Unit 5 Accounting Management Assignment

Introduction

Management accounting assignment is held responsible for managing the organisational activities as well as their funds in effective manner. To manage their activities they prepare different policies. BRUNEI Co. follows the budgeting process to manage their liquid funds that helps in balancing their cash flows. Different budgeting methods will be discussed and utilised. They will make their performance evaluation with the use of variance analysis.

Task 1

A. Explain why organisations use budgeting (LO 1.1; 1.2)

• Budgeting: It is the process of allocating the available resources in effective manner for the purpose of optimum utilisation. It also make inclusion of forecasting related to income and expenditure. There are various benefits due to which organisation follow the budgeting process such as:
• Manage cash flows: It helps in effective forecasting that helps in estimating requirement of funds and also estimate the expenses ratio. With the use of this estimation information they make adequate level of balance in their cash flows (inflows and outflows) (Ya & A, 2012).
• Decision making: With the help of the estimating they gather effective set of information that get utilised for decision making process. With the use of this information they took decisions related to the use of available finance as well as made expenses accordingly.
• Setting benchmark: With the use of budget results they set the effective benchmark for their department. By following these benchmarks they control their mismanagement of available resources (Ya & A, 2012).
• Evaluate performance: It also get utilised for the purpose of making evaluation of their performance. In order or make performance evaluation they compare their actual outcomes with their budgeted outcomes. With the help of attained variances the evaluate their performance as they attain favourable results or adverse results.
• Allocate resources properly: Budgeting process renders adequate requirement of the resources that helps in allocated resources properly. On the basis of the requirement they allocate and utilise their available resources in order to get desired outcomes.
• Proper communication: Management make effective communication with the use of the prepare budget in order to process the activities accordingly. They set effective benchmark for the purpose of processing and executing their activities in effective manner (Anessi-Pessina, et. al., 2016).

B. Explain the administrative procedures used in the budgeting process. (LO 1.1; 1.2)

The administrative procedures having three steps process that get utilised in budgeting process. Below three steps get discussed such as:

• Appoint budget officer: Budget officer is such authorised body that put adequate level of control over budgeting process. He/she can be elected preferentially or from the members of their budget committee. He plays a channel role or mediator among the budget committee and managers & employees. They effectively deal with the problems or issues raised so that they make effective changes in their budget well before time. He is responsible for making effective communication in context to budget.
• Budget committee: It is a team of authorised persons that engaged into supervision of budgeting process. Member form every department get included in budget and these get selected on the basis of their designations and experiences. They also get termed as coordinator. They effectively measure the organisational performance by conducting variance analysis and if they get adverse results they search reasons for it. They also engage into approving budgets and after this they send it to management accounting department for the preparation of "Budget Manual" (Anessi-Pessina, et. al., 2016).
• Prepare budget manual: It is such document that explain the prepared budget in a documented form. It make inclusion of all the details related to different division and processes. It shows the deadlines for attaining the desired results and departments follow them in effective manner. It also make segregation of the liabilities among the authorised personals after which they attain responsibility to make communication related to the budget among their employees and make them motivated so that they attain it effectively (Anessi-Pessina, et. al., 2016).

C. Describe the stages in the budgeting process (including sources of relevant data, planning and agreeing draft budgets and purpose of forecasts and how they link to budgeting). (LO 1.1; 1.2)

Budgeting process is denoted as strategic management tool and it get utilised for forecasting and decision making. Below are the stages involved in budgeting process such as:

