Management Accounting - Assigment 2

UNIT TITLE Unit 9: Management Accounting: Costing and Budgeting ASSIGNMENT TITLE Budgetary Planning and Control ASSIGNMENT ISSUE DATE SUBMISSION DEADLINE We, ______________________

BANKING ACADEMY, HANOI

BTEC HND IN BUSINESS (FINANCE)

ASSIGNMENT COVER SHEET

NAME OF STUDENT

REGISTRATION NO

UNIT TITLE Unit 9: Management Accounting: Costing and Budgeting

ASSIGNMENT TITLE Budgetary Planning and Control

ASSIGNMENT ISSUE DATE

SUBMISSION DEADLINE

We, hereby confirm that this assignment is our own work and not copied or plagiarized from any source We have referenced the sources from which information is obtained by us for this assignment

Members Full Name English Name Signature Date

-FOR OFFICIAL USE

Assignment Received By: Date:

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Unit Outcomes

Outcome Evidence for

the criteria Feedback Assessor’s decision Internal

Verification

First attempt

Re- work

Prepare

forecasts

and

budgets

for a

business

(3)

Explain the purpose and nature of the budgeting process

a

Select appropriate budgeting methods for the organisation and its needs

b

Prepare budgets according to the chosen budgeting method

c

Prepare a

Monitor

performan

ce

against

budgets

within a

business

(4)

Calculate variances, identify possible causes and recommend corrective action

a

Prepare an operating statement reconciling budgeted and actual results

b

Report findings to management

in accordance with identified responsibility centres

c

Merit grades awarded M1 M2 M3

Outcome Evidence for

the criteria

Feedback Assessor’s decision Internal

Verification Distinction grades awarded D1 D2 D3

Assignment

( ) Well-structured; Reference is done properly / should be done (if any)

Overall, you’ve

Areas for improvement:

ASSESSOR SIGNATURE DATE / /

NAME:

(Oral feedback was also provided)

STUDENT SIGNATURE DATE / /

NAME :

FOR INTERNAL USE ONLY

VERIFIED YES NO

DATE :

VERIFIED BY :

NAME :

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SCENARIO

You are the management accountants of a group of companies and your Managing Director has asked you to explore the possibilities of introducing appropriate budgeting and costing methods in the operating companies

Based on information given below, you are required to compile a report to managing director which covers the following:

Task 1:

Phong Phu Ltd manufactures and sells 2 products only, A and B They are manufactured in 2 processes, cost centres P1 and P2 The product must be manufactured to high standards and as results reject rates are high, particularly in cost centre P1

At the beginning of year 12, the beginning balance in the inventory account as follow:

Finished stocks: Units ready for sale 500 200

£50,000 £11,000

Work-in-progress: good units at end

£9,750 £3,800

9,000 1,800 The sales budget for Year 12 shows 11,200 units of A at the unit price of £150 and 12,900 units of B at the unit price of £90 Finished stocks ready for sale at the end of year 12 are budgeted as 700 units of A and 180 units of B Work-in-progress stocks are to be increased to 300 units of A and 125 units of B, completed in cost centre P1 and ready to be passed to cost centre P2

Budgeted ending balances of raw materials of the year 12 are 600 units for material

X and 350 units for material Y

Reject rates arising from an inspection at the end of each cost centre’s work are:

End of cost centre P2 5% 8%

Manufacturing times per unit in each cost centre are budgeted as:

Direct workers will be paid at the rate of £10/hour

To produce one unit of A will need 2.5 units of material X and one unit of B will need

3 units of Y There is no recoverable cost from any kind of scrap

The purchasing department estimated that in the coming year, cost of material X will

be 20 per unit and cost of material B will be 8 per unit

Overhead costs are budgeted as:

Fixed-in total 81,600 125,550

Required:

 Explain the purpose and nature of the budgeting process (3 a)

 Select appropriate budgeting methods for the organizations and its budgeting

needs (3b)

