Cost and Management Accounting - Cost Accounting Assignment Help

Assignment Task

Learning aim A

P1 Explanation of different types of costs and costing methods. The difference between cost and management accounting are:
Basis of distinction Cost accounting Management accounting
Scope It is limited in scope that provides information about the cost related to managerial application and decision making (GOVDYA and KHROMOVA, 2018). It has a broader scope catering to all internal information.
Techniques involves Standard costing, variance analysis. Ratio analysis, fund flow statement

The different types of costs are –
Fixed Cost: This cost does not change with variable output. Fixed cost includes insurance premium, legal charges.
Variable Cost: This cost is dependent upon the total output produced. For higher production run, more variable costs shall be incurred and vice versa.
Sunk Cost: Costs that are incurred by the business which cannot be recovered is known as sunk costs.
Opportunity Cost: Costs which is the next possible alternative that is foregone is known as opportunity costs.

The two popular costing methods are-
Absorption costing: Absorption costing is used for allocation of fixed overhead costs for each unit of total product produced during the period (Goliguzova, 2017).
Marginal costing: Marginal costing uses variable costs that is allocated for charging costs units and forced cost for the year. It is used for writing off the contribution margin of the product.
P2 Calculation of absorption and marginal costing statementCalculation of appropriated budgeted overhead absorption rate
Basis of appropriation Machining Finishing Canteen Repairs Total
Factory rent Floor area sq mt 300 600 240 60 1200
Machine depreciation Machine value 360 180 24 36 600
Staff welfare No. of employees 60 300 24 36 420
Total after primary apportionment 720 1080 288 132 2220
Basis of appropriation Machining Finishing Canteen Repairs Total
Total after primary apportionment 720 1080 288 132 2220
Canteen 86.4 144 -288 57.6 288
Repairs 92.4 26.4 13.2 -132 132
Total overhead to production centers 898.8 1250.4 13.2 57.6 2220
Budgeted overhead absorption rate
Machining = 898.8/500000 = £0.0017976 per machine hour
Finishing = 1250.4/50000 = £0.025008 per machine hour
Calculation of selling price
Direct material 210000
Direct labor
-Machining department 10000*40 400000
-Finishing department 12000*50600000
Mark-up (850000*0.30)25500
Selling price1105000
M1 Application of absorption and marginal costing techniques for decision-makingAbsorption Costing Income Statement
Sales (80000*15)1200000
Less: Cost of Sales
Variable cost of production720000
Fixed overhead absorbed 320000
Profit160000
Marginal Costing Income Statement
Sales (80000*15)1200000
Less: Cost of Sales
Variable cost of production720000
Profit480000

Under Situation II, the offer should be accepted by the company due to increase in profits. No, the advice will not change if the customer is based in the domestic country.
Under Situation III, Aries company should purchase Component A and Component B from the suppliers due to lower purchased cost of AED 40 and AED 25 each as compared to manufacturing cost of AED 55 for Component A and AED 50 for Component B.
D1 Recommendation to improve financial performance of the businessLowering of operating expenses
Recovering of outstanding payments
Selling of unwanted or used assets
Raising of prices

Learning aim BP3 Calculation of sub-variance using standard costingMaterial price variance = (Actual unit cost - Standard unit cost) * Actual Quantity Purchased
= (12-11) *6000 = 6000
Material quantity variance = (Actual usage of quantity- Standard usage of quantity) * Standard cost per unit
= (8000-6000) *11 = 22000
Direct labour rate variance = (Actual hour* Actual rate)- (Actual Hour* Standard rate)
= (1600*25) -(1600*24) = 40000-38400 = 1600
Direct labour efficiency variance = (Actual hour- Standard hour) * Standard rate
= (1600-1800) *14.40 = -28800
Variable overhead spending variance = Actual hours worked x (Actual overhead rate - standard overhead rate)
= 1600 *(5-3) = 3200
Variable overhead efficiency variance = (Actual labour hour- Planned labour hour) * Standard variable overhead rate
= (1600-1800) *0.60 = 120
Total sales variance = (Actual Sale Price — Standard Sale Price) x Number of Units Sold
X = (4500-2000) *1800 = 4500000
Y = (11550-9000) *4200 = 10710000
Sales price variance = Actual quantity sold *(Actual selling price- Planned Selling price)
X = 1800*(2.50-2) = 900
Y = 4200 *(2.75-3) = -1050
Sales volume variance = (Actual Units sold - Budgeted units sold) x Price per unit
X = (1800-1000) *2.50 = 2000
Y = (4200-3000) *2.75 = 3300
M2 Analyze the reason for the variance

The occurrence of variance is due to changes in the actual and budgeted figures in terms of direct materials, direct labors and overheads (Taschner and Charifzadeh, 2020). The budgeted figures are planned before the commencement of the financial period which are changed during the year with regards to change in the market price, changes in the labor hour rates, non-availability of quality products for materials and many more.