• Budget preparation: It is first stage and it include the basic requirements of every department. In budget preparation below points get followed such as: -
  • Follow organisation structure: It make inclusion of the goals and objectives, vision and missions of the organisation.
  • Forecast revenue and expenditure: Make forecasting in context to revenue and expenditure. For this purpose make use of adequate sources.
  • Budgeting technique: Make use of optimum budgeting technique such as zero based or incremental or any other. Their management utilise best suitable technique.
  • Allocate the resources: It is necessary to allocate the resources in adequate manner as it results into proper utilisation of resources.
  • Follow government policies: Management need to follow all the implied policies in order to make the budget most effective and efficient (Morozov, 2013).
• Budget approval: It is 2nd step where prepared budget need to be approved from the budget committee. Budget committee is such authorised body that approve the budget prepared by their management. The make effective analysis and if it is not prepared accordingly they must reject it. They make effective alternations or amendments before approving prepared budgets.
• Budget execution: It is the 3rd step where approved budget get executed in effective manner. Budget manual is required for the purpose of making effective communication among different department. Effective changes are made in the approved budget also with any change in their market (Morozov, 2013).
• Budget evaluation: It is the last and final step of budgeting process where worthiness of prepared budget get evaluated. It can be termed as audit of the budget where variances get calculated. If the variances are favourable then it can be termed as successful budget otherwise different reasons get measured. Benchmark or standards get set in order to make adequate use of their budgets (Morozov, 2013).

Task 2

a) Explain and illustrate with examples classifications used in the analysis of the product/service costs including by function, direct and indirect. Fixed and variable, stepped fixed and semi variable costs. (LO 2.1)

• Function cost: It is such part of cost that get segregated as per the requirement of the activity. It also denoted as activity based cost.
• Direct and indirect: The cost that have direct relation with the product and its absence impact its profitability directly. Cost of material is production process having direct relation.
  The cost that have indirect relation with the product and its absence is having indirect impact over its profitability. Depreciation over machinery having indirect relation in production process (Brook, 2012).
• Fixed and variable: The cost which remain same from the starting point to the end point termed as fixed cost. Rent is best suitable example..
  The cost that keep on varying with the change in activity is denoted as variable cost. Material cost is best suitable example.
• Stepped fixed: The cost which is fixed for a group but it is variable for different cost. Maintenance cost is best suitable example (Brook, 2012).
• Semi variable: The cost which is fixed from starting to an extent after which it become variable. Electricity bill is best suitable example (Brook, 2012).

b)Calculate the fixed and Variable cost using the high low method and justify your reason of application. (LO 2.1)

Given data:

Months	Units	Costs
Jan	6,200	£69,700
Feb	3,500	£45,300
March	3,100	£44,100
April	4,900	£64,100
May	7,100	£88,100
June	4,200	£57,800

Formula: Variable cost per unit = Total cost (high cost - low cost) / Total units (High level unit - low level unit)

Particulars	Amount
High cost	£88,100
Low cost	£44,100
High units	7,100
Low units	3,100

Per unit variable cost = (88,100 - 44,100) / (7,100 - 3,100)

= 44,000/4000 = £11 per unit (Liou, 2011)

Calculation of fixed and variable cost using high low method such as: -

At high level

Particulars	Amount
At 7,100 units
Variable cost (7,100 units * £11/ unit)	£78,100
Fixed cost (£88,100 - £78,100)	£10,000

At low level

Particulars	Amount
At 3,100 units
Variable cost (3,100 units * £11/ unit)	£34,100
Fixed cost (£44,100 - £34,100)	£10,000

Analysis: In the above tables variable and fixed cost get calculated in order to segregate the semi-variable cost of organisation. Previous years costs as well as units get utilised for the purpose of making calculation with the use of high low method. In calculation high and low costs as well as units get utilised (Liou, 2011).

Task 3

a. Demonstrate and discuss the effect of absorption and marginal costing on inventory valuation and profit determination. (LO2.1 & 2.2)

BRUNIE Co. follow two costing methods for making inventory evaluation and profit determination such as:

• Absorption costing: - This costing method emphasis over inclusion of all available costs whether it is variable (direct cost) or fixed cost (indirect cost) as well as all other overhead costs.
• Marginal costing: - This costing method emphasis over the inclusion of all variable costs but didn't make inclusion of fixed costs. Only direct cost is utilised for calculation (Srithongrung, 2010).

