GUILDHALL COLLEGE

BTEC Higher National Diploma (HND) in Business

SUBJECT: MANAGEMENT ACCOUNTING: COSTING AND BUDGETING (H1)

NAME: MD ZAKIR HUSSAIN
ID: 7455
Intake- October/2009

TUTOR: SELVA
Contents                                                                                                                                                                 
Page

1. Introduction...................................................................................................01
2. Identification and classification of different types of cost............................01
3. The need for and operation of different costing methods.............................02
4. Cost calculating..............................................................................................03
5. Analyse present data using appropriate techniques....................................04
6. Routine cost report.........................................................................................04
7. Calculation and evaluation.............................................................................05
8. Purpose and nature of the budgeting process................................................07
9. Potential improvement ...................................................................................07
10. Appropriate budgeting methods and its needs................................................08
11. Different types of budget preparation ............................................................08
12. Cash budget.....................................................................................................11
13. Variance calculation........................................................................................12
14. Preparation of an operating statement and actual results................................13
15. Identification of responsibility centres............................................................13
16. Reference.........................................................................................................14
Introduction:
In this study I try briefly to focus on demonstrate cost information both current and future,
collection, complication, processing and analyzing cost data for the use of management also
highlights different costing and budgetary control.
 TASK-1
1.
A total cost statement for guildhall Ltd given below with different types of cost:

Sale
315.840
Direct cost
Raw materials 75280
Wages of production workers 69180
Royalties paid to the designer of product 15110
Total direct cost
159750

Overhead
Salaries of maintenance staff 30950
Depreciation of plant and machinery 5000
Electricity 4160
Sundry factory expenses 3020

43130
Total production cost
202880

Administration
Rent and rates 10290
Salaries of office staff 38250
Depreciation of office equipment 2400
Sundry of office expenses 1590
52350
Total cost (255230)
Profit 60610

2.

The need for and operation of different costing methods :

Basically two main costing methods are unavailable under the operation of different costing
methods:

Marginal Cost: marginal cost is the change in total cost that arises when the quantity
produced changes by one unit. It is the cost of producing one more unit of a good.
Marginal cost may change with volume, and so at each level of production, the marginal
cost is the cost of the next unit produced.
 1. Industrial Costing:

A specific system or procedure used to keep manufacturing costs in line, also known as
cost control.
There are deferent types of methods below
 Process costing
 Batch process costing
 Service costing
 Job costing
 Contract costing
 Different costing method

 CC comment Corspotroration Batch process cost this industry is into manufacturing of

batches of products.

Bengal oil refries:

Process costing- No of Batches
Cost

=Batch cost
Price 1 Price-2
In taut *** Out taut Nab *** Now on
H/M *** Op-1 Off ***
Nab *** Op-2
Off ***
2

2. Panther Pickles

Batch prepossess Marfa costing industry

3.
Selling price per unit= £210
Variable cost:
Labour (14×6.8)=95.2
Royalties=9
Materials(20×3.2)=64
A) Total variable cost per unit=168.2
Fixed cost=72000
Say number X unit need to produce to earn the organization a profit of £44000.
210X -168.2X-72000=44000
=) 41.8X=116000
=)X=2775.1196
X≈2775 UNIT.

B)
210×41200-(168.2×41200+72000)
=8652000-7001840
=1650160

3
4.

Age group Current account Ordinary deposit High interest deposit

account account
0-24 522 207 ---
25-44 1020 271 92
45-59 989 470 162
60-over 628 410 229
Total 3159 1358 483

(3159×100)/5000 (1358×100)/5000 (483×100)/5000

=63.18% =27.16% =9.66%

From the above information we can see that maximum number of customer using current
account and minimum number of customer using high interested deposit account.
 TASK-2

Routine cost report for Guildhall Toys plc for four weeks in November
2009:
1.

Details Week-1 Week-2 Week-3 Week-4

Sale 240000 300000 330000 360000
Actual unit 16000 20000 22000 24000
produced
Budgeted unit 15500 19000 20000 21000
produced
Variance 500 1000 2000 3000
Cost 120000 150000 190000 210000
ROCE 16% 100% 135.71% 140%
Hours worked 4000 4700 4850 5150
Capital 1500000 1500000 1500000 1500000
employed

4
2.
Efficiency
Production volume ratio:
formula Week-1 Week-2 Week-3 Week-4
(Actual 16000 ×100 20000×100 22000×100 24000×100
outflow / 15500 19000 2000 21000
budgeted =103.22% =105.2% =110% =114.29%
outflow)×100

Productivity
formula Week-1 Week-2 Week-3 Week-4
Productivity=outpu 16000 20000 22000 24000
t / hour worked 4000 4700 4850 5150
=4 unit =2.26 unit =4.54 unit =4.66 unit

Effectiveness

Budgeted Actual
Week-1 15500÷4000=3.875 16000÷4000=4
Week-2 19000÷4700=4.043 20000÷4700=4.25
Week-3 20000÷4850=4.124 22000÷4850=4.536
Week-4 21000÷5150=4.078 24000÷5150=4.66

In terms of effectiveness we can say the company being effective in every week as the actual
unit is bigger than budgeted.
3.

