Management Accounting - Assigment 2

BANKING ACADEMY, HANOI
BTEC HND IN BUSINESS (FINANCE)
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Unit 9: Management Accounting: Costing and Budgeting
Budgetary Planning and Control
2 of 2
Ms. Giang Dao Nam

We, __________________________ hereby confirm that this assignment is our own work and not
copied or plagiarized from any source. We have referenced the sources from which information is
obtained by us for this assignment.

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Unit Outcomes
Outcome

Evidence for
the criteria

Assessor’s decision

Feedback

First
attempt

Prepare
forecasts
and
budgets
for a
business
(3)

Monitor

performan
ce
against
budgets
within a
business

Explain the
purpose and
nature of the
budgeting
process

a

Select
appropriate
budgeting
methods for
the
organisation
and its needs

b

Prepare
budgets
according to
the chosen
budgeting

method

c

Prepare a
cash budget

d

Calculate
variances,
identify
possible
causes and
recommend
corrective
action

a

Prepare an
operating
statement
reconciling
budgeted and
actual results

b

Report

findings to
management
in accordance
with identified
responsibility
centres

c

(4)

Merit grades awarded

M1

M2

2

M3

Rework

Internal
Verification


Outcome

Evidence for

the criteria

Distinction grades awarded

Assessor’s decision

Feedback

D1

D2

D3

Assignment
( ) Well-structured; Reference is done properly / should be done (if any)
Overall, you’ve

Areas for improvement:

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Internal
Verification


SCENARIO
You are the management accountants of a group of companies and your Managing

Director has asked you to explore the possibilities of introducing appropriate
budgeting and costing methods in the operating companies.
Based on information given below, you are required to compile a report to managing
director which covers the following:

Task 1:
Phong Phu Ltd manufactures and sells 2 products only, A and B. They are
manufactured in 2 processes, cost centres P1 and P2. The product must be
manufactured to high standards and as results reject rates are high, particularly in
cost centre P1.
At the beginning of year 12, the beginning balance in the inventory account as follow:
A
B
Finished stocks: Units ready for sale
500
200
£50,000
£11,000
Work-in-progress:

good units at end
Of cost centre 14

150
£9,750

100
£3,800

X

Y
Raw material:
in units
500
300
9,000
1,800
The sales budget for Year 12 shows 11,200 units of A at the unit price of £150 and
12,900 units of B at the unit price of £90. Finished stocks ready for sale at the end of
year 12 are budgeted as 700 units of A and 180 units of B. Work-in-progress stocks
are to be increased to 300 units of A and 125 units of B, completed in cost centre P1
and ready to be passed to cost centre P2.
Budgeted ending balances of raw materials of the year 12 are 600 units for material
X and 350 units for material Y
Reject rates arising from an inspection at the end of each cost centre’s work are:
A
B
End of cost centre P1
10%
15%
End of cost centre P2
5%
8%
Manufacturing times per unit in each cost centre are budgeted as:
A
B
Cost centre P1
1.00hrs
0.60hrs
Cost centre P2

2.00hrs
0.90hrs
Direct workers will be paid at the rate of £10/hour.
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To produce one unit of A will need 2.5 units of material X and one unit of B will need
3 units of Y. There is no recoverable cost from any kind of scrap.
The purchasing department estimated that in the coming year, cost of material X will
be 20 per unit and cost of material B will be 8 per unit.
Overhead costs are budgeted as:
Cost centre
P1
P2
£
£
Variable-per hour
5.00
3.00
Fixed-in total
81,600
125,550
Required:
 Explain the purpose and nature of the budgeting process (3 a)


Select appropriate budgeting methods for the organizations and its budgeting
needs (3b)



Prepare operating budgets for Phong Phu company according to the chosen
budgeting method (3c)

Task 2: Prepare a cash budget (3d)
Vinabike company sells bicycles. Management is planning its cash needs for the
second quarter. The company usually has to borrow money during this quarter to
support peak sales of dirt bikes, which occur during May. The following information
has been assembled to assist in preparing a cash budget for the quarter:
a. Budgeted monthly absorption costing income statements for April–July are:
April
May
June
July
Sales ..........................................
$670,000 $700,000 $680,000
Cost of goods sold .....................
469,000 490,000 476,000
Gross margin .............................
201,000 210,000 204,000
Selling and administrative expenses:
Selling expense .......................
82,000
83,000
83,000
Administrative expense* ..........
75,000
78,000
79,000
Total selling and administrative

expenses ............................
157,000 161,000 162,000
Net operating income .................
$ 44,000 $ 49,000 $ 42,000
*Includes $16,000 of depreciation each month.

