Management Accounting Assignment Sample

Introduction to Management Accounting Assignment Sample

A key point of this section is that it will be focused on management accounting for this report. This report aims to cover its objectives in separate tasks, starting with the classification and categorisation of the expenses in Task 1. Management accounting is the topic of Task 2, with break-even analysis being the main point. Task 3 involves creating a new budget control system to address the flaws in the current ones.

Overview of Management Accounting

A management accounting system gathers data, reviews it and provides reports for the company. Some of the key elements in accounting are budgeting, managing expenses, measuring results and forecasting ahead. It points out the need for accuracy, timeliness, relevance and being flexible in work which helps to share work, materials and planning fairly amongst all workers.

This Management Accounting Assignment Sample explores expense classification, break-even analysis, and budget control systems to improve business financial planning. An Assignment writing helper can support students in understanding cost management, performance evaluation, and effective resource allocation.

Task 1: Expense Classification and Categorisation

a) Depreciation

Depreciation is classified as a fixed factory overhead, period and conversion cost. Most companies use straight line depreciation which makes it logical for them to treat depreciation as a fixed cost. Even if there are changes in a company’s manufacturing and production area, this method does not adjust the depreciation.

b) Direct Material

Direct material is known as a variable direct material, prime cost and conversion cost. Variability in direct material cost per unit follows the same pattern as direct labour, since changes in Metro Manufacturing inputs cause changes in direct material costs.

c) Direct Labour

The variable, direct labour, prime and conversion cost are called direct labour. Since direct labour cost per unit changes in line with the number of units manufactured, it is under the correct headings in the cost analysis (Flynn, 2022).

d) Indirect Materials

The company classifies indirect materials as variable and factory overheads costs in the case of Metro Manufacturing. This occurs since factory costs involved are dependent on the number of units created.

e) Factory Utilities

Factory utilities are considered variable costs, conversion costs and factory overhead. This happens because these materials play a key role in the process of making goods from raw materials (Bellalouna, 2020).

f) Interest on Investments

Interest costs in investment are grouped as fixed and period costs because they are constant and happen for a particular stretch of time within a company (Maharani and Saputra, 2021).

g) Machinery Rental

Machinery rentals in Metro Manufacturing are assigned to fixed, factory overhead and conversion costs. The cost of renting machinery usually remains fixed and this amount is included in the production where raw materials are used to produce finished goods.

h) Rent from Tenant

Rent from tenants is mainly grouped as fixed and period costs since they are charged consistently over set periods of time such as each month or year (Chacon, 2023).

i) Shipping

Transportation costs are directly associated with and included as part of Metro Manufacturing’s expenses. The change has to do with how shipping charges related to different unit volumes can vary widely and usually end up as part of the raw material costs for a company (Prokopenko and Miśkiewicz, 2020).

j) Storage Facility

At Metro Manufacturing, storage facility is considered an overhead cost due to the direct production work carried out in the factory.

k) Supervisor Salary

Supervisor salaries account for a standard and joint cost within Metro Manufacturing. According to Yıldız (2022), salaries are agreed upon beforehand based on certain terms and rules that include fixed amounts to be given to employees and managers.

Task 2: Report on Management Accounting

Date: July 27, 2024

Arham Rahman, CEO

Metro Manufacturing,

Address: 4, universal square, Devonshire St N, Manchester M12 6JH, UK

Dear, Arham

a) Background

This portion will include a comprehensive explanation of management accounting, where break-even analysis is the key point. Both the quantitative and qualitative results before and after the new equipment are installed will be gathered and highlighted in the main section of the management accountancy report. The initial analysis will center on determining BEP by reviewing the actual performance data mentioned in the financial report. The upcoming part of this study will present the adjusted BEP, taking into account the expected swings in “fixed and variable costs”. The last section of the analysis looks at what happens if the company is expecting its marketing and sales to increase, impacting the BEP. Overall, advice will be provided using the insights discovered, while still giving extra attention to the importance of controlling costs in the months and years ahead.

b) BEP Sales

Based on the data provided for BEP values before any new machinery is added, the figure for BEP sales is found to be GBP 13,560,261.56. The units for the corresponding BEP have been calculated as 265.89. In short, the comparison presented above reveals that BEP units and their sales value are not as high as the industry standards for Metro Manufacturing. As per statements and expressions of Vagner (2020), a company with a low BEP is considered advantageous since it should perform work at a reduced amount of cost. Metro Manufacturing’s low BEP proves that total costs and revenues of this business can only be equal when the production level is low.

Before any equipment is replaced, the BEP at the original level can be calculated by applying the BEP formula which is “fixed costs and contribution” divided by “contribution” and then the result is multiplied by total revenue. The diagram clearly shows that despite the income from sales being equal to “total cost” and “contribution”, “total cost” is much lower than the income made from sales.

