- •Lecture Notes b.Devlin
- •Introduction
- •Management accounting
- •1 Financial accounting.
- •2 Management accounting
- •To provide information about product costing to be used in financial
- •To provide information for planning, controlling and organising.
- •To ascertain the cost of a product. This information is used to value stock which is required for external reporting .
- •To assist management in the decision-making process.
- •Marginal costing
- •Decision making
- •In the short-run all fixed costs remain unchanged and therefore treated as irrelevant.
- •Variable overhead
- •2 Shut-down decisions
- •3 Make or Buy
- •Variable overheads £2
- •Variable cost of production £7
- •Variable overhead £2
- •4 Limiting factor decisions
- •5 Profit Planning or cost profit volume analysis
- •Cost volume profit analysis
- •It is possible to ascertain these by using a break-even chart or by using formulae.
- •Budgeting
- •1. Sales Budget 19x0
- •Production budget 19x0
- •3. Materials Usage Budget 19x0 (Component usage)
- •4. The Material Purchase Budget 19x0
- •Cash summary December 19x0
- •Depreciation never appears in a cash budget as it is a non-cash expense.
- •In respect to credit transactions time lags have to be built into the cash budget
- •It is useful to have a memo column to record items which will appear in the balance sheet if required. Budgeted Profit and Loss Account for six months ending 30 June 19x1
- •Budgeted Balance Sheet as at 30 June 19x1
- •Investment appraisal methods
- •1 Payback
- •2 Accounting rate of return
- •Investment appraisal compares the cash outflows with the cash returns from the project and these cash flows take place over a lengthy period of time.
- •3 Net Present Value
- •6 Profitability Index
- •The costing
- •Overheads
- •Indirect materials used in Dept. B £35,000
- •Insurance of machinery £5,000
- •In the absorption stage an overhead recovery (absorption) rate (oar) is calculated. The formula used is:
- •30,000 Machine hrs.
- •35,000 Labour hrs.
- •In recent years there has been criticism of the traditional system of costing for overheads ( Kaplan & Cooper ). Traditional cost systems were designed when:
- •Information processing costs were high;
- •Inspection cost:
- •Standard costing
- •Variances represent the differences between standard costs and actual costs. The standard cost is what the cost is estimated to be and this is compared to what the cost is actually.
- •Variable Overhead Variance
- •Variable overhead efficiency variance
- •Responsibility accounting
- •It is a ‘ system of accounting that segregates revenues and costs into areas of personal responsibility in order to assess the performance attained by persons to whom authority has been assigned’.
- •Net Residual Income
Cash summary December 19x0
|
£ |
£ |
Proceeds from share issue |
|
600,000 |
Less Leasehold premises (20 years) |
300,000 |
|
Plant (est. life 10 years) |
80,000 |
|
Equipment (est. life 10 years) |
160,000 |
|
Tools |
20,000 |
|
Raw materials |
10,000 |
570,000 |
|
---------- |
---------- |
Cash balance available |
|
30,000 |
|
|
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You are given the following additional information.
Sales are budgeted as follows: £80,000 in January; £160,000 in February and £240,000 in subsequent months. Fifty per cent of the sales will be cash sales and the other fifty per cent credit sales. The period of credit extended to customes will be one month.
The cost of raw materials will amount to 40% of the sales revenue. Half the materials cost for any one month will be paid in cash; the other half will be paid for during the month of purchase.
The company intends to keep a stock of raw materials of £10,000 throughout the year.
Direct wages will be incurred at the rate of £50,000 per month. No time lag is expected here.
Other expenses- depreciation on premises, plant and equipment will be calculated on a straight-line basis.The tools will be re-valued annually and it is expected that annual losses will amount to 20 per cent. All other expenses will be incurred at the rate of £40,000 per month - the time lag here will be one month.
You are asked to prepare the company’s Cash budget, a budgeted Profit and Loss account for the first six months of operations and a budgeted Balance Sheet as at 30 June 19x1.
|
Jan |
Feb |
Mar |
Apr |
May |
Jun |
Memo |
|
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
Opening balance |
30 |
4 |
(14) |
16 |
70 |
124 |
|
Cash inflow |
|
|
|
|
|
|
|
Cash sales |
40 |
80 |
120 |
120 |
120 |
120 |
|
Credit sales |
|
40 |
80 |
120 |
120 |
120 |
120Dr |
|
------ |
------ |
------ |
------ |
------- |
------- |
|
Total |
70 |
124 |
186 |
256 |
310 |
364 |
|
|
------ |
------ |
----- |
----- |
------ |
------ |
|
|
|
|
|
|
|
|
|
Cash outflow |
|
|
|
|
|
|
|
Raw mats. -cash |
16 |
32 |
48 |
48 |
48 |
48 |
|
Raw mat. -credit |
|
16 |
32 |
48 |
48 |
48 |
48Cr |
Direct wages |
50 |
50 |
50 |
50 |
50 |
50 |
|
Other expenses |
|
40 |
40 |
40 |
40 |
40 |
40Cr |
|
------ |
------ |
------ |
------ |
------ |
------ |
|
Total |
66 |
138 |
170 |
186 |
186 |
186 |
|
|
------ |
------ |
------ |
------ |
------ |
------ |
|
Closing balance |
4 |
(14) |
16 |
70 |
124 |
178 |
|
|
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Students should note that: