted, hence they fail to process as per the set plans.
  • Reasons of adverse results: - Labour force is not make proper utilisation of the available material. The poor quality of material is utilised for production which results into high level of wastage as compare to normal wastage level(Miao, et. al., 2015).
  • Suggestions: - There are few suggestions in order to overcome from the adverse results such as:
  1. There is effective need of replacing the poor quality material with good quality material.
  2. Need to enhance the skill set of labours so that they utilise the material in effective manner.
  3. Need to focus over reducing normal wastage level and producing high quality products.
  • Labour variance: - The results of variance calculation shows favourable results it means management make use of the low cost  labour market  in the production process. They hire unskilled labour at low cost that helps in attaining positive results as the cost paid to them is bearable and lower than their set prices. But due to hiring unskilled labour they face adverse situation as increase in the usage of material for production, low quality products get produced and many more(Simakov, et. al., 2015).
  • Suggestions: - There are few suggestions made in order to make effective level of improvements such as: -
  1. Management need to focus over hiring skilled labour only if they hire new ones.
  2. They need to conduct training and development sessions in order to enhance the skill set of existing employees.
  3. Make the exiting employees effective with the help of training so that they build adequate workforce at low cost(Simakov, et. al., 2015).

P4.2 – Prepare the operating statement reconciling budgeted and actual results

Operating statement reconciling are as below such as: -

Unit 9 Management Accounting Assignment Jeffery and Son's Ltd 21

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)

P4.3 Report the findings to management in accordance with identified responsibility centres

  • Introduction: This report is presented in order to focus over identified difference variances such as sales variance, material variance, labour variance and many more. Management need to take corrective actions in order to improve their functioning and with the help of this report they get to know about the wrong things happening in Jeffery and Son's ltd.
  • Findings: As per the variance analysis report it get identified that firm is facing problems related as their actual position is decaling from their set budgeted position. The variance results of materials, volume and sales are not satisfactory as all are yielding adverse results as compare to their budgeted results. These adverse results impact their overall performance and positioning. The sales and expense departments are cost centres but both of them are not yielding favourable results(Ray & Jenamani, 2016).
  • Apart from these adverse results there is only one department that yield favourable results is labour cost such as £113. Due to this favourable result the business able to lower down the ratio of adverse results. Labour variance become profit centre for them as it renders favourable results to them(Ray & Jenamani, 2016).
  • Recommendations: There are few and effective recommendation are made in order to make improvement in their adverse variances such as: -
  1. Need to hire skilled labour as it results into effective and adequate utilisation of the material.
  2. Provide training and development sessions in order to make their labour force skilled.
  3. Need to purchase good quality products as it helps in reducing unnecessary wastage and good quality products get produced.
  4. Replace the existing outdated machinery with the new and advanced machinery so that they become capable to produce high quality products. (Ray & Jenamani, 2016)

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.

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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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