For inventory valuation and profit determination they make use of the marginal costing as they include all the variable costs for their calculation without inclusion of fixed cost as it is not incurred directly over the production of their product. It helps in focusing over the direct costs that has fluctuations on the other hand fixed cost having same nature during whole process. There is effective level of differentiation among the marginal costing and absorption costing for the purpose of profit determination such as: -

• High level of profits get extracted in absorption costing when there is increase in the inventory level.
• As per the marginal costing method organisation attain higher profits when their inventory level decreases.
• When inventory level remain fixed or didn't show any change it results into similar profit (Srithongrung, 2010).

b. Differentiate between Job costing, Batch costing, Process costing and Service costing. (LO2.2)

Differentiation shows in below table such as:

Job Costing	Batch costing	Process costing	Service Costing
Cost calculation is based over cost of every order.	Cost calculation make inclusion of the batch or unit of same product.	Production process include lots of steps and each step is taken in to consideration for cost calculation.	Organisation renders services instead of products and cost is calculated over services only.
Different and unique products are included and it can be termed as customised products.	In batch standardized products are included.	At every step or process product is easily differentiated.	Services are considered instead of products.
Under this costing type products size is small.	The size of batch is big as there are lots of products included under it.	Size get varies as it can be small or big.	Services are rendered and cost is calculated over them only.
Customised industry follows this type of method.	Most of the standardised industry follows it.	Majority of standardised industry follows it.	Both type of industry whether it is customised or standardised follow this method.

c. Prepare a profit and loss statement for each area, East and West, and in total, on an absorption costing basis.  (LO2.2 & 2.3)

	slim	soccer	Decani
	£	£	£
selling price	50	58	70
purchasing price	32	36	44
gross profit	18	22	26

Profit and loss account for area East and West such as:

area		east		west		total
gross profit:			£		£	£
	slim	94000*18	1,692,000.00	32000*18	576,000.00	2,268,000.00
	soccer	45000*22	990,000.00	46000*22	1,012,000.00	2,002,000.00
	decani	26000*26	676,000.00	42000*26	1,092,000.00	1,768,000.00
			3,358,000.00		2,680,000.00	6,038,000.00
Packaging			437768.24		162231.76
Advertising			486315.79		353684.21
Transport			335291.96		264708.04
total cost			1259375.99		780624.01
Profit			2098624.01		1899375.99

Working notes: Cost apportionment

Workings
cost app.
	basis of App.
Packaging	no of orders	East	85000	(220000+380000)/116500		5.15
		West	31500
			116500
Advertising	sales units	East	165000	(280000+560000)/285000		2.95
		West	120000
			285000
Transport		East	9130000	(350000+250000)/16338000		£ 0.037
		West	7208000
			16338000
		Slim	soccer	decani
East	S.P.	50	58	70
	no of units	94000	45000	26000
	total sales value	4700000	2610000	1820000	9130000
		Slim	soccer	decani
West	S.P.	50	58	70
	no of units	32000	46000	42000
	total sales value	1600000	2668000	2940000	7208000

d. Prepare a profit and loss statement for West only, using marginal costing, showing the relevant information for each product and the total profit or loss in that area. (LO2.2 & 2.3)  

Profit and loss account for west only such as:

Marginal Costing		Slim	Soccer	Decani	Total
		£	£	£	£
gross profit per unit		18	22	26
no. of units		32000	46000	42000
gross profit		576000	1012000	1092000	2680000
Packaging		£12,274.68	£28,326.18	£18,884.12	£59,484.98
Advertising		£31,438.60	£45,192.98	£41,263.16	£117,894.74
Transport		£34,275.92	£57,155.10	£62,982.01	£154,413.02
TVC		£77,989.20	£130,674.26	£123,129.28	£331,792.74
contribution		£498,010.80	£881,325.74	£968,870.72	£2,348,207.26
fixed cost	(380000+560000+250000)-331792.74				858207.26
Profit					£1,490,000.00

Working notes: Cost Apportionment

Particulars	Basis of apport.	Calculations		Results
Packaging	no of orders	220000/116500		£1.89
Advertising	sales units	280000/285000		£0.98
Transport		350000/16338000		£0.02
		Slim	soccer	decani
west	s.p	50	58	70
	no of units	32000	46000	42000
	total sales value	1600000	2668000	2940000	7208000

Task 4

a) Advise the BRUNEI CO. with supporting figures as to whether to cease production of A and D. (LO 2.4)

