Analyse cost data using appropriate techniques - to achieve

Question

Forecasting And budgeting

LO1 Be able to analyse cost information within a business 1.1 Classify different types of cost
       1.2 Use different costing methods
       1.3 Calculate costs using appropriate techniques
       1.4 Analyse cost data using appropriate techniques
LO3 Be able to prepare forecasts and budgets for a business 3.1 Explain the purpose and nature of the budgeting process.
       3.2 Select appropriate budgeting methods for the organization and its needs.
       3.3 Prepare budgets according to the chosen budgeting methods
       3.4 Prepare a Cash Budget

Assignment brief

Purpose of this assignment

The aim of this assignment is to assess the learner's ability to demonstrate understanding on the importance of management accounting to all businesses. It looks at costing and budgeting, and how to use current or historical financial data to plan for the effective finances and costs of the business for the future.

Scenario 1

Synergy Limited produces Digital satellite receivers (DSR), installing dish system in apartments, villas and business establishments. DSR comes with a one year warranty offering free repairs if any faults arise in this period.

Each Digital satellite receiver includes two main components - metal cover and the circuit. At present, Synergy Limited manufacture these components. However, the company is currently considering outsourcing the production of Digital satellite receivers and concentrate in marketing and installation of the system. A newly established company has offered to supply circuit at the price of O.R.15.

Synergy Limited estimates to produce 2000 units of Digital satellite receivers (DSR) during the second quarter of 2017. Now the Management of Synergy Limited wants a detailed analysis of the total cost of making the product.

Estimated data for the forthcoming period is as follows:-

1.Each unit of digital satellite receiver requires materials as follows-:
- circuit costing R.O 8.5 each
- metal covering costing R.O 2.5 each
2. Each unit of digital satellite receivers requires 3 hours of skilled labour at R.O 4 per hour and 2 hours of unskilled labour at R.O. 3 per hour.

3. Other direct expenses to be incurred per Digital satellite receivers are R.O. 1.

4. Synergy Limited. Decided to absorb the fixed production overhead based on direct labour hours (skilled and unskilled). Firm estimated fixed production cost of R.O 5000 and budgeted direct labour hours (skilled and unskilled) of 2500 hours.

Task 1 -

Classify different types of cost

To achieve Pass you must

- Identify the different types of cost (material, labour and overhead) incurred in making Digital satellite receivers and record this information in the unit cost card showing prime cost and production cost of Digital satellite receivers. In addition to the above Having identified the different types of cost, classify them on the basis of - Nature and Behaviour

To achieve M1, you should make effective judgements in classifying the cost based on cost behavior, nature and this should be reflected in the preparation of cost sheet.

To achieve M3, you should have used the appropriate structure and approach coherently in preparing the cost sheet and consider the intended audience who will use the cost sheet.

To achieve D3, you should have arrived at conclusions through synthesis of ideas and justified your conclusion pertaining to prepared cost card.

Scenario 2

ABC limited manufacture Bluetooth adopter for vehicles. ABC limited has two production departments and the overhead absorption rates for each department is as below;-

Modification Department is involved in making the plastic mould for Bluetooth adopter and Fixing Department performs the fixing of imported circuits in to the plastic mould.

Department Overhead absorption rate per direct labour hour
-

Department	Overhead absorption rate per direct labour  hour
Modification Department	R.O. 2
Fixing Department	R.O. 3

Rent a car company requested a quotation for 200 Bluetooth adopters during the next quarter. The following cost estimation for batch of 200 units were provided by the production department.

Material
Circuit boards ( 200 units)	R.O.550
Plastic (200 units)	R.O.350
Labour (Batch)
Modification Department	10 hrs	R.O.3.per Hour
Fixing Department	5 hrs	R.O.4.per Hour

Firm has the policy of keeping a profit mark up of 50% on production cost.

You are required to calculate cost and selling price per unit of a Bluetooth adopter.

