Unit 14 Management Accounting and financial Accounting Assignment

Program	Diploma in Business
Unit Number and Title	Unit 14 Management Accounting and financial Accounting Assignment
QFC Level	Level 5

Q1. Compare and contrast management accounting and financial accounting.

There are effective difference among management accounting and financial accounting that get discussed below in the table such as: 

Basis	Financial Accounting	Management Accounting
Meaning	It is the accounting system that get utilised for preparing financial statements.	This accounting system get utilised for the purpose of making policies, plans and strategies in order to run their business activities in effective manner.
Objectives	The objective of financial accounting is to provide financial information to the external stakeholders.	The objective is to render adequate level of support in planning and decision making.
Time frame	Financial statements get prepared at the end of financial year.	Management prepare their reports according to their respective needs and requirements.
Users	Internal as well as external stakeholders.	Internal or only management make use of it.
Reports	All the financial statement shows the summarised overview of organisational financial position.	The reports prepared having detailed set of information (Weetman, 2013).
Definition	It is concerned with the preparation of the financial statements that get utilised by the external stakeholders.	It is concerned with the preparation of the policies, forecasting, planning and controlling of the day to day operations.
Information required	All the set of financial information get utilised in the financial accounting.	All the information related to the quantitative and qualitative information get utilised (Weetman, 2013).
Branch of accounting	It keep track record of all financial information.	It keep track of all information Whether it is financial or non-financial set of information.
Level of confidentiality	It is not confidential as it get reviewed and used by the internal as well as external stakeholders.	It is utilised by the internal management only and they prepare adequate set of policies and strategies with the use of it. It attain higher level of confidentiality.
Format	There is a prescribed format is given by the IFRS in order to prepare the financial statement.	There is no such prescribed format (Taipaleenmäki & Ikäheimo, 2013).
Rendered information	Financial accounting extract the information related to the financial functioning.	They render information related to the performance evaluation and devise plans accordingly.
Auditing	The financial statement get utilised for auditing purpose which helps in verifying the business financial statements are correct.	There is no need of auditing or editing as these are voluntary set of information.

These are the effective level of differences among the management accounting and financial accounting. Both of them are essentially important from the organisational perspective as both of them render adequate level of support to the business activities. Financial accounting is effective enough in maintaining their records and get utilised for the purpose of comparing two period performance (it can be done internally as well as externally). While management accounting is utilised for the purpose of analysing their overall performance, preparing strategies and policies for their future prospective (Taipaleenmäki & Ikäheimo, 2013).

Q2. Appraise the need for classifying costs on the basis of types, behaviour, functions and relevance.

There are numerous cost get incurred in order to run the business activities. These costs get segregated with the help of different types such as: -

Costs as per behaviour: - According to behaviour costs is of two types such as: -

• Fixed costs: - When the cost amount remain same after the change in the activity or activity level that cost get termed as fixed costs. Such as office rent (Mastilak, 2011).
• Variable costs: - When the cost amount get changed with the change in the activity or activity level that cost get termed as variable costs. Such as material cost (Mastilak, 2011).

Costs as per functions: - According to the functions cost is of 8 types such as: -

• Production costs: - The part of cost directly incurred over production process in order to produce goods or services that termed as production cost. Such as cost of direct material, direct labour and other direct expenses (Mastilak, 2011).
• Administration costs: - The part of cost incurred over general management activities and generally considered as indirect costs termed as administration costs. Such as salaries to staff, office expenses, etc.
• Selling costs: - The cost incurred in order to make sales of their respective goods and services is termed as selling costs. Such as commission, discount, etc (Mastilak, 2011).
• Distribution cost: - The cost that get incurred in order to distribute the products within market is termed as distribution costs. Such as cost of transportation, rents of warehouses, etc.
• Research and Development cost: - The cost incurred by management in order to develop new product or services or make adequate level of improvement within the existing product or service is termed as research and development cost (Ahmed, et. al., 2014).
• Conversion cost: - The part of cost in the form of direct wages, expenses and overhead that get incurred in order to convert the raw material into final product. There are various production stages get involved into it.

Q3. Provide seven examples for operational budgets and analytically discuss the benefits of preparing such budgets.