$650,000
455,000
195,000
84,000
77,000
161,000
$ 34,000

b. Sales are 40% for cash and 60% on account.
c. Sales on account are collected over a three-month period with 10% collected in
the month of sale, 70% collected in the first month following the month of sale,
and the remaining 20% collected in the second month following the month of
sale. February’s sales totaled $640,000, and March’s sales totaled $650,000.

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d. 30% of a month’s inventory purchases are paid for in the month of purchase; the
remaining 70% are paid in the following month. Accounts payable at March 31 for
inventory purchases during March total $320,460.
e. Each month’s ending inventory must equal 20% of the cost of the merchandise to
be sold in the following month. The merchandise inventory at March 31 is
$93,800.
f. Dividends of $100,000 will be declared and paid in April.

g. Land costing $70,000 will be purchased for cash in May.
h. The cash balance at March 31 is $47,000;
Required:
1. Prepare a cash budget for the second quarter by month as well as in total for
the quarter.
2. If the company must maintain a cash balance of at least $30,000 at the end of
each month. What should the management do?

Task 3
 Calculate variances, identify possible causes and recommend corrective
actions (4a)
 Prepare operating statements reconciling budgeted and actual results (4b)
 Report findings to management in accordance with identified responsibility
centres (4c)
Subtask 3a:
Riley Labs, produces various chemical compounds for industrial use. One
compound, called Lundor, is prepared using an elaborate distilling process. The
company has developed standard costs for one unit of Lundor as follows:
Standard
Quantity

Standard Price
or Rate

Standard
Cost

Direct materials ...............

2.4 ounces

$19.50 per ounce

Direct labor ......................
Variable manufacturing
overhead ......................

1.5 hours

$12.80 per hour

19.20

1.5 hours

$3.20 per hour

4.80
$70.80

$46.80

During November, the following activity was recorded by the company relative to
production of Lundor:
a. Materials purchased, 12,200 ounces at a cost of $229,360.

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b. There was no beginning inventory of materials; however, at the end of the month,

3,250 ounces of material remained in ending inventory.
c. The company employs 36 lab technicians to work on the production of Lundor.
During November, each worked an average of 175 hours at an average rate of
$12.20 per hour.
d. Variable manufacturing overhead is assigned to Lundor on the basis of direct
labor-hours. Variable manufacturing overhead costs during November totaled
$18,900.
e. During November, 3,700 good units of Lundor were produced.
The company’s management is anxious to determine the efficiency of the Lundor
production activities.
Required: Compute all the variances and prepare an operating statement for the
management and explain about the possible causes of the variances with identified
responsibility centres. In your report you should also recommend some corrective
actions and comment on the following issues:
1. The materials were purchased from a new supplier who is anxious to enter into
a long-term purchase contract. Would you recommend that the company sign the
contract? Explain.
2. In the past, the 36 technicians employed in the production of Lundor consisted
of 21 senior technicians and 15 assistants. During November, the company
experimented with fewer senior technicians and more assistants in order to save
costs. Would you recommend that the new labor mix be continued? Explain.
3. Explain about the relation can you see between this efficiency variance and the
labor efficiency variance?
Subtask 3b:
The Antigua Blood Bank, a private charity partly supported by government grants, is
located on the Caribbean island of Antigua. The Blood Bank has just finished its
operations for September, which was a particularly busy month due to a powerful
hurricane that hit neighboring islands causing many injuries. The hurricane largely
bypassed Antigua, but residents of Antigua willingly donated their blood to help
people on other islands. As a consequence, the blood bank collected and processed

over 30% more blood than had been originally planned for the month.
A report prepared by a government official comparing actual costs to budgeted costs
for the Blood Bank appears below. (The currency on Antigua is the East Caribbean
dollar.) Continued support from the government depends on the Blood Bank’s ability
to demonstrate control over its costs.