Calculation of contribution without A & D:

details	B	E	TOTAL
	£'000	£'000	£'000
SALES	1100	1200	2300
			0
MATERIAL	-290	-290	-580
LABOUR	-280	-280	-560
VAR OVERHEADS	-250	-280	-530
FIXED OH	-300	-300	-600
PROFIT/(LOSS)	-20	50	30
ORIGINAL PROFIT	130	200
CHANGE	-150	-150

Calculation of contribution made by A & D:

	A	D
SALES	760	900
MATERIAL	-185	-290
LABOUR	-240	-280
VAR OH	-210	-310
TOTAL VAR. COSTS	-635	-880
CONTRIBUTION	125	20

Analysis: BRUNEI Co. management propose to close down the production of Product A & D as it is considered that they lead to loss situation. As per the results of the profit calculation without inclusion of A & D results that Product B is yielding loss whereas Product E yields only minor profit. With the inclusion of Product A & D it is clearly observed that they are not attaining huge profits but they didn't attain loss and with the help their sales they easily meet out their expenditure and earn adequate level of profits for their business. Now it is suggested that they need not to close down the production of Product A & D (Libby & Lindsay, 2010).

b) Based on the above figures, calculate

(i) The contribution to sales ratio, based on the sales mix of the four products above. (LO 2.4)

Calculation is in below table such as:

Details	A	B	D	E	TOTAL
	£'000	£'000	£'000	£'000	£'000
SALES	760	1100	900	1200	3960
MATERIAL	-185	-290	-290	-290	-1055
LABOUR	-240	-280	-280	-280	-1080
VAR OVERHEADS	-210	-250	-310	-280	-1050
TOTAL VAR. COSTS	-635	-820	-880	-850	-3185
CONTRIBUTION	125	280	20	350	775
CONTRIBUTION TO SALES RATIO	16.45%	25.45%	2.22%	29.17%	19.57%

(ii) The break-even point in £000.  (LO 2.4)

Breakeven point = Total fixed cost / contribution to sales ratio

Total fixed cost = 600

Contribution to sales ratio = 0.1957

= 600/0.1957 = 3,065.806

Breakeven point = £3,605.806 (Pollack, 2014)

(iii) The required sales in £000 to earn a profit of £200,000.  (LO 2.4)

Targeted sales = Total fixed cost + targeted profit/ contribution to sales ratio

Total fixed cost = 600

Targeted profit = 200

Contribution to sales ratio = 0.1957

= 600 +200/ 0.1957

= 800/0.1957= 4,087.742

Required sales = 4,087.742 (Pollack, 2014)

c) If labour is paid at a rate of £10 per hour and labour is restricted to 98,000 hours, state, with supporting figures, the combination of products (in £000) that would maximise profit for the period.  (LO 2.5) 

Particulars	A	B	D	E	TOTAL
Labour cost	240000	280000	280000	280000	1080000
Lab. Cost/hr	10	10	10	10	10
No. of lab. Hrs/product	24000	28000	28000	28000	108000	Hrs. needed
					98000	Hrs. available
					-10000	Hrs. Shortage
	A	B	D	E
No. of lab. Hrs/product	24000	28000	28000	28000
Contribution	£ 125,000	£ 280,000	£ 20,000	£ 350,000
Contribution/lab. Hr.	£       5.21	£     10.00	£     0.71	£     12.50
Ranking	3	2	4	1

Product mix: -

Product	Sales value	No. of Lab. Hrs	Contribution / lab hr.	Total contribution
E	£1,200,000	28000	£12.50	£      350,000
B	£1,100,000	28000	£10.00	£      280,000
A	£760,000	24000	£5.21	£      125,000
		80000
D	£ 578,571.43	18000	£  0.71	£   12,857.14
	TOTAL	98000
				£ 767,857.14	Maximised Cont.
				£ 600,000.00	Less: Total FC
				£ 167,857.14	Maximised Profit

d) If a further 8,000 hours become available, calculate the increase in profit that would arise. (LO 2.5)

If there is an extra 8,000 Hrs. available then the profit will arise by: -

8,000 hrs. * 0.71 = £5,714.29

Increase in profit is by £5,714.29 (Alino & Schneider, 2012)

