Management Accounting And Budgeting For A Manufacturing Company

Business Overview

Management accounting is required for every comapny to manage the performance and the position of the comapny. These reports are prepared by every organization to manage and maintain the stability of the company. Various statements and reports are prepared for this report to manage the activities and the functions of the company (Gitman and Zutter, 2012). Managerial accounting is used by the managers to use the accounting information and the provisions of the comapny in order to analyze the performance of the comapny and make a better decision. Management accounting is the provision of non financial and financial decision making knowledge to the top level management of the company.

Business overview:

In this report, a manufacturing comapny has been taken into consideration which mainly operates its business into labelling the products. This business contracts with the manufacturing comapny and attach the label on their product. Basically, the companies outsource some manufacturing work to this comapny. This company is operating its business into the market of the Australia. And it labels the products according got the requirement of its clients. This company is performing well in the market and it would grab the more market share in future.

In this report, manufacturing accounting statements has been prepared over the comapny to analyze the total cost, total profit, selling price, budgeting reports etc of the company. These reports would help the management accountant to make a better decision about the performance and the further decision about the stability, changes etc in the comapny.

Statement of cost card:

Cost card is a Performa which depict the comapny and the management about the total cost of a comapny. Cost card is useful for every organization to identify the total cost and make a better decision on the basis of that. This cost card helps the organization to analyze the cost and make better decision about the reduction of the cost (Kaplan and Atkinson, 2015).

The statement of cost card of the company is as follows:

Statement of cost card
Direct Material	£   3.00
Direct Labour	£   5.00
Prime cost	£   8.00
Variable production OH	£   2.50
Marginal production cost	£ 10.50
Fixed production OH	£   5.00
Total production cost	£ 15.50
Total cost	£ 15.50

Through this statement, it has been analyzed that the direct material cost of the comapny is £ 3 per unit, direct labour of the comapny is £ 5 per unit. Thus the prime cost of the comapny is £ 8 per unit. At the same time, the variable and fixed production OH of the comapny is £ 2.5 and £ 5 per unit and thus the total production cost is £ 15.5 (Lafond and Roychowdhury, 2008).

Statement of Cost Card

Direct material and direct labour cost is the direct cost which incurs while preparing the labels and attaching them. These costs are variable in the nature. Further the production cost could be variable and fixed cost these depend over the production process of a comapny.

Statement of profit:

Further, the profitability position of a comapny depict about the total net profit which could be earned by a comapny after analyzing and evaluating the entire cost. This profitability statement depicts that if one unit would be sale than how much the total profit of the comapny would be (Nobes and Parker, 2008).

The profitability position of this company has been analyzed. The statement of profit is as follows:

Calculation of Total profit
Total cost	£ 15.50
Add: Profit @ 20%	£   3.10

The total cost of the comapny is £ 15.50 and according to the case 20% of total cost would be the profit of the comapny and thus the total profit of the comapny per units is £ 3.10. This report briefs that the profitability position of a comapny helps the management of the comapny to make better decision about the performance and the position of the comapny.

Statement of selling price:

 Further, the selling price per unit of a comapny depict about the total price which would be charged by a comapny to its clients against the products and the services. This statement of analyzing the selling price depicts that what would be the price of each unit of the comapny.

The selling price of this company has been analyzed. The statement of selling price is as follows:

calculation of selling price per unit
Total cost	£ 15.50
Add: Profit @ 20%	£   3.10
Sales	£ 18.60

The total cost of the comapny is £ 15.50 and according to the case 20% of total cost would be the profit of the comapny and thus the total profit of the comapny per units is £ 3.10. And thus the total selling price of the comapny is £ 18.60.

Budgets:

Budgets are a blue print which is prepared by the companies to analyze and evaluate the predictions regarding the sales, production level, price, profitability, labour etc. Budgets report are mainly prepared and presented by the accountants to analyze and evaluate the performance, sales, profit, stability etc of a company (Brown, Beekes and Verhoeven, 2011).

