Budgeting Process Assignment Help, Diploma in Business

Qualification - Higher National Diploma in Business

Unit Name - Management Accounting

Unit Number - Unit 5

Unit Level - Level 5

Assignment Title - Management Accounting

Learning Outcome 1: Demonstrating and understanding of management accounting system

Learning Outcome 2: Appling a range of management accounting techniques

Learning Outcome 3: Explaining the use of planning tools used in management accounting

Learning Outcome 4: Comparing ways in which organisations could use management accounting to respond to financial problems

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Part 1 Explain the meaning of management accounting, various management accounting tools and role of management accountants

Solution: MEANING OF ACCOUNTING OF MANAGEMENT

Accounting of management is a tool to summarize a business process and operation of business and also it can help to management of business to make a report of business. Management accounting policy also helps to make a good and right decision for good and healthy business and help to get a sufficient business profit also (Shields, 2015).

Accounting management is process by which the business organization gets more profit by evaluating the past performances.
This part also helps to get a set vision and mission of such business and a perfect purpose of business for that the business establish. This business toll also helps the lead managers of business for formulate a great business Performa and business plan also.

Explain the classification of costs that would help the management decision-making

Decision Making
In management accounting the lead managers of the company make a strategy for business and then this plan is share with the middle management and they execute the plan with the help of lower management.
There is middle level in the companies that connect the lower level to the top management and discuss the all problems of lower level to the top management.

These levels are work as a team for a business for achieving the targets of the company and maximize the profit.
Without a single level there is nothing possible to the business (Heong et. al., 2013).

There are too many accounting instruments as follows:
1. Cash flow
2. Fund flow
3. Accounting of cost
4. Cost of slandered accounting
5. Marginal costing
6. Budgetary control
7. Analysis of ratio
8. Reporting of management
9. System of information of management

In cost accounting management role of upper level is too much important. This role can describe as follows:
1. Top level authority makes detail of business financial condition.
2. Also the lead authority has to do their internal audit.
3. The top-level authority builds a bridge between top level and middle level and lower-level authority.
4. Inspect of team of accountant.
5. Manage the expenses and income of such business.
6. Make a good and healthy plan and strategy for business.

Calculate the unit costs of PC and VP based on absorption costing and marginal costing methods

UNIT COST COMPUTATION

Absorption Costing PER UNIT

Marginal costing per unit

There is a special order for 10,000 units of PC at $1050 per unit:
which costing method should be used for the accept or reject decision;

THE OREDER OF 1000 UNIT @ 1050 PER UNIT.
The costing method fit on this calculation is marginal costing method rate of 1000 per unit instead of choosing 1050 per unit

Calculation of marginal costing from this data
1000*10000=10000000
This method the special order will help us earning revenue by 50 per unit - 1050 - 1000)

Calculate the costs using the costing method recommended above; given that direct labour available is limited to 60,000 hours per month, advise the optimum production mix of PC and VP to maximise profit

Optimum product mix when the direct labour hours is maximum Restricted by 60000 Hours

It will be maximum 1ST 10000 Units of PC and the 2nd 20000 Units OF VP is the best way to get maximum profits.

Calculate the break-even units of IP and if the manager is confident that a target profit of $1,200,000 is achievable, what would be the corresponding target units sold

Calculation of the Break even Units of IP and the target unit sold when profit to be achieved is 1200000.

Evaluate the proposal to spend an additional $600,000 to promote the IP so that selling price can be increased by $60 per unit to sell 6,300 units per month and discuss the corresponding pricing decisions

Evaluation of Proposal when the selling price can be increased by 60 per unit to sell 6,300 units per month

Calculation of optimum production mix

The mix of production for both the products up and pc are 20000 units.

So breakeven point of product or
Formula = fixed cost / contribution (in units)

Contribution = 600
Fixed cost= 2400000
Beep sales = 2400000/600 =4000 unit

Desired profit is the profit that is earn by the company with number of units to be sold at this profit are:
Desire profit = 1200000
Desire contribution = 1200000 + 2400000 =3600000
Number of unit sold on desire profit = desire profit + desire contribution/actual contribution
3600000 /600
6000 unit

Calculation the evaluation of such proposal

Prepare a proposal to advise the manager who has no management accounting knowledge and background.