Task 5

a) Board of BRUNEI CO. Ltd wants you explain the differences between these budgeting methods and to advise which one will be more appropriate to which type of business (LO 3.1)

• Incremental: The management of BRUNEI Co. make use of their previous year's information or figures for the purpose of preparing their budget for current year. In previous year budget they made effective changes on the basis of required improvements, current trend as well as changes in the market. These changes shows increment in their budget and with this effect budget get known as incremental budget (Kurunmäki & Miller, 2011).
• Zero based: The management of BRUNEI Co. prepare the budget with the fresh figures no information related to their previous year get utilised. They are not allowed to make use of previous year's figures for preparing their current year budget. New organisation follows this method for preparing their budget (Kurunmäki & Miller, 2011).
• Fixed: The management of BRUNEI Co. prepare budget report for one time and it get followed by them for a longer time period. There is no change is made into it and most of the time it provide rigidity among organisation.
• Flexible: The management of BRUNEI Co. prepare budget in the starting of the year and make effective changes into it for the purpose of attain desired results from it. With the use of this method management as well as organisation attain high level of flexibility and helps in attaining desired benefits from it (Easterday & Eaton, 2012).

b) You are required to perform the below listed tasks help the board of BRUNEI CO. understands the cash flow and how they can be managed to improve efficiency within the Working Capital:

(i) Calculate the amount of direct materials purchases in each of the month of July, August and September. (LO 3.2)

The amount of direct materials purchases in each of the month is as follows such as:

		July	Aug	Sept
		£	£	£
	closing stock	11500	16000	13000
add	usage	22000	28000	32000
		33500	44000	45000
less	opening stock	16000	11500	16000
	material purchase costs	£ 17,500.00	£ 32,500.00	£ 29,000.00

(ii) Prepare the cash budgets for July, August and September. (LO 3.1, 3.2 and 3.3)

Cash budget for the three months such as July, August and September is as follows such as:

		July	August	September
	Receipts	£	£	£
	cash sales	43500	48000	57000
	receivables	60000	101500	112000
	Total Receipts	103500	149500	169000
	Payments
	wages	38000	42000	47500
	overheads	16000	20500	24500
	purchase of direct materials	17500	32500	29000
	tax bill			78000
	Total Payments	71500	95000	179000
	Net Receipts/ (Payments)	32000	54500	-10000
	Opening Cash Balance	15000	47000	101500
	Closing Cash Balance	47000	101500	91500

(iii) Describe briefly the advantages of preparing cash budgets. (LO 3.1, 3.2 and 3.3)

The advantages of preparing cash budgets are as follows:

• Cash in hand get managed in effective manner.
• It build savings habit.
• Unnecessary expenses get minimised.
• Financial awareness get increased among management.
• The balance between cash inflows and cash outflows get managed in effective manner.
• It reduces the chances of getting out of liquid funds.
• It make the organisation's liquid position strong (M Peter 2010).

(iv) Assess and advise the Board for any changes which should be made to improve the cash flow variances. (LO 3.4)

• Analysis over the prepared cash budget: As per the prepared budget it get analysed that there is effective level of increase among revenues and expenditure. But the difference is the rate of speed of increase in revenues is bit slower as compare to increase in expenditure. Management need to maintain the balance between the cash inflows as well as cash outflows. For this purpose they need to increase the level of their revenue earning capacity as well as slow down the increment of their expenditure. With the effect of it they become able to manage their cash (M Peter 2010).
• Recommendations to improvements such as: Management need to lower down their prices but have to increase their product qualities to increase their sales.

They need to shorten the time period for their debt collection to increase the level of their revenues earned.
There is requirement of enhancing their credit policy for the purpose of better cash inflows.
They need to restrict the unnecessary spending that results into huge savings.
In order to lower down the ratio of salaries and wages they need to hire skilled labour that helps in making effective savings (M Peter 2010).