 Prepare operating budgets for Phong Phu company according to the chosen

budgeting method (3c)

Task 2: Prepare a cash budget (3d)

Vinabike company sells bicycles Management is planning its cash needs for the second quarter The company usually has to borrow money during this quarter to support peak sales of dirt bikes, which occur during May The following information has been assembled to assist in preparing a cash budget for the quarter:

a Budgeted monthly absorption costing income statements for April–July are:

Sales $670,000 $700,000 $680,000 $650,000 Cost of goods sold 469,000 490,000 476,000 455,000 Gross margin 201,000 210,000 204,000 195,000 Selling and administrative expenses:

Selling expense 82,000 83,000 83,000 84,000 Administrative expense* 75,000 78,000 79,000 77,000 Total selling and administrative

expenses 157,000 161,000 162,000 161,000 Net operating income $ 44,000 $ 49,000 $ 42,000 $ 34,000

b Sales are 40% for cash and 60% on account

c Sales on account are collected over a three-month period with 10% collected in the month of sale, 70% collected in the first month following the month of sale, and the remaining 20% collected in the second month following the month of sale February’s sales totaled $640,000, and March’s sales totaled $650,000

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d 30% of a month’s inventory purchases are paid for in the month of purchase; the remaining 70% are paid in the following month Accounts payable at March 31 for inventory purchases during March total $320,460

e Each month’s ending inventory must equal 20% of the cost of the merchandise to

be sold in the following month The merchandise inventory at March 31 is

$93,800

f Dividends of $100,000 will be declared and paid in April

g Land costing $70,000 will be purchased for cash in May

h The cash balance at March 31 is $47,000;

Required:

1 Prepare a cash budget for the second quarter by month as well as in total for the quarter

2 If the company must maintain a cash balance of at least $30,000 at the end of each month What should the management do?

Task 3

 Calculate variances, identify possible causes and recommend corrective

actions (4a)

 Prepare operating statements reconciling budgeted and actual results (4b)

 Report findings to management in accordance with identified responsibility

centres (4c)

Subtask 3a:

Riley Labs, produces various chemical compounds for industrial use One compound, called Lundor, is prepared using an elaborate distilling process The company has developed standard costs for one unit of Lundor as follows:

Standard Quantity

Standard Price

or Rate

Standard Cost

Direct materials 2.4 ounces $19.50 per ounce $46.80 Direct labor 1.5 hours $12.80 per hour 19.20 Variable manufacturing

overhead 1.5 hours $3.20 per hour 4.80

During November, the following activity was recorded by the company relative to production of Lundor:

a Materials purchased, 12,200 ounces at a cost of $229,360

b There was no beginning inventory of materials; however, at the end of the month, 3,250 ounces of material remained in ending inventory

c The company employs 36 lab technicians to work on the production of Lundor During November, each worked an average of 175 hours at an average rate of

$12.20 per hour

d Variable manufacturing overhead is assigned to Lundor on the basis of direct labor-hours Variable manufacturing overhead costs during November totaled

$18,900

e During November, 3,700 good units of Lundor were produced

The company’s management is anxious to determine the efficiency of the Lundor production activities

Required: Compute all the variances and prepare an operating statement for the

management and explain about the possible causes of the variances with identified responsibility centres In your report you should also recommend some corrective actions and comment on the following issues:

1 The materials were purchased from a new supplier who is anxious to enter into

a long-term purchase contract Would you recommend that the company sign the contract? Explain

2 In the past, the 36 technicians employed in the production of Lundor consisted

of 21 senior technicians and 15 assistants During November, the company experimented with fewer senior technicians and more assistants in order to save costs Would you recommend that the new labor mix be continued? Explain

3 Explain about the relation can you see between this efficiency variance and the labor efficiency variance?

Subtask 3b:

The Antigua Blood Bank, a private charity partly supported by government grants, is located on the Caribbean island of Antigua The Blood Bank has just finished its operations for September, which was a particularly busy month due to a powerful hurricane that hit neighboring islands causing many injuries The hurricane largely bypassed Antigua, but residents of Antigua willingly donated their blood to help people on other islands As a consequence, the blood bank collected and processed over 30% more blood than had been originally planned for the month

A report prepared by a government official comparing actual costs to budgeted costs for the Blood Bank appears below (The currency on Antigua is the East Caribbean dollar.) Continued support from the government depends on the Blood Bank’s ability

to demonstrate control over its costs

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Antigua Blood Bank Cost Control Report For the Month Ended September 30

Liters of blood collected 320 240 80

Variable costs:

Medical supplies $ 4,650 $ 3,360 $ 1,290 U

Administrative supplies 620 480 140 U Total variable cost 10,258 8,088 2,170 U Fixed costs:

Utilities 250 225 25 U Total fixed cost 10,150 9,725 425 U Total cost $20,408 $17,813 $2,595 U

The managing director of the Blood Bank was very unhappy with this report, claiming that his costs were higher than expected due to the emergency on the neighboring islands He also pointed out that the additional costs had been fully covered by payments from grateful recipients on the other islands The government official who prepared the report countered that all of the figures had been submitted

by the Blood Bank to the government; he was just pointing out that actual costs were

a lot higher than promised in the budget

Required:

1 Prepare a new performance report for September using the flexible budget approach (Note: Even though some of these costs might be classified as direct costs rather than as overhead, the flexible budget approach can still be used to prepare a flexible budget performance report.)

2 Do you think any of the variances in the report you prepared should be investigated? Why?

GRADING

Pass is achieved by meeting all the requirements defined in the assessment

criteria (Refer page 2 of the assignment brief)

incremental, zero-based, fixed and flexible etc) have apply and showing a good depth of knowledge in practical understanding of budgets for a business and performance against budgets

Present and communicate appropriate findings (M3)

Characteristics / Possible Evidence – An appropriate structure and approach has been used and a range of methods of presentation has been used to prepare budgets and monitor performance against budgets for a given situation e.g charts, tables, graphs & diagrams etc

Distinction Use critical reflection to evaluate own work and justify valid conclusions (D1)

generate and recommend corrective action to monitor performance against budgets

Take responsibility for managing and organizing activities (D2)

substantial activities have been planned, managed and organized related to responsibility centres and also identification of responsibility for variances

Demonstrate convergent, lateral and creative thinking (D3)

evidence of good understanding of operating statement reconciling budgeted and actual results

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PRESENTATION

1 The assignment should have a cover page that includes the assignment title, assignment number, course title, module title, Lecturer/tutor name and student’s name Attach all the pages of assignment brief/cover sheet with your report and leave them blank for official use

2 Ensure that authenticity declaration has been signed

3 This is a group assignment

4 Content sheet with a list of all headings and page numbers

5 A fully typed up professionally presented report document Use 12 point Arial

or Times New Roman script

6 Your assignment should be word-processed and should not exceed 3,500 words in length

7 Use the Harvard referencing system

8 Exhibits/appendices are outside this limit

9 The assignment should be not contain a bibliography – but should contain a list of any references used in the assignment

NOTES TO STUDENTS FOR SUMMISSION

 Check carefully the submission date and the instructions given with the assignment Late assignments will not be accepted

 Ensure that you give yourself enough time to complete the assignment by the due date

 Do not leave things such as printing to the last minute – excuses of this nature will not be accepted for failure to hand-in the work on time

 You must take responsibility for managing your own time effectively

 If you are unable to hand in your assignment on time and have valid reasons such as illness, you may apply (in writing) for an extension

 Failure to achieve a PASS grade will results in a REFERRAL grade being given

 Take great care that if you use other people’s work or ideas in your assignment, you properly reference them in your text and any bibliography

 NOTE: If you are caught plagiarizing, you could have your grade

reduced to zero, or at worst, you could be excluded from the course