Learning aim CP4 Explain budgeting used for financial planning and control1. After evaluation of financial information, the following sales budget is presented:
Sr No. Particulars Jan Feb Mar Apr May
A Sales 2000 2000 2100 1900 1800
B Price per unit $160 $160 $160 $160 $160
C Total gross sales (A * B) $320,000 $320,000 $336,000 $304,000 $1,280,000
D Sales discount and allowance $3,200 $3,200 $3,360 $3,040 $12,800
E Total net sales (C - D) $316,800 $316,800 $332,640 $300,960 $1,267,200
2. With respect to the sales budget, the collection for the Month of March is calculated below:
Mar
Sales 2100
Price per unit $160
Total gross sales (A * B) $336,000
Sales discount and allowance $3,360
Total net sales (C - D) $332,640
3. After evaluation of financial information, the following production budget is presented:
Particulars Jan Feb Mar Apr May
Sales 2000 2000 2100 1900 1800
Add: Desired ending inventory 1000 800 900 700 600
Total needs 3000 2800 3000 2600 2400
Less: Beginning inventory 1000 1000 1000 1000 1000
Required production 2000 1800 2000 1600 1400
4. In regards to the production budget, it is clearly identified that 2000 units of direct material are required for the month of March.
5. The above budget is showing 900 units that need to be purchased by the company in March.
6. The cost of direct material in March is 900 * 8 = 7,200.
7. The budgeted cost of direct material used is 2,100 * 8 = 16,800.
8. The calculation of direct labour required for the activities in March is 2,100 * 18 = 37,800.
9. The current budgeted cost regarding direct labour is 2,100 * 6 = 12,600.
10. In regards to factory overhead, a total of 2,100 * (6 + 9) = 31,500 will be required in the month of March.
11. The calculation of budgeted cost of goods sold is 2,100 * (27 + 30) = 119,700.
P5 Preparation of master budget 12. The simple budgeted income statement is given in the tabular form

Particulars March
Sales $336,000
Less: Cost of goods sold $119,700
Gross profit $216,300
Direct material $37,800
Direct labour $37,800
Total expenses $75,600
Net income $140,700
M3 Assess the viability of the completed budgetThe presented budgeted income statement is viable as all the financial information is used from the case study transactions. Therefore, it is clearly identified that the calculation provided in the above statement is accurate and it is showing the actual results.
D2 Evaluation of usefulness of the costing systemThe following usefulness of costing is determined:
i) Costing is capable of determining the cost of each production unit which helps to set a profitable product price (Fu et al. 2020).
ii) Costing is able to identify the actual source of cost so the senior executives can mitigate it.
The following usefulness of budgetary control system is realized:
i) Budgetary control system enables a business concern in which the staff members are forced to complete daily financial activities in an efficient way.
ii) Based on the budgetary control system, resources in the organisation can be utilised properly by the management (Egbunike and Unamma, 2017).

Learning aim DP6 Application of investment appraisal methods (a) Payback Period

Proposal A
Year Cash Flow Net Cash Flow
2020 -20000 -20000
2021 500 -19500
2022 2000 -17500
2023 3500 -14000
2024 2500 -11500
2025 0 -11500
The investment shall not be payable within 4 years. The average payback is $2125 per year in the initial 4 years. The payback period is 9.412 years.

Proposal B
Year Cash Flow Net Cash Flow
2020 -28000 -28000
2021 0 -28000
2022 3400 -24600
2023 3400 -21200
2024 3400 -17800
2025 3400 -14400
The investment shall not be payable within 5 years. The average payback is $2720 per year in the initial 5 years. The payback period is 10.294 years.
(b) Average rate of return
Proposal A
Year Cash Flow Working Capital Depreciation Net Cash Flow
2020 -20000 2000 2000 -20000
2021 500 2000 2000 500
2022 2000 2000 2000 2000
2023 3500 2000 2000 3500
2024 2500 2000 2000 2500
2025 0 2000 2000 0
Average Net Profit -11500
ARR = 11500/20000 *100% = 57.5%
Proposal B
Year Cash Flow Working Capital Depreciation Net Cash Flow
2020 -28000 2000 2800 -28800
2021 0 2000 2800 -800
2022 3400 2000 2800 2600
2023 3400 2000 2800 2600
2024 3400 2000 2800 2600
2025 3400 2000 2800 2600
Average Net Profit -19200
ARR = 19200/28000 *100% = 68.5%
(c) Net present value
Proposal A
Year Cash Flow Discounting factor Net Cash Flow
2020 -20000 1 -20000
2021 500 0.91 455
2022 2000 0.83 1660
2023 3500 0.75 2625
2024 2500 0.68 1700
2025 0 0.62 0
Net present value -13560
Proposal B
Year Cash Flow Discounting factor Net Cash Flow
2020 -28000 1 -28000
2021 0 0.91 0
2022 3400 0.83 2822
2023 3400 0.75 2550
2024 3400 0.68 2312
2025 3400 0.62 2108
Net present value -18208
P7 Explanation of non-financial factors affecting capital investment proposalsThe non-financial factors that must be considered for determining the capital investment are-
Fulfilling with the requisites of the present and future legislation
Matching with the industrial standards and following good corporate practices
Improved relationship with suppliers and customers (Wang et al., 2018)
Improved business goodwill and relationship with the local environment
M4 Analysis of results for decision-makingFrom the computation of PB, ARR and NPV, it can be observed that both the proposals should be rejected by Sunbright manufacturing LLC due to poor performance. According to PB period, Proposal A and B shall not bring back the initial investments of 20000 and 28000 within 4 and 5 years respectively. Based on NPB, both the results are negative signifying higher CO than CI. According to ARR, Proposal B is better in terms of return to be earned at the end of 5 years which is 68.5% as compared to Proposal A after 4 years which is 57.5%.

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