Task 6

(i) Prepare a flexed budget and calculate the total variances (LO 4.1, 4.4)

Flexed budget as well as calculation of total variances is in below table such as:

	Particulars	original budget	flexed budget	actual budget	variances
	sales units	8100	8400	8400
	production units	8900	9100	9100
		£	£	£	£
	Sales	793800	823200	798000	-25200	adverse
	Materials	195800	200200	170455	29745	favourable
	Labour	267000	273000	244515	28485	favourable
	variable overheads	106800	109200	89348	19852	favourable
	fixed overheads	160200	163800	136074	27726	favourable
	production cost	729800	746200	640392
	less closing inventory	65600	57400	57400
less	cost of sales	664200	688800	582992
	Profit	129600	134400	215008	80608	favourable

(ii) analyse each of the cost variances clearly identifying possible causes of these variances and recommend corrective action for the identified variances (LO 4.2, 4.3)

a. Materials

Material price variance			£
actual cost of material for 36464 kg			£ 170,455.00
36464 kg @ std cost of £5.50/kg			£ 200,552.00
			£   30,097.00	Fav.
material usage variance (explain)
actual usage			36464	Kg
std usage for the actual production
	9100 @ 4kg		36400	Kg
			-64	Adv
		at std cost of £5.50	-£        352.00	Adv
total material variance=30097-352=			£   29,745.00	Fav.

Particulars	Variances	F or UF	Causes	Actions
Material price	£   30,097	F	Availability of low quality material. Unnecessary wastage get increased. Fluctuations in its prices	Purchase good quality material Allocate raw-material following EOQ method Follow quality standards.
Material usage	64 kg	A

b. Labour

Particulars			£
Labour rate variance
actual hours paid at actual cost			244515
actual hours at std cost (46400 hrs @£5)			232000
			-12515	A
labour idle time variance
	no. of actual labour hrs paid		46400
	no. of actual labour hrs worked		45100
			1300
1300 hrs @ std cost of £5			-6500	A
labour efficiency variance
			Hrs
actual hrs worked			45100
std hrs worked on actual production
	9100*6		54600
			9500	F
	9500 hrs @ std cost		£ 47,500.00	F
total labour variance=		47500-6500-12515 =	£ 28,485.00	F

Particulars	Variances	F or UF	Causes	Actions
Labour rate variance	-12515	A	High adverse labour idle time. Increase in the over shift work Increase in unskilled labour ratio. High fluctuation in labour rates	Minimise the idle time ratio. Remove over shift facility Introduce new machinery. Focus on hiring skilled labours
Labour idle time variance	-6500	A
Labour efficiency variance	47,500	F

c. Variable overheads

Variance Overhead			£
actual hours worked@ actual cost			89348
actual hours worked@ std cost		45100*£2	90200
			£      852.00	F
variable overheads efficiency variance
actual hours worked			45100
std hrs for the actual production		9100*6	54600
			9500
	at std cost@ £2		£ 19,000.00	F
total variable overheads variance= 852+19000=			£19852	F

Particulars	Variances	F or UF	Causes	Actions
Variable overhead capacity	£852	F	Available resources utilised in adequate manner. Set plans get followed in effective manner.	Build adequate contract that helps in reducing price fluctuations. Allocate resources in efficient manner.
Variable overhead efficiency	£19,852	F

d. Fixed overheads

fixed overheads variance		Calculation	Results
			£
actual fixed overheads			136074
original budget total			160200
			£ 24,126.00	F
capacity variance			Hrs
actual hours worked			45100
budgeted hours		8900*6	53400
			8300	A
	at std cost of £3	8300*£3	£ 24,900.00	A
fixed overheads efficiency variance
actual hours worked			45100
std hrs worked for the actual production
		9100*6	54600
			9500	F
	at std cost of £3	9500*£3	£ 28,500.00	F
total fixed overheads variance		24126-24900+28500 =	£ 27,726.00	F

Particulars	Variances	F or UF	Causes	Actions
Fixed overhead variance	£ 24,126	F	Management having poor estimations. The accuracy level of available information is not adequate.	Put emphasis over facts and figures for decision making process. Review the information reliability before using.
capacity variance	£24,900	A
Fixed overhead efficiency	28,500	F

e. Sales variance

Sales price variance		Calculation	Results
			£
actual sales at actual selling price			798000
actual sales at std selling price		8400*98	823200
			-25200	A
sales volume variance			units
	actual sales		8400
	budgeted sales		8100
			300	F
profit (std profit of £129600/8100) = £16			£ 4,800.00	F

