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Management accounting - Assignment Example

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235   Fixed overhead volume efficiency 378   Fixed overhead volume capacity 516     ----------- -----------     2129.1 325.5     (2129.1)     ----------     (1803.6)             ------------ Computation of the Unit Cost Units (Kg/Number of labour) Total cost (?) Per unit cost (?) Total Production (units) Units required for actual Standard production Units required for Standard Direct Material M3 1050 1680 1.6 2100 0.5 2130 1065 Direct Material M7 1470 2793 1.9 2100 0.7 2130 1491 Labour 525 3675 7 2100 0.25 2130 532.5 Variable production overhead 1260 2100 based on labour hours 2130 532.5 Fixed production overhead 4725 2100 based on labour hours 2130 532.5 Profit calculation of actual units: Sales (2100 x ?14.5) ? 30,450 Direct Material M3 (? 1,680) Direct Material M7 (? 2,793) Direct Labour (? 3,675) Variable production overhead (? 1,260) Fixed production overhead (? 4,725) Net Income 16,317 Profit calculation of budgeted profits: Sales (2130 x ?15) ? 31,950 Direct Material M3 (1065 x ?1.55) (? 1,650.75) Direct Material M7 (1491 x ?1.75) (? 2,609.25) Direct Labour (532.5 x ?7.2) (? 3,834) Variable production overhead (532.5 x ?2.1) (? 1,118.25) Fixed production overhead (532.5 x ?9) (? 47922.5) Net Income ? 17,945.25 From the detailed analysis of the computations of the operating statements and the information provided by the company, it is evident that the company is producing and selling units less than its budgeted figures show. The variance analysis is the most commonly used tool for evaluating the performance of a business by comparing its costs and revenues against the industry standards (Needles, Powers & Crosson, 2011) and ensure that right steps are taken for any kind of deviations or variances so that it can make necessary changes and reap...
The main components of this statement are sales, cost of goods sold and expenses; the primary areas of focus are the revenue amount and expenses amount (Slater, 2012). Every organisation tries to keep a tight control on its expenses so that it can fulfil the requirements of its business effectively. Being a cost effective organisation allows the organisation to maintain a strong financial position and also with their savings they can work upon other business strategies such as expansion strategies and forming business units. For instance, if the equipment maintenance cost is increasing, then it can consider replacing it with a new one (Hansen, Mowen & Guan, 2009). Replacing with a new one may seem a heavy expense initially but when compared to the replacement costs on a constant mode, buying the new equipment would be a cost effective choice.
In every business, there are two main classifications of costs or expenses i.e. variable and fixed costs and they need to be adequately monitored so that sufficient amount of profit can be earned (Tulvinschi, 2010). All costs and expenses in the business need to be carefully recorded and analysed so that further decision making is according to the current financial scenario of the business. In the manufacturing business like Ash PLC, the variable cost is of utmost importance as it has to ensure that it can produce the units according to the industry standards and within its budget range. ...Show more

Summary

It is believed that ABC is a worthwhile replacement of traditional accounting systems that relied on the overhead costs of the businesses (such as lighting, marketing and heating) in which they allocated the costs in accordance to the direct cost of an activity…
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