Operational budgets: - These are detailed plans that helps in estimating organisational revenues and expenditure for a fixed time period. Different departments having their operational budget and with the use of it they manage and compare their revenues and expenditure. They also make use of these reports in future for the purpose of preparing budget reports (Smith, et. al., 2010).

Examples of operational budgets with their benefits such as: -

Sales budgets: - It is the effective budget that get utilised for the purpose of estimating the sales in the respective units. With the help of it they also estimate the revenues earned through these sales. Below is the sales budget example: -

Particulars	Quarter 1	Quarter 2	Quarter 3	Quarter 4
Sales units	13,200	9,540	11,030	17,660
Sales price	£91	£92	£97	£112
Total sales in £	£1,201,200	£877,680	£1,069,910	£1,977,920

Production budget: - It is the effective budget that get utilised for the purpose of planning production in units in order to meet out the demand by making adequate sales. Below is the production budget example:

Particulars	Quarter 1	Quarter 2	Quarter 3	Quarter 4
Budgeted sales unit	13,200	9,540	11,030	17,660
Add: - Budgeted closing stock	2,100	1,680	2,130	2,250
Less: - Opening stock	1,960	2,100	1,680	2,130
Budgeted production in units	13,340	9,120	11,480	17,780

Direct Labour costs budget: - This type of budget is prepared in order to show the total direct labour cost along with the direct labour hours required for production. Below is the direct labour cost budget example:

Particulars	Quarter 1	Quarter 2	Quarter 3	Quarter 4
Budgeted production in units	13,340	9,120	11,480	17,780
Per unit direct labour hours	3.5 hours	3.5 hours	3.5 hours	3.5 hours
Budgeted labour hours	46,690 hours	31,920 hours	40,180 hours	62,230 hours
Cost/direct labour hour	£4	£5	£5	£5
Total budgeted directed labour cost	£186,760	£159,600	£200,900	£311,150

Material costs budget: - This type of budget is prepared in order to show the required estimated direct material for the purpose of production process. Below is the material cost budget example:

Particulars	Quarter 1	Quarter 2	Quarter 3	Quarter 4
Budgeted production in units	13,340	9,120	11,480	17,780
Required direct material per unit	4	4	4	4
Total direct material required	53,360	36,480	45,920	71,120
Add: - Budgeted closing stock	5,470	6,890	10,680	9,610
Less: - Closing stock	8,000	5,470	6,890	10,680
Budgeted purchase of direct material	50,830	37,900	49,710	70,050
Cost per unit	£3.10	£3.20	£3.50	£4.00
Budgeted purchase cost of direct material	£157,570	£121,280	£173,980	£280,200

Overhead budget: - This budget is prepared in order to cover all direct costs other than direct material and direct labour. Below is the example of overhead budget such as: -

Particulars	Quarter 1	Quarter 2	Quarter 3	Quarter 4
Budgeted production in units	13,340	9,120	11,480	17,780
Rate of Variable overhead	£12	£15	£16	£19
Total variable overhead cost	£160,080	£136,800	£183,680	£337,820
Fixed overhead
Depreciation	£90,000	£90,000	£90,000	£90,000
Rent	£75,000	£75,000	£75,000	£75,000
Total fixed overhead	£165,000	£165,000	£165,000	£165,000
Total factory overhead (variable + fixed)	£325,080	£301,800	£348,680	£502,820
Less: depreciation	£90,000	£90,000	£90,000	£90,000
Factory overhead	£235,080	£211,800	£258,680	£412,820

Manufacturing cost budget: - This budget is prepared in order to estimate the manufacturing cost that needed to be incurred over the budgeted finished goods: -

Particulars	Quarter 1	Quarter 2	Quarter 3	Quarter 4
Budgeted purchase cost of direct material	£157,570	£121,280	£173,980	£280,200
Opening stock	£24,000	£16,960	£22,050	£37,380
Less: Closing stock	£16,960	£22,050	£37,380	£38,440
Cost of Direct material	£164,610	£116,190	£158,650	£279,140
Cost of direct labour	186,760	159,600	200,900	311,150
Factory overhead	£235,080	£211,800	£258,680	£412,820
Budgeted manufacturing cost	£586,450	£487,590	£618,230	£1,003,110