Definition of Quality Management Principle:

With growing global competition, Quality Management is becoming increasingly important

to the leadership and management of all organizations. Quality Management Principles
provide understanding of and guidance on the application of Quality Management. By
applying following eight Quality Management Principles, organizations will produce benefits
for customers, owners, people, suppliers and society at large

The eight principles are...

1. Customer-Focused Organisation
2. Leadership
3. Involvement of People
4. Process Approach
5. System Approach to Management
6. Continual Improvement
7. Factual Approach to Decision Making and
8. Mutually Beneficial Supplier Relationships.

Potential improvement: Guildhall toys plc increase their sale by selling more unit of toys
with a good quality. Minimizing the work hour of labors decrease the cost and increase the
profit. If Guildhall Toys plc can control their cost of production in a proper and systematic
way they can make more profit.

The success of a biennial budget cycle would depend on whether lawmakers were able to
separate budget and no budget issues in the way that proponents envision. Various practical
hurdles could make separating the two types of issues difficult.

Biennial budgeting could make two major improvements to the budget process. First, it might
give lawmakers and agency officials time to evaluate federal programs more effectively and
help them carry out the requirements of the Government Performance and Results Act of
1993 (GPRA). Second, it could help ease the annual logjam of budget legislation that has
contributed to recent difficulties in the annual appropriation process.

A biennial budget cycle would not come without costs. Members would need to weigh the
potential gains from more time for oversight and a more efficient appropriation process
against the potential drawbacks of weakened Congressional control of the budget, less
accountable federal agencies, and a budget process that might be less responsive to changing
conditions

TASK-3
1.

Business budgeting is a basic and essential process that allows businesses to attain many
goals in one course of action. There are several goals that many businesses seek to achieve
(or should be trying to work toward) when they create and implement a budget. These goals
include control and evaluation, planning, communication, and motivation.

Control and Evaluation

Control and evaluation is the most fundamental purpose of budgeting. Budgeting gives a
chance to a company to have a certain degree of control over costs, such as avoiding many
types of expenses to take place if they were not budgeted for, or assigning responsibility for
these expenses. It also gives a company a benchmark by which to evaluate business units,
departments, and even individual managers.

Planning

Planning is another primary purpose of budgeting. Budgeting allows a business to take stock
of revenue and expenses from the previous period, and judge where the business will be in
future periods. It also helps the business to add and remove products and services from its
plan for the future period which helps the management to see the company’s actual position
and according to that a company can plan better.

Communication and Motivation

Another very important purpose of budgeting is communication and motivation. It allows

management to communicate goals and to promote goal congruence so resources can be
coordinated and focused in key areas. By involving employee in budgeting a company also
can motivate its employee. While top-down budgeting does not accomplish this goal very
effectively, participative budgeting can be motivating. When an employee is involved in
creating his or her department’s budget, that person will be more likely to strive to achieve
that budget.

In budgeting process we need to collect some information as well. They are

 Need to invest some time to create a realistic budget.
 Collect historical information on sales and costs from last year if they are available
only as a guide.
 Create realistic budgets by using historical information, business plan and any
changes in operations or priorities to budget for overheads and other fixed costs. 7
 It’s best to ask staff with financial responsibilities to provide with estimates of figures
for your budget.
2.

Appropriate budgeting methods and its needs:

 Net budget: It is the budget that spends the property tax. It does not include non-
property tax revenue.
 Labour budget: this is a Schedule for expected labour cost. Expected labour cost is
dependent upon expected production volume (production budget)
 Overhead budget: this budget shows the expected cost of all production costs other
than direct materials and direct labour
 Control budget: exercise of control in the organization with the help of budgets is
known as budgetary control or control budget.

3.
Prepare budgets accounting to the chosen budgeting method :
Part A:
Month-1 Month-2 Month-3

Unit Unit Unit Unit Unit Unit

Budget sells 5,000 5,200 5,400

Closing 1,250 1,300 1,400

stock
1,200 50 1,250 50 1,300 100
Opening
stock
5,050 5,250 5,500

8
Part B
Month 1 Month 2 Month 3
Production 5100 5250 5400
0.05kg (5100*0.05) (5250*0.05) (5400*0.05)
255 262.50 272.50
Add opening 262.50 272.50 250
stock
Less opening 250 262.50 272.5
stock
Purchase KG 267.50 272.50 250
Material cost 500 500 500
133750 136250 12500

