Management Accounting - Quarterly Cash Budgets, Trading Profit and Summary of the Trading Operations - Report Example

Running Head: MANAGEMENT ACCOUNTING ASSIGNMENT Management Accounting Assignment of the Institute] (A) Quarterly cash budgets for the year to31st October 2014 Nov - Jan Feb-Apr May-July Aug-Oct Total Income Sales 1,563,333 2,000,000 1,416,667 1,120,000 6,100,000 Total Cash Inflow 6,100,000 Expenses Direct Material Payment 621,000 684,000 477,000 415,800 2,197,800 Direct Labour Payment 528,000 384,000 252,000 302,400 1,466,400 Fixed Production and administration overhead 198,000 144,000 94,500 113,400 549,900 Fixed Selling overhead 160,000 Loan Repayment 100,000 100,000 100,000 100,000 400,000 Interest 9,000 9,000 9,000 9,000 36,000 Total Cash Outflow 4,810,100 Opening Balance 25,000 Net Cash Flow 1,314,900 (B) The following data is a summary of the trading operations for the year ended 31st October 2014: £ £ Sales 6,110,000 Deduct: Direct materials 2,199,600 Direct labour 1,466,400 Fixed Production and administration overhead 549,900 Fixed Selling overhead 400,000 4,615,900 TRADING PROFIT 1,494,100 WORKING Per Unit Nov - Jan Feb-Apr May-July Aug-Oct Total Sales 100.00 2,200,000 1,600,000 1,050,000 1,260,000 6,110,000 Deduct: Direct materials 36.00 792,000 576,000 378,000 453,600 2,199,600 Direct labour 24.00 528,000 384,000 252,000 302,400 1,466,400 Fixed Production and administration overhead 9.00 198,000 144,000 94,500 113,400 549,900 Fixed Selling overhead 400,000 TRADING PROFIT 1,494,100 Usually the cash flows statements are require by the accounting personnel’s, investors, employees and so on. Basically it consists of three major activities: Operating activities Investing activities Financial activities. Operating activities: The cash flow statement in accounting consists of the operating activities, that are the activities belong to the sales purchase shipping of products, products advertising. The items of operating activities include: Net income Depreciation Non cash items Deferred tax Accrued items Amortization of interest. Investing activities: For the purchase of long term assets and the sale of long-term assets your company needs the investing activities, so all of the investing activities which the company has incurred in a specific period are included in the cash flow statement. It involves the current expenditures and investments which the company made in a specific period. Financial activities: Now coming towards the third part of the cash flow statement, which is the financial activity. It involves the outgoing cash flows and also the cash from banks and share holders, usually the dividend payments, sale and purchase of stocks and the borrowings from different financial institutions are recorded in the financial activities of cash flow. There are two methods for writing the cash flow statement this we called the cash flow statement directly or the cash flow statement indirectly. The direct method of cash flow statement don’t involves so many transactions it just started from the sales and ends by mentioning the income statement and the current assets and liabilities while the indirect methods of making the cash flow statement involves to start from the net profit or loss and then the adjustment of all non cash items. (C) The following data is a summary of the trading operations for the year ended 31st October 2014: £ £ Non-current assets at NBV 2,400,000 Current Assets: Closing inventory of finished goods 1,778,700 Trade receivables (debtors) 2,310,000 Cash and bank 1,314,900 5,403,600 Current liabilities: Trade payables (creditors) 226,800 Net current assets 5,176,800 Non-current liabilities: Long-term loan 1,500,000 Net Assets 6,076,800 Represented by: Equity Ordinary share capital 1,000,000 Retained Profit 5,076,800 Total Equity 6,076,800 Because the overall cost of funds in the typical community bank (including both interest and operating costs) often comprises over 80% of the institutions expense, managing this expense is very likely the single most important issue in accounting. This is especially true at the departmental level. With no generally accepted, single, "off-the-shelf" formula in use, companies attempt to set their transfer funds costs using a variety of methods. As a result, peer-performance comparisons are difficult, if not impossible. Often, the method that is finally selected is heavily influenced by its own philosophy of funds management, due to the absence of any industry-accepted standard. Even allowing for philosophical differences, however, I believe we need to consider the impact that their choice of method can have on planning efforts. The first step to determine funding cost is to compute its actual internal costs to generate funds. Often the data to generate this information are readily available in general ledger records, though digging is sometimes required. This produces your true "inventory" costs on an ongoing basis. This is commonly referred to as pool cost of funds. In the process of computing the cost, the total funds lose their individual identity, as all funds and their related costs enter the general pool of available funds. The total costs associated with the pool, are totaled, creating the overall costs of obtaining, maintaining, and servicing the pool of available funds. The second approach essentially "transfers" income from one side of the balance sheet to the other. As it rewards the fund suppliers at a markup over their actual cost to generate funds, this approach penalizes the fund users (earning asset departments) by charging for funds at this market cost. The difference between cost and market is often referred to as the "competitive advantage" (i.e., at how much less cost the branch network can generate funds when compared with the open market cost to purchase similar funds). Why use this method? Backers point out that using market pricing challenges earning asset departments to price their products at a level sufficient to absorb the "market" funds costs, plus departmental overhead. While various market sources can be applied, the most popular is probably the Treasury yield curve. Using an external market figure in place of your own costs to evaluate your inventory appears quite contrary to basic accounting standards. Equipped with the proper tools, a good accounting system and a solid understanding of your competitive market areas, the funds transfer credit choice becomes easier. Trying different approaches and viewing their results remains a very helpful exercise. However, bear in mind that when you decide on the correct approach, stick with it. As with any other major area in accounting, consistency is paramount. REFERENCES The Washington Post, p. A3, October 15, 1996. Institutional Investor, p. 61, December 1996. Newsweek, p. 54, September 9, 1996. Inc. Magazine, p. 32, December 1996. News Release, California Public Utilities Commission, CPUC-5, February 5, 1997 Principles of Accounting, Meigs and Meigs, 11th Edition. Read More