Selling and Administrative expense budget: - This type of budget is prepared in order to set planned operational expenses other than cost of manufacturing. Below is the example of selling and administrative expense budget such as: -

Particulars	Quarter 1	Quarter 2	Quarter 3	Quarter 4
Budgeted selling expense
Sales commission	£26,200	£23,800	£24,100	£35,900
Freight charges	£38,900	£35,100	£30,500	50,300
Budgeted administrative expenses
Rent of premises	£80,000	£80,000	£80,000	£80,000
Salaries	£100,000	£100,000	£100,000	£100,000
Supplies	£11,200	£10,300	£15,600	£23,700
Misc. Expenditure	£7,000	£7,000	£7,000	£7,000
Total budgeted expenditure	£263,300	£256,200	£257,200	£296,900

Q4. Analyse the use of standard costing as decision making tool.

Standard costing: - It is the process of substituting expected cost against actual cost within their accounting records and within the intervals record the variances that shows difference among expected costs and actual costs. It provide effective set of information to the respective managers which get utilised for making effective decision (Farkas, et. al., 2016).

Standard costing is effectively get utilised as an decision making tool as with the use of it various activities get processed such as: -

Budgeting: - Budget reports get prepared with the use of the standard costs because it is not possible to make use of actual figures as these costs are not finalised because budgets are prepared well early and activities get processed after a time period. With this effect standard costing get utilised in effective manner. There are various costs such as expected costs and sales prices get evaluated with the use of the standard units costs. There is adequate difference between the standard cost system and budget system as in standard costing all the available cost get split according to product-wise whereas in the budgeted system available cost get split according to department-wise. Standard costing is utilised within budget preparation in order to evaluate the total cost as it consume lesser time period (Farkas, et. al., 2016).

Inventory costing: - Standard costing is utilised for the purpose of getting the closing balance of the inventory as closing inventory unit get multiplied with the standard costs. There is small difference among the actual cost of closing inventory and standard cost of closing inventory. With the use of the standard cost per unit inventory get valued effectively at various stages within production process in  managing financial (Farkas, et. al., 2016).

Controlling: - Managers make use of this tool for the purpose of controlling their respective activities and make adequate level of improvements within their organisation. They make use of it in minimizing their overall cost for the purpose of increasing the level of their profit at maximum level.  With the use of the standard costing managers perform variance analysis that helps in knowing the difference among standard cost per unit and their actual cost per unit (Martin, 2015).

Performance evaluation: - With the use of the standard costing managers make evaluation of their overall performance as they evaluate the actual performance by taking the standard cost as their base. By knowing the performance they effectively motivate employees in order to achieve their set objectives (Martin, 2015).

Price setting: - Managers make use of standard costing for the purpose of price setting as they set the prices accordingly by evaluating their overall standard cost. They add up adequate profit margin within their cost so that they set reasonable prices in order to attract number of customers towards their product (Martin, 2015).

References

Ahmed, A., Djaffar, O., Zahia, Z., Mohamed, A. & Jean, M. 2014, "Optimizing the Classification Cost using SVMs with a Double Hinge Loss", Informatica, vol. 38, no. 2, pp. 125.
Farkas, M., Kersting, L. & Stephens, W. 2016, "Modern Watch Company: An instructional resource for presenting and learning actual, normal, and standard costing systems, and variable and fixed overhead variance analysis", Journal of Accounting Education, vol. 35, pp. 56-68.
Kannan, D.,Jafarian, A., Khamene, H.A. & Olfat, L. 2013, "Competitive performance improvement by operational budget allocation using ANFIS and fuzzy quality function deployment: a case study", The International Journal of Advanced Manufacturing Technology, vol. 68, no. 1, pp. 849-862.
Martin, P. 2015, Auditor for Coalition admonished: Campaign costings - Standards breach - Exclusive, Fairfax Digital, Melbourne, Vic.
Mastilak, M.C. 2011, "Cost classification and judgment performance", Accounting Review,vol. 86, no. 5, pp. 1709.
Smith, W.W., Litvin, S.W.,Canberg, A. & Tomas, S.R. 2010, "Setting parameters: operational budget size and allocation of resources", International Journal of Event and Festival Management, vol. 1, no. 3, pp. 238-243.