Reference no: EM132822397

Unit 13 Cost and management Accounting - Pearson BTEC International Level 3 Extended Diploma in Business

Assignment - Cost and Management Accounting techniques used in business

Learning aim A: Explore absorption and marginal costing techniques for decision making
Learning aim B: Carry out standard costing and variance analysis statements
Learning aim C: Explore budgets for financial planning and control
Learning aim D: Undertake investment appraisal of long-term capital investment

Scenario:

You have recently been appointed as a trainee in the Finance and Accounting department of a company. As a part of your internship, your team head has asked you to prepare reports to show your understanding and application of cost and management accounting techniques. He has given you tasks related to costing methods and management accounting decisions used widely in business organisations.

You must prepare the required reports and case studies given and submit the report to your Team head as a part of your internship so that the company offers you a full time job in this department.

Task 1.
You must write a report explaining the difference between cost and management accounting. Categorize and explain the different types of cost. Explain the costing methods like absorption costing and marginal costing used by business in different decision-making situations like the ones provided below by calculating accurately the absorption and marginal cost statements. Further, assess appropriateness of these methods used for decision making in the given situations.

Also give justified recommendations to improve the financial performance of the business in the given situations.

Situation I:
Aries Manufacturing Co. Ltd. provides the following budget information for its four departments for the coming year:

Departments	Machining	Finishing	Canteen	Repairs	Total
Cost item	AED'000	AED'000	AED'000	AED'000	AED'000
Allocated Overheads	2000	1000	200	300	3500
Factory rent					1200
Machine Depreciation					600
Staff Welfare					420

Related statistics and information for the coming year is given below.

Departments	Machining	Finishing	Canteen	Repairs	Total
Floor area sq mt	1000	2000	800	200	4000
Machine value (AED'000)	3000	1500	200	300	5000
No. of employees	100	500	40	60	700

Apportion the common overhead costs among the 4 departments and indicate the respective basis of apportionment.

The two service departments. Canteen and repairs provide reciprocal services for each other and the two production departments. The machining department is machine intensive while finishing department is labour intensive. Other information is as given below to apportion the overheads for 2 service departments to the production departments:

Departments	Machining	Finishing	Canteen	Repairs	Total
Canteen charged to	30%	50%	-	20%	100%
Repairs charged to	70%	20%	10%	-	100%

The budgeted level activities of the 2 production cost centers for the coming year are:

Departments	Machining	Finishing	Total
Machine hours	500,000	50,000	550,000
Direct labour hours	20,000	600,000	620,000

Calculate the appropriated budgeted overhead absorption rate (rounded to nearest ) for each production department for the coming year.
The company is asked to quote a price for an order. The direct costs are as follows:
Direct material   AED 210,000
Direct Labour   200 hours in the machining department at Aed 40 per hour.
                    12,000 hours in the finishing department at AED 50 per hour.
The order also requires 10000 machine hours' work in the machining department and 12000 Labour hour works in finishing department as overheads.

It is company policy to add a markup of 30% to the quotation price.

Calculate selling price quoted for the order.

Situation II

Aries Company is faced with decision making for acceptance of special order from a US based customer. The operating statement of the company for that product is as follows:

		AED.
Sales (80,000 units @ AED 15)		12,00,000
Costs - variable
materials	240000
labour	320000
overheads	160000
	720000
Fixed costs	320000
Total costs		10,40,000
Profit		1,60,000

Their plant capacity is 100000 units. The customer from USA is desirous of buying 20,000 units a net price of AED 10 each unit. Advice Aries company whether the offer should be accepted? Will your advice be different if the customer is a local one?

Situation III
Further Aries company want to take a decision whether to manufacture certain components or to buy them from supplier. The following cost data is available in respect of two of its components A and B.

	Component A	Component B
	AED per unit	AED per unit
If manufactured.
Variable cost	30	30
Fixed cost	25	20
	55	50
If purchased.	40	25

Task 2:

Now that you have used different costing techniques and understood how to use them appropriately in given business scenario, the team head wants you to write a report on how to use standard costing and variance analysis in costing.

Based on the given scenario calculate the sub and overall variances. Further analyze the reasons for these variances in the given situations for the company.

P&G company produces many products for household use. Company sells products to storekeepers as well as to customers. Detergent-DX is one of the products of P&G. It is a cleaning product that is produced, packed in large boxes and then sold to customers and storekeepers.

