Management Accounting: Costing & Budgeting Individual Assignment
Batch 08
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Management Accounting: Costing & Budgeting Individual Assignment
01. Introduction
Management Accounting is the process of identifying, measuring, analyzing, interpreting and
communicating information in pursuit of an organizations goal. The main function of
management accounting is to provide information for the decisions of internal users. This
also provides feedback to managers to aid them in controlling the cost and improving the
efficiency of their operations. Cost is the price paid to obtain, produce, achieve or preserve
things. There are several types of costing methods, such as: batch costing, process costing,
activity based costing, marginal costing and absorption costing. There are several types of
budgeting methods, such as: activity based, flexible, zero based and incremental budgeting
system.
In the first section of this report unfolds the full cost classification for a newly identified
product. Product represents the cost classification under direct and indirect costs,
manufacturing and non-manufacturing costs, variable and fixed costs. Then discussing the
different costing methods and their uses by giving mathematical illustrations and how they
affect for the different industries by giving suitable examples.
And then moving on to the section two of this report, it represents in a different manner to the
reader, it represents as in report format and it highlights the income statement of Life style
pvt Limited under marginal and absorption costing and by preparing the reconciliation
statement, state the reasons for difference between the net profits under two approaches.
After calculating all above, it may assist to analyze company’s decision making by using a
break even chart. Finally surveyor proposes possible methods, known as; TQM, JIT for
enhancing value and quality of the organization.
Middle part of this report discussing the importance of budgeting and how budgeting process
involves creating a value for Indigo apparel Limited within the period of change. The
surveyor introducing the most appropriate budgeting method for the company by analyzing
the characteristics, advantages and disadvantages of the other methods. Then moving on to
the next section, it unfolds, preparing of sales, production, material usage, material purchase,
direct labour, manufacturing overhead, operating expenses, cash budgets and budgeted
income statement and budgeted balance sheet and discussing the expected performance of the
company SISELTA under newly introduced products known as; Dilma and Nilma.
Batch 08
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Management Accounting: Costing & Budgeting Individual Assignment
End part of the report discussing the variances in direct material, direct labour, variable
overhead, fixed overhead and sales under single product known as; UX which manufacturing
by company Cinderella. Then represents the operating statement for the month ended
30/06/2011 to reconcile budgeted and actual results. Final section of the task giving findings
to management of Cinderella in accordance with identify responsibility centers and supposing
corrective actions for above mention causes of variances by using performance indicators of
identified responsibility centers.
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Management Accounting: Costing & Budgeting Individual Assignment
02. Task 1
2.1Introduction to identified new product
Product can be viewed as a bundle of attributes. In the attribute there are various aspects.
They are power, quality, design, performance, taste, texture, size and comfort. Products will
sell only when attributes match customer needs. However consumer’s needs for these
products will vary from country to country, depending on their culture and the level of
economic development. As a management accountant of “Urban Living” which manufactures
ready made garments for local market as well as for International market. This time company
identified Sri Lankan Batik products that come up adding with new features to the product.
When considering the attributes of batik products include fashion, quality, design, match,
colorfulness and brightness. By adding such attributes to batik products will help to attract a
large base of different age diverse customers. The main reason that company chosen batik
products is to attract tourists who are coming to Sri Lanka every year. So according to my
business plan company selected Sweden young gents as the target market which is ease for
market accessibility. Today there is a high trend for fashionable batik clothes among these
high fashionable youth. Generally Sweden youth have wide inclination for eye capturing
designs. Therefore company going to introduce “Gents Batik T-Shirt” as a new product for
the market.
Gents Batik T-Shirt
According to companies’ information gathering, company recognized that Sweden young
gents prefer more to wear portrait t-shirts. So company designs these portrait t-shirts with
colorful eye capturing designs. Their preference greatly has on fierce portrait shirts which
trying show boys as more strong. Our fierce portrait shirts like; ‘Silver black portrait” and
“shirt Gerry” was created especially by targeting them. We are giving these portrait shirts to
customers with 100% cotton thread.
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Management Accounting: Costing & Budgeting Individual Assignment
2.1.1Cost classification for the “Gents Batik T-Shirt”
Costing is the deciding factor for fixing of prices and the important thing to follow in all
stages like; purchase, production, marketing & sales etc…Costing includes all the activities
like purchase of fabrics and accessories, processing and finishing of fabrics, sewing and
packing of garment, transport and conveyance, shipping, overheads, banking charges and
commissions etc…Below mentioned the direct and indirect costs, manufacturing and non-
manufacturing costs, variable and fixed costs for identified “Gents Batik T-Shirt” style.
Direct Cost Sheet
Product : Gents Batik T-Shirt
Style No: ABC
Buyer: George
Country: Sri Lanka
Fabric type: 100% cotton
Direct Material Cost
Packing
Fabric costing Trim Costing material costing
Yarn price as per supplier list Labels Tissue
Grieg fabric cost (100% cotton) Tags Hangers
Average dyeing cost Threads Polybag
Weight loss on dyed fabric Fusing Blister
Twill tape Carton
mobilon tape Label Logo
Patch label Board
Buttons
Zippers
Direct Labour Cost
Quality Controlling
Sewers
Finishing
Ironing
Payroll tax
Direct Processing Cost
Utilities
Machinery Depreciation
Building Depreciation
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Management Accounting: Costing & Budgeting Individual Assignment
Direct Expenses
Washing cost of dyed garments
Packing
Computer & communication systems for the manufacturing function
Repair parts for the manufacturing equipment & facilities
Shipping cost
Table 2.1: Direct cost classification
Table 2.1: Indirect cost classification
Indirect cost sheet
Product: Gents Batik T-Shirt
Style No: ABC
Buyer: George
Country: Sri Lanka
Fabric Type: 100% Cotton
Indirect Labor Cost
Salaries for plant manager
Salaries for warehouse manager
Salaries for cleaners
Salaries for clerks
Salaries for guards
Salaries for accountants
Salaries for human resource manager
Indirect Processing cost
Utilities
Machinery depreciation
Indirect expenses
Safety & equipment costs
Insurance & property taxes on the manufacturing equipment and facilities
Electricity, natural gas, water & sewer for operating manufacturing facilities
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Management Accounting: Costing & Budgeting Individual Assignment
Total cost Total fixed cost + Total variable cost
91,800 + (25 * 10,200)
Rs.346,800
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