The study and calculation over sales budget of a comapny is as follows:

Sales budget:

Sales budget of the comapny is as follows:

Sales Budget
	Jan	Feb	Mar	Apr	May	Jun
Sales Units	2000	2100	2200	3000	3300	4000
Selling Price	£   18.60	£   18.60	£   18.60	£   18.60	£   18.60	£   18.60
Sales	£ 37,200	£ 39,060	£ 40,920	£ 55,800	£ 61,380	£ 74,400

This depict that the sales of the comapny would exceed from January to June. The comapny would perform better in the future.

Statement of Profit

Production budget:

Production budget of the comapny is as follows:

Production Budget
	Jan	Feb	Mar	Apr	May	Jun
Sales Units	2000	2100	2200	3000	3300	4000
Less: opening stock	£              –	£              –	£              –	£              –	£              –	£              –
Add: Closing stock	£              –	£              –	£              –	£              –	£              –	£              –
Production units	2000	2100	2200	3000	3300	4000
Production cost	£        15.50	£        15.50	£        15.50	£        15.50	£        15.50	£        15.50
Production cost	£      31,000	£      32,550	£      34,100	£      46,500	£      51,150	£      62,000

This depict that the production cost of the comapny would exceed from January to June. The enhancement in the production cost has been done due to the increment in the sales level of the comapny (David, 2011).

Direct material budget:

Direct material budget of the comapny is as follows:

Direct Material Budget
	Jan	Feb	Mar	Apr	May	Jun
Production units	2000	2100	2200	3000	3300	4000
Less: opening stock	£              –	£              –	£              –	£              –	£              –	£              –
Add: Closing stock	£              –	£              –	£              –	£              –	£              –	£              –
Material units	2000	2100	2200	3000	3300	4000
Material cost	£               3	£               3	£               3	£               3	£               3	£               3
Direct material cost	£        6,000	£        6,300	£        6,600	£        9,000	£        9,900	£      12,000

This depict that the direct material cost of the comapny would exceed from January to June. The enhancement in the material cost has been done due to the increment in the production level of the comapny.

Direct Labor Budget:

Direct labour budget of the comapny is as follows:

Direct Labour Budget
	Jan	Feb	Mar	Apr	May	Jun
Production units	2000	2100	2200	3000	3300	4000
Labour hour per unit	1	1	1	1	1	1
Labour cost	£               5	£               5	£               5	£               5	£               5	£               5
Direct labour cost	£      10,000	£      10,500	£      11,000	£      15,000	£      16,500	£      20,000

This depict that the direct labour cost of the comapny would exceed from January to June (FIRRER et al, 2012). The enhancement in the labour cost has been done due to the increment in the production level of the comapny.

Variable OH budget:

Variable production overhead of the comapny is as follows:

Variable OH Budget
	Jan	Feb	Mar	Apr	May	Jun
Production units	2000	2100	2200	3000	3300	4000
Variable cost per unit	£               3	£               3	£               3	£               3	£               3	£               3
Variable cost	£        5,000	£        5,250	£        5,500	£        7,500	£        8,250	£      10,000

This depict that the variable OH cost of the comapny would exceed from January to June. The enhancement in the variable OH cost has been done due to the increment in the production level of the comapny (Davies and Crawford, 2011).

Fixed OH budget:

Fixed OH budget of the comapny is as follows:

Fixed OH Budget
	Jan	Feb	Mar	Apr	May	Jun
Production units	2000	2100	2200	3000	3300	4000
Fixed cost per unit	£               5	£               5	£               5	£               5	£               5	£               5
Fixed cost	£      10,000	£      10,500	£      11,000	£      15,000	£      16,500	£      20,000

Operational Budget:

Operational budget of the comapny is as follows:

Operational Budget
	Jan	Feb	Mar	Apr	May	Jun
Sales Units	2000	2100	2200	3000	3300	4000
Selling Price	£        18.60	£        18.60	£        18.60	£        18.60	£        18.60	£        18.60
Sales	£      37,200	£      39,060	£      40,920	£      55,800	£      61,380	£      74,400
Less:
Direct Material	£        6,000	£        6,300	£        6,600	£        9,000	£        9,900	£      12,000
Direct Labour	£      10,000	£      10,500	£      11,000	£      15,000	£      16,500	£      20,000
Variable production OH	£        5,000	£        5,250	£        5,500	£        7,500	£        8,250	£      10,000
Fixed production OH	£      10,000	£      10,500	£      11,000	£      15,000	£      16,500	£      20,000
Total cost	£      31,000	£      32,550	£      34,100	£      46,500	£      51,150	£      62,000
Profit	£        6,200	£        6,510	£        6,820	£        9,300	£      10,230	£      12,400

(CORREIA et al, 2013)

This depict that the total profit of the comapny would exceed from January to June. The enhancement in the profit level has been done due to the increment in the sales level of the comapny (Deegan, 2013).

