Unit 9 Management Accounting Costing and Budgeting

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The aim of this Unit 9 Management Accounting Costing and Budgeting is to provide learners with the understanding and ability to use cost information for budgeting and forecasting purposes in the management of business.

Unit abstract

This unit looks at the cost information, both current and future, of businesses. It looks at how cost data is collected, compiled and analysed, and processed into information that is useful for business managers. Learners will have the opportunity to apply these principles to practice. The unit then deals with budgetary planning and control. It looks at how to prepare forecasts and budgets and to compare these to actual business results. Learners will again have practical experience of this. Finally, the unit considers different costing and budgetary systems and the causes of resulting variances, together with the possible implications and the corrective action the business will need to take.

Learning outcomes

1 Be able to analyse cost information within a business

  • Types of costs and classification: materials; labour; overheads; direct and indirect; fixed; variable and semi-variable
  • Costing methods: job costing; batch costing; process costing; contract costing; service costing
  • Cost measurement: absorption and marginal costing; traditional overhead absorption and activity-based costing; stock valuation methods (FIFO, LIFO, AVCO, standard costing)
  • Costing as basis for pricing and stock valuation: cost plus pricing; market pricing; target costing
  • Data collection and analysis: sampling methods and purpose; presentation of data e.g. tabular, diagrammatical, graphical; index numbers

2 Be able to propose methods to reduce costs and enhance value within a business

  • Cost reports: preparation; comparison with other data; explanation and implication of variances
  • Performance indicators: monitor and assess to identify potential improvements
  • Quality and value: definitions and interaction; added value; total quality management

3 Be able to prepare forecasts and budgets for a business

  • The budgeting process: purpose; benefits; links with organizational objectives/strategy; the budget manual; budgets as planning, coordinating, motivation and control devices
  • Budget preparation: limiting or key factors; master, subsidiary and functional budgets; cash budgets; the preparation of sales budget, debtors’ budgets, creditors’ budgets, production costs, raw materials and finished goods budgets
  • Budgeting methods: incremental; zero-based; fixed and flexible
  • Behavioural consequences of budgets: padding the budget; spending to budget; creative budgets

4 Be able to monitor performance against budgets within a business

  • Variances: types; analysis; calculation; possible causes; corrective action
  • Reporting: operating statement; reconciliation of budgeted and actual results
  • Responsibility centres: relevance to budgeting; identification of responsibility for variances


Employer engagement and vocational contexts

Centres should develop links with local businesses. Many businesses and chambers of commerce want to promote local business and are often willing to provide work placements, visit opportunities, information about businesses and the local business context and guest speakers.

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