Bimayu (2023) stated that efficiency in how a company uses its inputs offers a competitive advantage, helping in lowering its costs and in turning a bigger profit. As a result, the existing price structure for Metro Manufacturing shows that the company is profiting well and gives managers a chance to find additional ways to increase profits.

c) New BEP due to cost fluctuations

In the provided demonstration of revised BEP, an addition of new equipment can result in a decrease of variable costs by 5% and an increase of fixed costs by 10%. The revised sales from BEP work out to GBP 14,445,595.28 which is just a little bit higher than the current sales structure of Metro Manufacturing. BEP unit value has been calculated at 285.43 which are a bit higher than the results from the previous cost structure analysis. Karjagi (2023) critically stated and idealised that a higher balance of BEP might cause issues for the company during its daily business or over time. As a result, increased BEP because of the new equipment could cause some troubles for Metro, though in the end, BEP should eventually fall due to the better performance the new equipment can offer. The above graph indicates that the new equipment does not appear to have affected total sales in any way. Yet, the organisation now calculates the total costs at GBP 24,174,000 and the contribution at GBP 25,257,000. This is why there effects such a small difference in the results: the change is caused by slight extra “total costs” that are primarily due to the additional “fixed costs” that the company has picked up. As per critical explanations and views of De Ridder (2024), fixed costs that increase gradually, also referred to as incremental costs, are not easy for companies because this usually results in short-term production difficulty. According to the report, the main reasons driving sales and unit growth at BEP are the rising fixed costs in the projections. Such an increase in input costs could cause problems for Metro that could lead to profit decline whether in a short or a long span such as by cutting into its profit margin.

d) Inflation in costs associated with sales and marketing causes new BEP and MOS

The above diagram of computations includes the alternate BEP which considers both higher marketing costs and extra sales due to Model 301. For these calculations, it is understood that BEP sales end up at GBP 15,749,903.69 and BEP units are 308.82 units. The additional measure, the MOS, was found to be 62.18%. Therefore, it is possible to see that the sales and units in this scenario are much more than what was observed in the previous two scenarios. If a company’s BEP is high, this could indicate that its operations management and production plans are not effective which may put the company’s future growth in doubt (Kahraman and Haktanır, 2024). Even though Metro planned to spend more on marketing and predict higher sales of Model 301, the company found that incremental BEP was undesirable and not a good idea after investing in the new equipment.

The numbers for “total sales”, “total costs” and “contribution” on the previous figure are GBP 41,648,000, 25,661,920 and 25,708,000, respectively. This scenario therefore is different from the other two mainly because there is an increase in sales and contribution this year, whereas the total costs that need to be covered are also higher. The changes to Metro Manufacturing’s total cost structure might bring negative results for the company, as it could lead to lower productivity in usual operations. As Clark (2024), critically stated and explained that when the usual operations of a company become less productive, it may lose its competitive advantage in the market and industry.

e) Recommendations for adjustments needed to be made

From the results of the analysis above, it is advised for Metro Manufacturing to introduce lean manufacturing as a key part of their operations. Bringing lean manufacturing into the company is expected to increase how smoothly operations run which can help control and keep up with both cost and sales changes. As per opinions of Palange and Dhatrak (2021), using lean manufacturing techniques has advantages for a company because it allows them to move products to the market faster which increases the demand for those products. It is believed that these changes in inflation and variable costs cannot be avoided, whereas Metro Manufacturing can still manage them if combining certain cost items is practiced. If costs are clubbed, it becomes possible to identify and remove superfluous items which would ensure a strong and reliable cost structure for years to come, allowing easy tracking of expenses and swift responses to desired enhancements.

f) Summary

In this section it has been elaborated that BEP sales and units would increase marginally when replacing the two machines with equipment at the start. At present, the company can manage its costs well, so long-term issues in operations are highly unlikely to appear. One way to handle future expense increases that are not abrupt, it is better for Metro Manufacturing to deploy lean manufacturing practices, as these are sure to lead to a durable cost model.

Sincerely Yours,

Kabita Roy (CFO)

Metro Manufacturing

Task 3: Proposal to Establish a Structure of Budgetary Control

Date: July 27, 2024

Arham Rahman, CEO

Metro Manufacturing,

Address: 4, universal square, Devonshire St N, Manchester M12 6JH, UK

Dear, Arham

a) Background and the Cash study Overview

The report points out the company’s budgeting challenges and shows a step-by-step way to address these issues. The company manufactures medium-sized parts from metal which are used in both the auto industry and construction. All department heads use Excel to manage money and they have flexible ways of budgeting that are usually not detailed or formal. The choices in the budget are mostly influenced by past spending habits, not by a set strategy. When expenses to make products increase, metro experiences issues with supply and makes poor predictions which results in its short-term debt increasing. The report explains the main problems, offers suggestions for changing the budget and gives a basic system for budgeting.

b) Describing what is wrong with the current systems and recommending improvements for Budgetary Control

1. i) There is not a set procedure for making a budget

Setting up a budget in Metro does not follow one standard process. As per critical views of White and Wildavsky (2021), state that good systems and organised schedules are important in departments to prevent inconsistent and uncoordinated financial planning.

