Management Accounting: Costs and Budgeting Essay

BTEC Centre Guangdong AIB Polytechnic College Unit |Unit 9: Management Accounting: Costs and Budgeting | |Class |2011 HND Finance | |Assignment |A2: Preparing budgets | |Date issued |Nov 14,2012 | |Date deadline |Dec 12, 2012 | |Tutor |Huang YingQiu | |IV |KONG TAO | Declaration: I am aware that cheating and plagiarism will not be tolerated in any assignment and that this work complies with the requirements - Management Accounting: Costs and Budgeting Essay introduction ||Unit 9: Management Accounting: Costs and Budgeting | |Class |2011 HND Finance | |Assignment |A2: Preparing budgets | |Date issued |Nov 14,2012 | |Date deadline |Dec 12, 2012 | |Tutor |Huang YingQiu | |IV |KONG TAO | Declaration: I am aware that cheating and plagiarism will not be tolerated in any assignment and that this work complies with the requirements. Student’s Signature: (In Pinyin) (In Chinese) Class: Student No. : Learning Outcomes |3. Prepare forecasts and budgets for |3. explain the purpose and nature of the budgeting process | |business |3. 2 select appropriate budgeting methods for the organisation and its needs | | |3. 3 prepare budgets according to the chosen budgeting method | | |3. 4 prepare a cash budget. | |4. Monitor performance against budgets |4. 1 calculate variances, identify possible causes and recommend corrective action | |within a business. |4. 2 prepare an operating statement reconciling budgeted and actual results | | |4. report findings to management in accordance with identified responsibility centres. | Assessment | |Criteria |Evidence | |Pass |3. 1 explain the purpose and nature of the budgeting |Define the term budget, explain the purpose and benefits of | | |process |budgeting and the process in budgeting. | | |3. 2 select appropriate budgeting methods for the |Explain the differences between static and flexible budgeting. | |organisation and its needs | | | |3. 3 prepare budgets according to the chosen budgeting |Correctly prepare the budget, showing variances and compare | | |method |differences between two different methods. | | |3. 4 prepare a cash budget.

|Prepare the cash budget in the right format, work out the correct | | | |numbers. | | |4. calculate variances, identify possible causes and |Correctly calculate all the variances provided in the question and| | |recommend corrective action |decide whether is favorable or adverse, explaining all the | | | |possible reasons relating to it and give suggestions on | | | |improvement. | | |4. 2 prepare an operating statement reconciling budgeted |Prepare an income statement based on the question, calculate the | | |and actual results |difference in numbers and in percentage. | | |4. report findings to management in accordance with |Attribute the difference to identified responsibility centres and | | |identified responsibility centres. |explain the reasons. | |Merit |M1 |Identify and apply strategies to find appropriate |Both the cash budget and the operating statement are accurately | | | |solutions. |worked out and the presentation is in the correct format and an | | | | |effective approach to study and research has been used. | | |M3 |Present and communicate appropriate findings. A lot of research is done on the theoretical part of this | | | | |assignment and the use of the resource is right to the point and | | | | |logical and coherent arguments have been presented. | |Distinction |D1 |Use critical reflection to evaluate own work and |You can explain the budgeting methods in detail, illustrate the | | | |justify valid conclusions |advantages and disadvantages of them and show deep understanding | | | | |of the references and the validity of results has been judged. | |D3 |Demonstrate convergent, lateral and creative |You have shown a lot of ideas of your own and convergent and | | | |thinking |lateral thinking have been applied. | Grading: |Detailed Grading | |IV’s comments on above grading decision: | | | |Final grading decision | Scenario one: Warner Manufacturing is preparing a budget for the first quarter of the year ending 31 March 2013.

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Its goal is to have an annual turnover of $2 million and reach the gross margin of 25% and net profits of $200000. The manager of the company, Mr Lee is not sure if it is worth having the budget in business and he asked you for advice. ????????????????? 2013? 3? 31????????????????????? 200??? ,??????? 25%,??? 200000???????? ,???????????????????????????? Task One Explain the purpose and nature of the budgeting process (Outcome 3. 1) Suggestion a. Illustrate the purpose and benefits of budgeting??????????? b. Explain the budgeting process in steps, incorporating the numbers. ???????? ,?????? Scenario two and three Brabham Enterprises manufactures tires for the Formula 1Motor racing circuit.