Part C
Direct labour budget
Month 1 Month2 Month3
Labour units 5100 5250 5450
Per unit 0.5 0.5 0.5
5100*0.5 5250*0.5 5450*0.5
2550 2625 2725

Part D:
Hour per month 2240 the overtime hour
Month 1 (2525 - 2240) 285

Month 2 (2625 – 2240) 385

Month 3 (2750 – 2240) 510

9
Month-1 Month-2 Month-3

(2,240 × 10) = (2,240 × 10) = (2,240 × 10) =

Ordinary 285 22,400 385 22,400 570 22,400

Overtime 15 4,275 15 5,775 15 7,650

26,675 28,175 30,050

Part E
Budget overhead interest rate for each month
Month1=12500/5100
Etch month per units =2.45

Month2=12500/5250
Etch month per units = 2.58

Month 3= 12500/5100
Etch month per units = 2.29

10
6.
Cash budget for guildhall traders:

Details January February March April May June

Inflow

Cash sale 30000 32000 34000 36000 38000 40000

Sale of 35000
machinery

Loan 50000
Total 30000 82000 34000 71000 38000 40000
inflow(A)
Out flow

Salaries 5000 5000 5000 5000 5000 5000

Purchase 5000 6000 7000 8000 9000 10000

Rent 1000 1000 1000 1000 1000 1000

Electricity 1000 1000 1000

and other
utilities

Machinery
payment 60000

Loan
payment 4000 4000 4000 4000
TOTAL 11000 13000 77000 19000 19000 21000
OUT
FLOW(B)
NET 19000 69000 (43000) 52000 19000 19000
CASH
FLOW(A-
B)
ADD
OPENING 8453 27453 96453 53453 105453 124453
CASH
BALANCE
CLOSING 27453 96453 53453 105453 124453 143453
BALANCE

11
Task -4

1.
Variance, possible cause and corrective action of the cash flow of guildhall Books Limited
given below
Actual Budget(£) Total Possible cause Recommendation
(£) variance(£
)
Receipts from 106000 132000 -26000 Week debt Need to strong
debtors collection debt collection
department
Payment to (79000) (70000) -9000
supplier
Production (17500) (17000) -500 Production hours Need to control
wages was more than production hours
budget
Production (1500) (1000) -500 More expense on Need to control
expenses production line, production line
waste etc. properly.
Selling (3400) (3600) 200 Keep it up.
expenses
Administration (4100) (4100) 0 Good control on
cost administration
cost
Dividend (20000) -20000 It wasn’t Any kind of
budgeted possible cash flow
should be
budgeted.

Net cash flow (19500) 36300 -16800 This figure is Need to have a
negative because good control
most of the figure between and
of actual was budgeted and
more than actual inflow and
budgeted. outflow.
Opening cash 10000 10000 0
balance
Closing cash (9500) 46300 -36800 Because of
balance having negative
 actual net cash
flow.

12
2.

. Statements reconciling budgeted and actual results:

Details Amount(£)
Budgeted Closing cash balance 46300
Less receipt from debtors (26000)
Less payment to supplier (9000)
less Production wages (500)
Less Production expenses (500)
Add Selling expenses 200
Less Dividend (20000)
Actual closing balance (9500)

3.

Report finding to management in accounting

Managerial accounting, or management accounting, is a set of practices and techniques aimed

at providing managers with financial information to help them make decisions and maintain
effective control over corporate resources. For example, managerial accounting answers such
questions as: The practical role of managerial accounting is to increase knowledge within an
organization and therefore reduce the risk associated with making decisions. Accountants
prepare reports on the cost of producing goods, expenditures related to employee training
programs, and the cost of marketing programs, among other activities. These reports are used
by managers to measure the difference, or "variance," between what they planned and what
they actually accomplished, or to compare performance to other benchmarks.

13
For example, an assembly line supervisor might be interested in finding out how efficient
his/her line is in comparison to those of fellow supervisors, or compared to productivity in a
previous

Time period. An accounting report showing inventory waste, average hourly labor costs, and
overall per-unit costs, among other statistics, might help the supervisor and superiors to
identify and correct inefficiencies. A detailed report might evaluate the assembly line data
and estimate trends and the long-term effects of those trends on the overall profitability of the
organization.

Reference:

 http://www.referenceforbusiness.com/encyclopedia/Man-Mix/Managerial-
Accounting.html
 http://www.cbo.gov/doc.cfm?index=1877&type=0
 http://www.globalqualityvillage.com/qmprinciples.php


 http://www.businesslink.gov.uk/bdotg/action/detail?
r.s=sc&r.l1=1073858790&r.lc=en&r.l3=1074416511&r.l2=1073858944&r.i=1074417160&typ
e=RESOURCES&itemId=1074417146&r.t=RESOURCES
 http://accounting.suite101.com/article.cfm/the_purpose_of_a_business_budget