Particulars	Variances	F or UF	Causes	Actions
Sales price variance	25,200	A	Fall in the prices of product. Product get sold over high discount rates. Set prices get affected due to substitute products.	Improve the quality of products. Set prices by reviewing competitors prices.
Sales volume variance	300	F

e. Prepare a statement reconciling the budgeted profits to the actual profit

Reconciliation statement of the variances such as:

Particulars	£	£
Budgeted profits		£ 129,600.00
Budgeted fixed production overheads		£ 160,200.00
Budgeted contribution		£ 289,800.00
Selling Price Variance	-£   25,200.00
Sales Volume Variance	£     4,800.00	-£   20,400.00
Actual sales minus the standard variable cost of sales		£ 269,400.00
Variable cost variances:
Material price variance	£   30,097.00
Material usage variance	-£        352.00	£   29,745.00
Labour rate	-£   12,515.00
Labour idle time	-£     6,500.00
Labour efficiency	£   47,500.00	£   28,485.00
Variable cost variances	£        852.00
Variable efficiency	£   19,000.00	£   19,852.00
Actual Contribution		£ 347,482.00
Budgeted Fixed Production Overheads	-£ 160,200.00
Fixed cost expenditure variance	£   24,126.00
Capacity Variance	-£   24,900.00
Fixed cost efficiency variance	£   28,500.00
Actual Fixed Production Overheads		-£ 132,474.00
Actual Profit		£ 215,008.00

(iii) Report these findings to the board in accordance with identified responsibility centres. (LO 4.5)

To,
The Board of Directors,
BRUNEI Co.
Subject: - Report on variances
Date: - XX-XX-XXXX
Sir/Madam,
This report is represented in order to aware about the overall performance of the organisation. The results of variance analysis showcase that different requirements require adequate level of improvements. These variances get utilised for the effective decision making and for these variances different departmental managers are responsible such as:

Variance	Responsible manager
Material variance	Production manager
Labour Variance	Labour manager or Human resource management
Variable overhead	Departmental managers
Fixed overhead	Departmental managers
Sales variance	Sales manager

Conclusion: Management of BRUNEI Co. need to emphasis over their performance enhancement. On the basis of calculated variances management need to put emphasis over improving the performance of the different department as per their variance level. Management need to focus over motivated their employees so that they perform their efficiently.
From:
Management Accountant
(Pilleboue, et. al., 2015)

Task 7

(a) Calculate, both in number of units sold and sales value, the (LO 5.1):

(i) Breakeven point

Breakeven point = Total Fixed cost / Contribution per unit

Total fixed cost = salaries & wages + rent & rates + other fixed costs

= £260,000 + £75,000 + £345,000

Total fixed cost = £680,000

Contribution per unit = Per unit selling price - Per unit buying price

Per unit selling price = £68

Per unit buying price = £53

Contribution per unit = £68 - £53 = £15

Breakeven point = £680,000/ £15 = 45,333.33 units

Breakeven point = Fixed cost/ PV ratio

Fixed cost = = £260,000 + £75,000 + £345,000 = £680,000

PV ratio = Per unit contribution / Selling price per unit * 100

= £15/ £68 * 100 = 22.06%

= £680,000 / 22.06%  = £3,082,502

Breakeven point = £3,082,502 (Simakov, et. al., 2015)

(ii) Margin of safety

Margin of safety = Total sales - breakeven point

Total sales = 56,000 * 68 = £3,808,000

Break-even point = £3,082,502

Margin of safety = £3,808,000 - £3,082,502 = £725,498

Margin of safety = £725,498 (Simakov, et. al., 2015)

(b) Calculate the shop’s profit or loss if 40,500 pairs of shoes were sold during a year. (LO 5.1)

In the below table calculation of profit or loss over sale of 40,500 pairs of shoes such as:

Particulars	Calculation	Amount
Sales (A)	(40,500 units* £68)	£2,754,000
Purchase price (B)	(40,500 units* £53)	£2,146,500
Contribution (A -B = C)	(40,500 units * £15)	£607,500
Fixed cost (D)	NA	£680,000
Profit/Loss (C - D)	NA	(£72,500)

With the sales of the 40,500 pairs of shoes there will be  loss of £72,500 (Li, et. al., 2014)

(c) Calculate how many pairs of shoes would need to be sold if a sales commission of £2per pair of shoes was paid in addition to other costs and the owner required a net profit of £180,025. (LO 5.1)

Formulae of revised sales = Total fixed cost + desired profit / revised contribution

Fixed cost = £680,000

Desired profit = £180,025

Revised contribution = £15 - £2= £13/ unit

Revised sales = (£680,000 + £180,025) / £13 = 66,156 units.

In the below table above revised sales is tested whether it is correct or not such as:

Particulars	Calculation	Amount
Sales (A)	(66,156 units * £68/ unit)	£4,498,603
Purchase price (B)	(66,156 units * £55/ unit)	£3,638,580
Contribution (A -B = C)	(66,156  units * £13/ unit)	£860,027
Fixed cost (D)		£680,000
Profit/Loss (C - D)		£180,025

The revised sales of 66,156 units results into attaining a additional profit of £180,025. (Li, et. al., 2014)

(d) Calculate how many pairs of shoes would need to be sold to breakeven if an advertising campaign costing £25,000 was undertaken while, at the same time, selling prices were increased by 10%. (LO 5.1 and 5.2)

There is increment in selling prices by 10% so new selling price is = £68 + (£68* 10%) = £74.8

New contribution = New selling prices - Buying prices

= £74.8 - £53 = £21.8

New fixed cost = £680,000 + £25,000 = £705,000

New breakeven point = (£705,000 / £21.8) = 32,340 units or 32,339.45 units

If there is increase in selling price by 10% and fixed cost get increased by £21.8 as advertising campaign then the new break-even point is 32,339.45 units (Li, et. al., 2014).

(e) Recommend and justified appropriate action to improve the financial performance of Indo Ltd in order to improve its profitability using the answers in part d. (LO 5.2)

The calculation made in the above sections helps in analysing that break-even point get decreased with the increase in the selling price. Earlier the breakeven point was 45,333.33 units that get reduced to 32,339.45 units by increasing the selling price by 10% only. By increasing selling price they recover their incurred cost at rapid pace. Breakeven point is at par situation in which organization didn't get losses nor earn profits. When the breakeven point is low then organisation having chance to earn high profits and vice-versa. So it recommended to increase their selling process along with adopt the marketing campaign (Li, et. al., 2014).

Conclusion

It is concluded that BRUNEI Co. utilised different budgeting method to make adequate use of their available finance. They make cost classification in order to make best utilisation of their cost. They make different use of their prepared budget such as they evaluate performance, extract useful information in their decision making process and many more. They follow the prepared budget in order to process the activities systematically and as per their desired level. In the end they perform variance analysis for the purpose of evaluating their performance so that they make improvements in their processing.

References

Alino, N.U. & Schneider, G.P. 2012, "Conflict reduction in organization design: budgeting and accounting control systems", Academy of Strategic Management Journal, vol. 11, no. 1, pp. 1.
Anessi-Pessina, E., Barbera, C., Sicilia, M. & Steccolini, I. 2016, "Public sector budgeting: a European review of accounting and public management journals", Accounting, Auditing & Accountability Journal, vol. 29, no. 3, pp. 491-519.
Brook, D.A. 2012, "Budgeting for national security: a whole of government perspective", Journal of Public Budgeting, Accounting & Financial Management, vol. 24, no. 1, pp. 32.
Butt, M. 2010, "Variance analysis", Accounting, Auditing & Accountability Journal, vol. 23, no. 6, pp. 816-816.
Easterday, K.E. & Eaton, T.V. 2012, "Double (accounting) standards: a comparison of public and private sector defined benefit pension plans", Journal of Public Budgeting, Accounting & Financial Management, vol. 24, no. 2, pp. 278.