P&G uses a traditional a standard costing system to control costs and has established the following materials, labor and overhead standards to produce one box of Detergent-DX:

Direct materials; 1.5 pounds @ AED12 per pound: AED18.00
Direct labor; 0.6 hours AED24 per hour: AED14.40
Variable manufacturing overhead; 0.6 hours @ AED5.00: AED3.00

During August 2020, company produced and sold 3,000 boxes of Detergent-DX. 8,000 pounds of direct materials were purchased @ AED11.50 per pound. Out of these 8,000 pounds, 6,000 pounds were used during August. There was no inventory at the beginning of August. 1600 direct labor hours were recorded during the month at a cost of AED40,000. The variable manufacturing overhead costs during August totaled AED7,200.

Required:
Compute materials price variance and materials quantity variance. (Assume that the materials price variance is computed at the time of purchase.)
Compute direct labor rate variance and direct labor efficiency variance.
Compute variable overhead spending variance and variable overhead efficiency variance.

The following particulars are available in respect of the sales for two products of the company for month of August:

	Budgeted	Actual
	Qty	Rate	Amt	Qty	Rate	Amt
X	1000	2	2000	1800	2.5	4500
Y	3000	3	9000	4200	2.75	11550
	4000		11000	6000		16050

You are required to calculate (a) Total Sales variance, (b) sales price variance, (c) Sales volume variance.

Task 3:

The team head wants you to prepare a report on how budgeting is used in business for financial planning and control. In order to check your budgeting abilities, he has provided you with the following case study for Bibb Company. He wants you to prepare the different subsidiary budgets and the Master budget based on information provided below. He further wants you to assess the viability of the prepared budgets for the company. Further he wants you to provide a correct evaluation of the costing and budgetary control systems to the business you have learnt in Tasks 2 and 3.

Bibb Company produces and sells a single product with standard costs as follows:

Resource	Standard input	Cost per input	Cost per unit
Direct material	2 lbs.	4	8
Direct Labour	3 hours	6	18
Variable overhead	3 hours	9	27
Fixed overhead	3 hours	10	30
Total unit cost	3 hours

Overhead rates are based on 2,000 units per month or 6,000 standard direct labor hours, i.e., this is the master budget denominator activity level. Overhead is applied based on direct labor hours.

Desired ending inventories of mat erials and finished goods are based on 5% of next period needs.
Unit Sales are budgeted as follows:

Jan	Feb	Mar	Apr	May
2000	2000	2100	1900	1800

The budgeted sales price is AED160 per unit. All sales are budgeted as credit sales. Past experience indicates that 80% are collected during the month of sale, 18% are collected in the following month, and 2% are uncollectible. A 1% cash discount is allowed to customers who pay within the month the sale takes place.

Required:
A Partial Master Budget for March as follows.
1. Sales budget for March, including net sales dollars.
2. Calculate collections for March.
3. Production Budget, i.e., units to be produced for March.
4. Direct Material quantity needed for production for March.
5. Direct Material quantity to be purchased for March.
6. Budgeted cost of direct material purchases for March.
7. Budgeted cost of direct material used for March.
8. Direct labor needed for production for March.
9. Budgeted cost of direct labor used for March.
10. Budgeted factory overhead costs for March.
11. Budgeted cost of goods sold for March.
12. Prepare a simple Budgeted Income Statement for March. Assume selling and administrative expenses are AED54,992.

Task 4:

The team head has provided you with details of Sunbright LLC and asked you to apply the different investment appraisal methods to the two alternative capital investment proposals available to this company. You must provide explanation of the non-financial considerations that can affect these investment proposals. Discuss the analysis of the results based on your investment appraisal calculations for the company's decision making. Further evaluate the financial and non-financial considerations for this investment proposal and formulate appropriate and relevant recommendations to the company for making a final investment appraisal decision.

A business enterprise Sunbright manufacturing LLC can make either of two investments at the beginning of 2021. assuming required rate of return in 10% p.a. evaluate the investment proposals under:
(a). Payback period
(b). Average rate return
(d). Net present value @ 10% discounted value.

The forecast particulars are given below:

	Proposal A	Proposal B
Cost of Investment	AED20,000	28,000
Life	4years	5 years
Scrap Value	Nil	Nil
Net Income (After depreciation and tax):
End of 2021	AED500	Nil
End of 2022	AED2000	AED3,400
End of 2023	AED3,500	AED3,400
End of 2024	AED2,500	AED3,400
End of 2025	Nil	AED3,400

It is estimated that each of the alternative projects will require an additional working capital of AED2,000 which will be received back in full after the expiry of each project life. Depreciation is provided under the straight-line method. The present value of AED1 to be received at the end of each year, at 10% p.a. is given below:

Year	1	2	3	4	5
P.V.	0.91	0.83	0.75	0.68	0.62

Attachment:- Assignment brief.rar