Solution

Make it a routine to develop annual and quarterly budgets on schedule. Use the same documents and methods to highlight what departments have in common (Cooper and Sommer, 2020).

1. ii) A formal budget committee is not established.

Currently, no one group is responsible for the budget, so management is mediocre and mistakes go unpunished.

Solution

Include the CFO, department managers and someone from the finance department as members of the budget committee. The committee is tasked with budgeting, ensuring that everyone has the correct and updated information.

iii) Using Excel to take care of event planning

With large data in a spreadsheet, Excel may slow down and users might make mistakes, work on distinct versions or share data poorly.

Solution

Featuring up-to-date information, team efforts and reporting, one can try using an accounting assignment software or ERP like SAP, Oracle or QuickBooks (Sahni, 2021).

1. iv) There are no procedures in place to adjust plans or address problems

Metro lacks features for examining the difference between actual and budgeted values. Therefore, managers may not discover these problems until financial issues arise.

Solution

All departments must draft monthly variance analysis reports and have them reviewed and confirmed by higher management. Decide on how much variation is acceptable and inquire if one sees important shifts.

c) The Budgets to Follow and Necessary Details

Metro can gain control over its finances by applying different budgets to plan and manage activities. These budgets are offered below for consideration:

Sales Budget

The sales budget functions as a forecast of expected revenue for each thing sold, customer and area. The marketing budget sets the initial budgets for production, purchases and labour since it predicts customer demand. Preparing a sales budget requires past sales results, recent trends in the market, the company’s current sales expectations and client demand. Both sales and CRM systems include this data, whereas a complete market analysis should always accompany it (Najera Ruiz and Collazzo, 2021).

Labour Budget

A labour budget allows us to predict the necessary workers and the costs involved for reaching production goals. HR strategies play a role in better handling workforce management and monitoring labour costs. For the forecast, companies need to know standard labour time, wages and the planned production schedule. Important data can be accessed through HR or production management systems.

Production Budget

The production budget details the quantity of products needed to meet the set sales target. It ensures that manufacturing teams produce the required amount, preventing them from creating too many or not having enough on hand. Collecting information on the sales budget, inventory amounts, how much can be produced and expected delivery times is needed to make the budget. This information can be found in sales records, inventory records and updates from the production team (Sormin and Nurdiansyah, 2023).

Direct Material Budget

A direct materials budget outlines the amount and costs of raw materials needed to build finished products. Thus, the company can work easily and cost-effectively by having only the necessary materials. For a budget to be made, it must gather the bill of material cost estimates and expected levels of production. Details related to procurement and production can be found there (Bugnariu, 2021).

Overhead Budget

All indirect costs for utilities, aging of equipment and office administration are included in an overhead budget. Supervising both fixed and variable overheads help the business increase its profits. Check the past expenses and assign all costs to fixed or variable groups. The data can be gathered from the company’s accounts and the department-specific reports.

Cash Budget

A cash budget identifies all planned cash transactions during a specific period to help avoid cash flow trouble. It is important to avoid running low on cash and use fewer short-term loans. Making a budget requires planning expected sales, calculating materials, employee and debt expenses. This information can be provided by the finance team or the accounts payable and receivable teams (Udoh, 2022).

Capital Budget

Capital budgets are intended to manage future investments in equipment, machinery or IT systems. It guarantees that portfolio investments bring rewards that match the business’s objectives. Getting ready means studying investment opportunities, calculating the pros and cons and estimating the likely return on investment. Those creating the construction budget work with project managers, the engineers and the finance team (Sarwary, 2020).

Master Budget

All the single budgets for different departments are brought into one master budget. It outlines the likely financial condition of the company and helps plan the company’s business strategy. All the various departments supply the finance group with all the data needed for drafting the master budget.

d) Strategies for Using a Budgetary Control Process

Using a well-defined budget process helps integrate budgets into Metro’s normal financial work. Initially, make sure the targets are clear and add members from each department during planning. As per critical views of Avi (2021), managers should frequently compare actual outcomes to the forecasts listed in the budget through variance analysis. A unified software tool allows team members to track and update information at the same time. A dashboard of financial performance data should be reviewed by each manager monthly. It is vital to have transparent and straightforward conversations for teams to align properly. Inspecting finances and checking internally guarantees good habits, allows Metro to respond quickly to issues and stays vigilant about new risks.

e) Recommendations

Metro ought to hold monthly reviews for budget variance, invest in budgeting software and encourage different departments to contribute to budgeting decisions. A special group should be formed to oversee the budget process. Steps like improving coordination, accountability and forecasting will help to improve decisions and financial outcomes.

f) Summary

Metro Manufacturing struggles with budgeting, as they don’t have organised steps, modern equipment or efficient collaboration. The report highlights key areas of concern, sets up sales, production and cash budgets and discusses budget management. Introducing budget cycles, adopting integrated software and studying regular differences can promote better management, control and planning for Metro. Following these measures will help with decision-making, secure finances and strengthen the company over time.

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