Variance analysis:

Variance analysis is the study which depict about the differences in the expected and actual result of a comapny, this study helps the comapny to make better decision and analyze the changes which must be concerned while preparing the next budgets. The importance of the variance analysis is as follows:

1. Performance management:
2. Management of exemption:
3. Responsibility accounting (Du and Girma, 2009)
4. Decision making:
5. Accurate result:
6. Future changes:
7. Better evaluation:
8. Efficient budgets:
9. Control
10. Better strategies plan (Garrison et al, 2010)

Above is few importance of the variance analysis which would help the organization into managing the activities and functions in a better way.

Management accounting benefits:

Managerial accounting is used by the managers to use the accounting information and the provisions of the comapny in order to analyze the performance of the comapny and make a better decision. Management accounting is the provision of non financial and financial decision making knowledge to the top level management of the company. The benefits of the management accounting are as follows:

1. Improve cash flows
2. Reduce expenses
3. Control (Van der Stede, 2001)
4. Increase financial returns
5. Better evaluation
6. Business decisions
7. Continuity and participation
8. Evolutionary state (Brealey, Myers and Marcus, 2007)

Above is the few importance of the management accounting which would help the organization into managing the activities and functions in a better way.

Conclusion:

In this report, various studies of management accounting has been done to analyze the various statements which has been prepared over the comapny to analyze the total cost, total profit, selling price, budgeting reports etc of the company. These statements have been prepared by the organization to help the management accountant to make a better decision about the performance and the further decision about the stability, changes etc in the comapny.

To conclude, management accounting plays a crucial role in the life of an organization. It helps the comapny to make various better decisions for the betterment of the business and its activities. Further, the various tools of the management accounting are very efficient to make a better decision about the performance, stability and future prediction about the comapny.

References:

Atrill, P. and McLaney, E.J., 2006. Accounting and Finance for Non-specialists. Pearson Education.

Brealey, R., Myers, S.C. and Marcus, A.J., 2007. FundamentalsofCorporate Finance. Mc Graw Hill, New York.

Brown, P., Beekes, W. and Verhoeven, P., 2011. Corporate governance, accounting and finance: A review. Accounting & finance, 51(1), pp.96-172.

CORREIA, C. et al. 2013. Financial Management. 7th Edition. Cape Town: Juta andCompany Ltd.2.

David, F.R., 2011. Strategic management: Concepts and cases. Peaeson/Prentice Hall.

Davies, T. and Crawford, I., 2011. Business accounting and finance. Pearson.

Deegan, C., 2013. Financial accounting theory. McGraw-Hill Education Australia.

Du, J. and Girma, S., 2009. Source of finance, growth and firm size: evidence from China (No. 2009.03). Research paper/UNU-WIDER.

FIRER, C. et al. 2012. Fundamentals of Corporate Finance. 5th Edition.Berkshire.McGraw-Hill Companies, Inc.

Garrison, R.H., Noreen, E.W., Brewer, P.C. and McGowan, A., 2010. Managerial accounting. Issues in Accounting Education, (25(4), pp.79(2-793.

Gitman, L.J. and Zutter, C.J., 2012. Principles of managerial finance. Prentice Hall.

Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.

Lafond, R. and Roychowdhury, S. 2008. Managerial ownership and accounting conservatism. Journal of accounting research, 46(1), pp.101-135.

Nobes, C. and Parker, R.H. 2008. Comparative international accounting. Pearson Education.

Van der Stede, W.A. 2001. Measuring ‘tight budgetary control’. Management Accounting Research, 1(2(1), pp.119-137.