Notesale: Turn your study into money

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MANAGEMENT
ACCOUNTING
COSTING AND
BUDGETING

1

TABLE OF CONTENTS

Introduction Different Types of Cost

2

Scenario 1 Task 1

4

Scenario 1 Task 2

5

Scenario 1 Task 3

5

Scenario 2 Task 1

6

Scenario 2 Task 2

8

Scenario 2 Task 3

10

Scenario 2 Task 4

11

Scenario 2 Task 5

11

Scenario 2 Task 6

13

Scenario 2 Task 7

14

2

COSTING AND BUDGETING
INTRODUCTION
TASK 1
...
It can be the material, labor, expense or
distribution cost associated with producing a product
...

INDIRECT COST
It can be defined as an expense unrelated to producing a good or service
...

FIXED COST (FC)
The cost which does not vary with changing output
...
Even if your output changes or you don’t
produce anything, your fixed cost stays the same
...
For example, if you produce more cars, you
have to use more raw materials such as metal
...

Examples:
- Raw materials
- Power used in production
- Wages linked to production
SEMI VARIABLE COST
Labour might be a semi-variable cost
...
However, even if you didn’t produce any cars, you may still
need some workers to look after empty factory
...
If the total cost of 3 units is 1550, and
the total cost of 4 units is 1900
...

OPPORTUNITY COST
It maybe defined as the next best alternative foregone
...

ECONOMIC COST
Economic cost includes both the actual direct costs (accounting costs) plus the opportunity
cost
...
You may lose a weeks pay
£350, plus also have to pay the direct cost of £200
...

ACCOUNTING COST
This is the monetary outlay for producing a certain good
...

SUNK COST
These are costs that have been incurred and cannot be recouped
...
For example, if you spend money on advertising to enter an
industry, you can never claim these costs back
...


4

SCENARIO 1 TASK 1
GLENCOE CO LTD
total units

rate

total

12,500
...
00

375,000
...
00

7
...
00)

direct labor

12,500
...
50

(68,750
...
00)
(150,000
...
00

Break Even Point
when total cost = total revenue
Break-even Sales Units = x = FC/(p − v)
p is the price per unit,
x is the number of units,
v is variable cost per unit and
FC is total fixed cost
...
5+5
...
53

Absorption Cost
Absorption costing means that all of the manufacturing costs are absorbed by the units produced
62500/12500

5

Marginal Cost
The marginal cost of an item is its variable cost
...
5+5
...
00

5

TASK 2
total
units

rate

total

Total revenue

2,500
...
00

50,000
...
00

7
...
5

(32,500
...
00)

LOSS

(132,500
...
The management should try to reduce its fixed costs
...

Non-Financial Points
•
•

manufacturing capacity of the company should be
verified
reputation of the company should be considered

SCENARIO 2 PART 1
SOLITAIRE AND CO LTD
PURCHASE PRICE VARIANCE
This is concerned solely with the price at which the direct materials were acquired
...
008 - 0
...
09

b

(0
...
008) x 14000

=

56

Negative variance

c

(0
...
015) x 37000

=

111

Negative variance

Positive variance

Material
variances
KG
a

(495-430) x
103000

=

6695

Negative variance

b

(340-360) x 14000

=

-280

Positive variance

c

(260-210) x 37000

=

1850

Negative variance

MATERIAL YEILD VARIANCE
This is concerned with the number of units produced in the production process
...
6

Negative

a

((495-430) x 103000) x 0
...
012

-33
...
018

333

Negative

TIME VARIANCE
It is the difference between the estimated time calculated for a task to be completed and the
actual amount of time required to do so
...
0-1
...
2-0
...
3-1
...
0*3
...
3*3
...
2*2
...
6*2
...
4

Negative

c

(1
...
4-1
...
95)*37000

654
...
4

8

Positive

PART 2
THETA
Month

Receipts

Cost

Total
Cost

oct

400

4
...
00

1,200

dec

600

4
...
00

-

300

750

200

1,050

jan
feb

500

4
...
00

-

april

Balance
quantity
400

250

450
1,050

1,000

5
...
00

3,500

1,550

june

400

6
...
00

-

6
...
00

-

350

1,600

17,700

2,100

1,600

july
aug

600

sep

600

1,350
1,950

Total

3,700

Receipts

Cost

AXIS
Total
Cost

300

6
...
00

3,000

400

6
...
00

3,600

400

6
...
25

2,188

250

1,550

6
...
50

2,925

250

6
...
00

2,660

340

1,640

250

7
...
00

2,800

4,280

27,248

1,810

2,470

1,810

USING FIFO
Total cost of closing stock
Units

Theta
Rate

Total

600

6
...
00

2,400

600

5
...
50

2,800

7
...
00

2,660

250

6
...
00

250

6
...
25

500
12,260

13,600
Net releasable value
1,080

8
...
78

6
...
78

Closing value
1,810 * 6
...
05

11,523

Closing value

10

9,180

Closing stock value is lower of NRV or
Cost
Value
=
9,180

The stock valuation for Omega 22 has been calculated above using FIFO and AVICO
methods
...


PART 3
Copies
Data given for 500
copes

500
...
00

2,000
...
00

60
...
00

one time cost
Setting up printing machine

6 hours @ Pound 10
7 hours @
pounds12
20 hours @ pounds
15

84
...
00

84
...
00

300
...
00

Paper

100

100
...
00

400
...
00

100
...
00

Direct labour

5 hours @ pound 13

65
...
00

260
...
00

104
...
00

711
...
00

1,512
...
75

244
...
00

888
...
50

1,890
...
78

1
...
95

Art Work
Typesetting
Variable cost

Total Cost

Profit

25% on cost

Quotation

Selling price per unit

Dear John Yeats,
I am pleased to let you know that I have calculated the quotations for your
poetry book for 500, 1000 and 2000 copies and as you can see, the quotation for 500 copies is
11

£888
...
50 and for 2000 copies is £1890
...
78 for 500 copies, £1
...
95 for 2000 copies
...

Many Thanks,
OB Printers
...
00

1,170
...
00

Direct labour

1,200
...
00

1,000
...
00

Production overheads (1860)

744
...
00

620
...
00

2,466
...
00

Cost per litre

0
...
10

0
...
00

0
...
00

Building insurance

1,320
...
00

Lightening and heating

3,720
...
00

Supervisors salary

30,000
...
00

Factory cleaning

4,800
...
00

Production
Machinery
Finishing

Service
Maintenance
Total

Machinery area

300
...
00

100
...
00

Employees

6
...
00

1
...
00

Machine value

40,000
...
00

-

55,000
...
18

1,431
...
00

Building insurance

960
...
00

-

1,320
...
00

450
...
00

Lightening and heating

2,705
...
55

-

3,720
...
00

3,000
...
00

Supervisors salary

21,818
...
82

-

30,000
...
36

4,363
...
00

Factory cleaning

3,490
...
09

-

4,800
...
09

20,110
...
00

Overhead absorption rate based on direct labour hours for each of the two production
departments

total labour hours

1,645
...
60

12
...
They will be gathering money from
different resources such as contributing capital themselves, seeking money from bank,
mortgage and overdraft facility
...
They can only forecast a predicted budget but the actual expense
and profit will only be revealed once the financial year is over
...


...
Estimate the financial environment on the basis of last budget
2
...
Define the required expenditure such as raw materials, labor, production overheads
...
Then subtracting estimated expenses from estimated revenues
...


14

PART 7
a

Part b
Last
year

Flexible
UNITS IN MILLLIONS

1
...
50

2
...
50

Pounds in millions
Total sales
Less costs

5
...
75

8
...
75

Variable overheads

2
...
00

4
...
00

Semi variable overheads

0
...
00

1
...
50

Fixed overheads

1
...
50

1
...
50

(4
...
50)

(6
...
00)

0
...
25

1
...
75

Total Cost

Budgeted Profit

Advice to
Management:
•
•
•
•

Management should produce 2m units to increase profits by
0
...

Increasing further units will make no difference
to profit
Company may also produce 1
...

Lower selling price will help the company to capture market

15



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