This proposal can be accepted with consideration of following conditions:
1. It is required to understand the entire proposal first, and check both positive and negative issue related to the company, it is also point of decision that what will the production capacity in near future.
2. Even this plan does not; make any single effect of demand of current product in market, does it fulfill the demand.
3. This plan does not make any good change in workers work condition.
4. This plan does not make any effect to the profit of this business (Corrigan, 2016).

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Part 2 Analyse and evaluating ABC's financial performances by using the various management accounting technique, and make the possible recommendations in dealing with the financial problems and the price strategies in revising its price.

Analysis of financial performance of such business

In connection with the management accounting of the marginal costing

On Basis of the Absorption Costing

(Kaplan, and Atkinson, 2015)

As per analysis the same results is achieved therefore, any strategies can be opted to achieve the desirable results.

Part B: Budgeting Process:
• the major functions of budgeting process
• the advantages and disadvantages in operating a budgetary control system;

Functions of budgeting
1. Forecasting of data. For business purpose management have to forecast the data. And prepare a budget for that business.
2. After forecasting the data businessman have to collect the data.
3. After collecting the data on the base of such data managers make a plan for business.
4. After planning the businessman have to make a strategy and communicate the planning to the lower level and middle level.
5. Middle level and lower have to execute such strategy for business.
6. For make a good and perfect strategy for business
7. To evaluate past performance on the basis of past data.
8. To reduce the additional cost.
9. To get the targeted goals
10. To get the targeted visions and missions.
11. To maximize the sake value.

The advantages of budgetary control
1. By using the budgetary control, the expenses are manageable.
2. By using this process, the goals of business can achieve very easily and very fast.
3. By using this system, the managers can increase the profit of organization.
4. To implement this system the performance of all level can be evaluate.
5. To reduce the cost of material.
6. To reduce the expenses cost
7. To reduce the labor cost
8. To reduce the extra cost incurred for the business
Disadvantages of budgetary control system
1. This budgetary control system cannot give a certainty to the business.
2. This system cannot manage the integrated the business.
3. This system is so strict to business.

Part C: Budgetary Planning:

• whether fixed or flexible budgets should be prepared for the coming January to March
• based on information provided in question, prepare the monthly budgets as follows:
o sales budget
o cash collection budget from sales (assuming 40% of current month sales being paid within the same month with the remaining 60% payable in the following month)
o production budget (assuming monthly production units equals to monthly sales units)
o raw material purchase budget (assuming the company purchases the exact quantity of raw material in each month to meet the monthly production requirement)
o cash payment budget for raw material purchases (assuming payment being made in the month following the month of purchase)
• prepare the monthly cash budget (assuming that the only other item is cash payment of $300,000 in January for the purchase of production equipment and that the projected cash and bank balance as at 1 January is $20,000)

Solution:  The flexible budget is prepared and explained as per the production and price variance.

Budgets for Selling price

Collection of Total Cash (A+ B) 21,60,000 24,00,000 27,20,000

Budget for Production

Budget for Purchase

Budget for Purchase of Raw material

Budget for the Cash payment

Part D: Budgetary Control:

• if the actual purchase and usage of raw material amounted to $435,600 in January, calculate the raw material variance
• it is found that the actual purchase price of raw material is $66 per unit and the actual purchase and usage quantity is 6,600 units to produce 3,000 units of IP in January. Compute the raw material price and usage variances to analyse the raw material variance in question
• prepare a cost reconciliation statement reconciling budgeted and actual raw material costs for the month of January
• it is discovered that raw material was purchased in January from a new supplier not on the company's approved vendor list. Report your findings to the manager in accordance with the responsibilities of the relevant departments and recommend possible corrective actions for the identified variance.

Variance Analysis :-

Raw Material Variance = 4, 35,600 - 4, 20,000(Actual Price - Budgeted Price) = 15600 Adverse.

Reconciliation analysis of the actual and the budget cost

Report to the management for purchase with the new vendor

The lead manager, in the current business there are some new seller available for the selling the raw material at low cost with same quality. And there is no issue with the material that wants to purchase.
In the above deal there is nothing to lose and also the variance find in the business is getting low. Material ratio usage variance cost variance and another variance getting low (Kaman, 2012).

Part E: Compare ways in using management accounting tools
In addition to the budgeting and variance analysis methods stated above, discuss other possible ways in using management tools to respond to financial problems.

Solution:

Other management tool for solution of financial problems
1. Management of project
2. Capital costing
3. Flow of cash
4. Capital restructuring
5. Rate of return
6. Leverages
7. Flow of funds
8. Project planning