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Antigua Blood Bank
Cost Control Report
For the Month Ended September 30
Actual
Budget
Liters of blood collected
Variable costs:
Medical supplies ..
Lab tests ..............
Refreshments for donors
Administrative supplies
Total variable cost ...
Fixed costs:
Staff salaries .........
Equipment depreciation
Rent ......................
Utilities ..................
Total fixed cost ........
Total cost ................

Variance

320

240

80

$ 4,650
2,800
2,188
620

$ 3,360
2,760
1,488
480

$ 1,290
40
700
140

U
U
U
U

10,258

8,088

2,170

U

8,000
1,400
500
250
10,150
$20,408

8,000
1,000
500
225
9,725
$17,813

0
400
0
25
425
$2,595

U
U
U
U

The managing director of the Blood Bank was very unhappy with this report,
claiming that his costs were higher than expected due to the emergency on the
neighboring islands. He also pointed out that the additional costs had been fully
covered by payments from grateful recipients on the other islands. The government
official who prepared the report countered that all of the figures had been submitted
by the Blood Bank to the government; he was just pointing out that actual costs were
a lot higher than promised in the budget.
Required:
1. Prepare a new performance report for September using the flexible budget
approach. (Note: Even though some of these costs might be classified as direct
costs rather than as overhead, the flexible budget approach can still be used to
prepare a flexible budget performance report.)
2. Do you think any of the variances in the report you prepared should be
investigated? Why?

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GRADING
Pass

is achieved by meeting all the requirements defined in the assessment
criteria. (Refer page 2 of the assignment brief)

Merit

Select and apply appropriate techniques.

(M2)

Characteristics / Possible Evidence – appropriate techniques (e.g.
incremental, zero-based, fixed and flexible etc) have apply and
showing a good depth of knowledge in practical understanding of
budgets for a business and performance against budgets.
Present and communicate appropriate findings

(M3)

Characteristics / Possible Evidence – An appropriate structure and
approach has been used and a range of methods of presentation has
been used to prepare budgets and monitor performance against
budgets for a given situation e.g. charts, tables, graphs & diagrams etc.
Distinction Use critical reflection to evaluate own work and justify valid conclusions (D1)
Characteristics / Possible Evidence – creation has been used to
generate and recommend corrective action to monitor performance
against budgets.
Take responsibility for managing and organizing activities

(D2)

Characteristics / Possible Evidence – independence demonstrated and
substantial activities have been planned, managed and organized
related to responsibility centres and also identification of responsibility
for variances.
Demonstrate convergent, lateral and creative thinking

(D3)

Characteristics / Possible Evidence – problem have solved with

evidence of good understanding of operating statement reconciling
budgeted and actual results.

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PRESENTATION
1. The assignment should have a cover page that includes the assignment title,
assignment number, course title, module title, Lecturer/tutor name and
student’s name. Attach all the pages of assignment brief/cover sheet with your
report and leave them blank for official use.
2. Ensure that authenticity declaration has been signed.
3. This is a group assignment.
4. Content sheet with a list of all headings and page numbers.
5. A fully typed up professionally presented report document. Use 12 point Arial
or Times New Roman script.
6. Your assignment should be word-processed and should not exceed 3,500
words in length.
7. Use the Harvard referencing system.
8. Exhibits/appendices are outside this limit.
9. The assignment should be not contain a bibliography – but should contain a
list of any references used in the assignment.
NOTES TO STUDENTS FOR SUMMISSION


Check carefully the submission date and the instructions given with the
assignment. Late assignments will not be accepted.



Ensure that you give yourself enough time to complete the assignment by the
due date.



Do not leave things such as printing to the last minute – excuses of this nature
will not be accepted for failure to hand-in the work on time.



You must take responsibility for managing your own time effectively.



If you are unable to hand in your assignment on time and have valid reasons
such as illness, you may apply (in writing) for an extension.



Failure to achieve a PASS grade will results in a REFERRAL grade being
given.



Take great care that if you use other people’s work or ideas in your
assignment, you properly reference them in your text and any bibliography.



NOTE: If you are caught plagiarizing, you could have your grade

reduced to zero, or at worst, you could be excluded from the course.

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