Management Accounting: Costing and Budgeting Scenario

BANKING ACADEMY, HANOI
BTEC HND IN BUSINESS (FINANCE)
ASSIGNMENT COVER SHEET
Lucky Star Group
REGISTRATION NO.
UNIT TITLE
ASSIGNMENT TITLE
ASSIGNMENT NO
NAME OF ASSESSOR
ASSIGNMENT ISSUE DATE
SUBMISSION DEADLINE

Unit 9: Management Accounting: Costing and Budgeting
Budgetary Planning and Control
2 of 2
Mr. JUN ALEJO BATHAN
12th, Jun, 2013
12th, Jun, 2013

We, Star Group 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.

Members Full Name
Lương Thái Hà
Phạm Đức Anh

English Name
Julie
Carlo

Signature

Date

----------------------------------------------------------------------------------------------------------------

FOR OFFICIAL USE
Assignment Received By:

Date:

1


Unit Outcomes
Outcome

Be able to
prepare
forecasts and
budgets for a
business
(L03)

Be able to
monitor
performance
against
budget within
a business

(L04)

Evidence for
the
criteria

Assessor’s
decision

Feedback

Explain the
purpose and
nature of the
budgeting
process

3.1

Select
appropriate
budgeting
methods for the
organisation
and its needs

3.2

Prepare
budgets

according to the
chosen
budgeting
method

3.3

Prepare a cash
budget

3.4

Calculate
variances,
identify possible
causes and
recommend
corrective action

4.1

Prepare an
operating
statement
reconciling
budgeted and
actual results

4.2

Report findings
to management
in accordance
with identified
responsibility
centres

4.3

Merit grades awarded

M1

M2

M3

Distinction grades awarded

D1

D2

D3

2

Internal
Verification

Evidence for
the
criteria

Outcome

Feedback

Assessor’s
decision

Internal
Verification

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

ASSESSOR SIGNATURE

DATE

/

/

DATE

/

/

NAME:.........................................................................................

(Oral feedback was also provided)
STUDENT SIGNATURE
NAME :..............................................................................
FOR INTERNAL USE ONLY
VERIFIED
YES
NO
DATE

: ...........................................................................

VERIFIED BY : ...........................................................................
NAME

: ...........................................................................

3


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:
1. Selected information concerning sales and production for Cabot Co. for July
2006 are summarized as follows:
a. Estimated sales:
Product K: 40,000 units at £30.00 per unit
Product L: 20,000 units at £65.00 per unit
b. Estimated inventories, 1 July 2006:
Material A: 4,000 lbs Product K: 3,000 units at £17 per unit
Material B: 3,500 lbs Product L: 2,700 units at £35 per unit
Total

£51,000
94,500
£145,500

There were no work in process inventories estimated for 1 July 2006.
c. Desired inventories at 31 July 2006
Material A: 3,000 lbs Product K: 2,500 units at £17 per unit
Material B: 2,500 lbs Product L: 2,000 units at £35 per unit
Total

£42,500
70,000
£112,500

There were no work in process inventories estimated for 31 July 2006.
d. Direct materials used in production
Product K
0.7 lb. per unit
1.2 lbs. per unit

Material A:
Material B:
e. Unit costs for direct materials:
Material A: £4.00 per lb.
Material B: £2.00 per lb.

4

Product L____
3.5 lbs per unit
1.8 lbs. per unit


f.

Direct labor requirements

Product K
Product L:

Department 1
0.4 hour per unit
0.6 hour per unit

Department 2
0.15 hour per unit
0.25 hour per unit

Department 1

£12.00 per hour

Department 2
£16.00 per hour

g. Direct labor requirements

Direct labor rate

h. Estimated factory overhead costs for July:
£
200,000
40,000
25,000
34,000
299,000

Indirect factory wages
Depreciation of plant and equipment
Power and light
Indirect materials
Total
Task 1
•
•
•

Explain the purpose and nature of the budgeting process (3 .1)
Select appropriate budgeting methods for the organizations and its budgeting
needs (3.2)

Prepare budgets according to the chosen budgeting method (3.3)
Hints: Prepare sales budget, production budget, direct materials
purchases budgets and cost of goods sold budget for July
2. Lowther Ltd is a wholesaling company. Goods are purchased on credit from
manufacturers and importers and sold on credit to retailers. Its budget for the
first 4 months of Year 12 includes
Month

1
£‘000

2
£‘000

3
£‘000

4
£‘000

Sales
Stocks at month end

120
62

130
68

140

70

130
73

Cost of sales consistently accounts for 60% of sales revenue. Overheads are
budgeted at £35,000 per month, which includes £6,000 per month
depreciation

5


Additional information
a. Sales invoices are sent to customers on the last day of the month in which a
sale takes place. Customers’ payment patters are expected to be
70% is paid after 1 month
28% is paid after 2 months
2% is never paid (bad debts)
b. Overheads will be paid as incurred
c. Purchases will be paid for in the month following purchase and a 1% discount
will be taken on all invoices
d. Sales for the rest of year 11 are expected to be month 11, £110,000 and
month 12,£115,000
e. Purchases for month 12 of year 11 are expected to be £68,000
f. Stocks at the end of month 12 of year 11 are expected to be £58,000
The company is considering a change in the basis of payment to supplier. Purchases
would be paid for, 50% in the month following the month of purchase and 50% in the
next month. The change would apply from the month 1 purchases. The 1% discount
would continue to apply but only to that part of the purchase invoice settled in the
month following purchase.

Task 2 Prepare a cash budget (3.4)
Hints:
• Prepare a cash budget for Lowther Limited for the first 4 months of year
12. It should be presented in columnar format and should be based upon
the existing terms of payment
1. Byford Limited manufactures and sells one product. In Year 7, the company
planned to manufacture 220 units and to sell 200 units at £130 each. No
stocks existed at the start of Year 7.
The unit standard cost of production for the Year was:
£
Materials
10
Direct labour
12
Variable overhead
4
Fixed overhead
50
76
Fixed administration, selling and distribution overhead was budgeted at
£8,800. The actual production for year 7 was 230 units and 190 units were
sold at £136 per unit.

6


The actual production costs per unit of output were
£
Materials
11

Direct labour
10
Variable overhead
5
Fixed overhead
52
78
The actual administration, selling and distribution overhead amounted to
£8,650
Task 3
• Calculate variances, identify possible causes and recommend corrective
actions (4.1)
Hints
Prepare a statement that reconciles the budgeted to the actual profit of the
business for Year 7, through variances. Your statement should analyze the
differences between the two profit figures in as much detail as you are
able.
• Prepare operating statements reconciling budgeted and actual results (4.2)
• Report findings to management in accordance with identified responsibility
centres (4.3)

7


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.

8


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 3,000
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.

9


10