For August 2012, it budgeted to manufacture and sell 3000 tires at a variable cost of $74 per tire and total fixed cost of $54000. The budgeted selling price was $110 per tire. Actual results in August 2009 were 2800 tires manufactured and sold at a selling price of $112 per tire. The actual total variable cost were $229600, and the actual total fixed costs were $50000. ???? -??????????????????? 2012? 8? ,? 3000???? ,????????????? 74???????????? 54000??????????? 110?? /???????? 2009? 8? 2800???????????? 112??????????????? 229600?? ,?????????? 50000??? Task Two and Three Select appropriate budgeting methods for the organisation and its needs( Outcome 3. 2 ) Suggestion: Select from the budgeting methods of fixed budget and flexible budget.?????????????????? a. b.

Explain the differences between the two methods.????????????? Prepare budgets according to the chosen budgeting method ( Outcome 3. 3 ) Suggestion a. Prepare a performance report that uses the chosen budgeting method ???????? ,????????? b. Compare the differences using the two methods.?????????????? Scenario Four Kenneth Lopez sought finance from his uncle, Jonathan Lopez, to import and sell household solar electricity systems. Jonathan suggested that Kenneth should determine the costs of setting up the business “K. L Solar” and also provide estimates of the profit for the year and the cash balance at the end of the first year. Kenneth made the following estimates. K. L Solar

Estimated Balance Sheet at the date of commencement of trading: 1 July 2012 |Assets |$ | |Current Assets | | |Bank |57,000 | |Stock of lighting |40,000 | |Vehicles |20,000 | |Equipment |4,000 | |Establishment costs |3,000 | |Total Assets |124,000 | |Liabilities | | |Unsecured Loan (from J Lopez due 30 June 2010) |80,000 | |Owners Equity | | |Capital |44,000 | |Total Liabilities & Equities |124,000 | Anticipated transactions during the year: i) Sales – cash $160,000 credit $40,000 10 per cent of the credit sales figure to be outstanding at the end of the year ii) Purchases – cash $60,000, credit $16,000. All debts will be settled by the end of the year iii) Expenses incurred and paid – occupancy expenses $50,000, administrative expenses $16,000 and selling expenses $20,000 iv) New equipment to be purchased for $12,000 cash ) To finance new equipment he expects to borrow $10,000 from the bank and to repay this during the year. Interest expense $840 also to be paid vi) $10,000 interest to be paid on the loan from J. Lopez vii) Cash to be paid to himself in anticipation of profits $10,000 Other estimates i) Depreciation on vehicles for the year $8,000, and depreciation on equipment for the year $2,000 ii) Twenty per cent of establishment costs to be charged against the first year’s revenue iii) Stock of lighting at the end of the year $36,000 Task Four Prepare a cash budget ( Outcome 3. 4) Suggestion: Prepare a cash budget for the year ended 30 June 2013. Scenario Five K.

J Solar provides you with the following information for 2012: | | |Standard cost of Product A | |$ | | | |Materials (5kgs x $10 per kg) | |50 | | | |Labour (4hrs x $5 per hr) | |20 | | |Variable o/hds (4 hrs x $2 per hr)      | |  8 | | | |Fixed o/hds (4 hrs x $6 per hr) | |24 | | | |  | |102 | | | | | | | |Budgeted results    | |  | | | |Production: | |1,200 units | | | |Sales: | |1,200 units | | | |Selling price: | |$150 per unit       | | | | | |ACTUAL Results    | |  | | | |Production: | |1,000 units | | | |Sales: | |1,000 units | | |Materials: | |4,850 kgs, $46,075 | | | |Labour: | |4,200 hrs, $21,210 | | | |Variable o/hds: | |$9,450 | | | |Fixed o/hds: | |$25,000 | | | |Selling price: | |$140 per unit | | | | | | | Task Five 1. Calculate variances, identify possible causes and recommend corrective action (outcome 4. 1) Suggestion: Calculate all the variances including sales, direct material, direct labour and overhead variances.?? : a. ???????????????? ,?????????? b. Analyze possible reasons for the variance and propose suggestions for improvement. ????????????????? 2. Prepare an operating statement reconciling budgeted and actual results(outcome 4. 2) Suggestion: Reconcile the budgeted profit using the variance calculated Prepare the operating statement. Confirm your result by checking the actual profit. ?? : ???????????? ??????? ??????????????? 3.

Report findings to management in accordance with identified responsibility centres (outcome 4. 3) Suggestion: Write a memo to the manager to attribute the variances to different responsibility centres Discuss their relevance to budgeting.?? : ????????????? ,??????? ????????? Suggestion: 1. Finding information using the Internet, journals or referential books to help you complete this assignment. 1. All the information has to be referenced. 2. No more than 1500 words for the discussion part. 3. The assignment must be finished individually. 4. You should set your word-processing system to use the Arial or Times New Roman, font size 12, and select 1. 5 line spacing. The completed coursework must be in word-processed on A4 paper.

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