Task 2

Use different costing methods

To achieve Pass you must
- Identify the need for different costing methods at ABC limited.
- Use appropriate costing method to calculate the cost and the selling price of Bluetooth adopter
To achieve M1, you should solve the given complex problem and more than one variable should have been explored. (Explore the use of Overhead absorption rate)

To achieve M2, you should use relevant theories and techniques in different costing methods to substantiate your answer.

To achieve D2, you should demonstrate autonomy independence in calculating cost and selling price.

Scenario 3

Store keeper of ABC limited recorded the following inventory receipts and issues in his record. He requested your help to find out the value of closing stock under FIFO and AVCO methods.

Transactions during January  2016:-

Date                 Item                      Units            Unit cost(O.R)

1^st Jan              Opening stock         200             10.00

3^rd Jan              Receipt                   600             11.00

4^th Jan              Issue                      400                 ?

9^th Jan              Receipt                   300             12.00

11^th Jan            Issue                      400                  ?

18^th  Jan           Receipt                   200               13.00

20^th Jan            Issue                      100                 ?

31^st Jan            Closing Balance       400                 ?

Task 3

Calculate costs using appropriate techniques

To achieve Pass you must
- Calculate cost of closing stock using FIFO and AVCO method.

To achieve M3, you should have used an appropriate structure and approach coherently in preparing the profit statement.
To achieve D1, you should validate the inventory value calculated under FIFO and AVCO.

Scenario 4

A) TNT limited manufacture and sells gardening equipment to retail customers. Following forecasted data has been given to you. The managing director of the company is very much concerned about the company's future performance. You are working as the cost accountant and requested to Analyse cost data using appropriate techniques in order to present in the next board meeting. Company sells six product which are X1, X2, X3, X4, X5 and X6.

	Sales Forecast
	Items
Month	X1	X2	X3	X4	X5	X6	Total
January	2500	3500	1500	3600	2500	2300	15900
February	3500	2500	2400	2300	2200	2100	15000
March	4500	4500	4500	4500	4500	2300	24800
April	4600	3500	3500	3500	3500	3500	22100
May	5500	3500	3400	3300	3200	3100	22000
June	5500	4500	3500	2500	1500	2300	19800

	Variable cost
Month	X1	X2	X3	X4	X5	X6
January	1550	2170	930	2232	1550	1426
February	2450	1750	1680	1610	1540	1470
March	2700	2700	2700	2700	2700	1380
April	2300	1750	1750	1750	1750	1750
May	3025	1925	1870	1815	1760	1705
June	3080	2520	1960	1400	840	1288

Month	Forecasted sales	Variable Cost of production
January	15,900	9,858
February	15,000	10,500
March	24,800	14,880
April	22,100	11,050
May	22,000	12,100
June	19,800	11,088

Variable cost	Materials	Labor	Variable OH
9858	5915	2957	986
10500	6300	3150	1050
14880	8928	4464	1488
11050	6630	3315	1105
12100	7260	3630	1210
11088	6653	3326	1109

Task 4

Analyse cost data using appropriate techniques

To achieve Pass you should present the data provided in scenario 4, using an appropriate technique.

To achieve M1, you should have adopted an effective approach to study and research has been applied in the Discussion of different type of techniques used in presenting cost data.

To achieve M2, you should use range of methods and techniques to present the cost data.(Use Bar chart, pie chart and trend analysis)

To achieve M3, you should have used an appropriate structure and approach showing ranges of methods of presentation of cost data.
To achieve D1, conclusions should have been arrived (areas need cost control), through synthesis of ideas and it should be justified based on the given cost data.
Scenario 5 (Tasks 5, 6 and 7)

ZIZ Ltd manufactures three types of industrial equipment. (A, B and C) and is preparing its budget for forthcoming six month. The budget for the forthcoming six months from 1st July 2017 to 31st December 2017 is to be prepared. Forecasted information for the next six months is as follows.

	A	B	C
1. Demand for the company's product
Sales Demand in units for six months	1200 units	1600 units	1400 units
Selling price per unit	R.O 23	R.O 34	R.O 32
2. Opening inventory of finished product at 1st January 2017 in units.	50 units	20 units	20 units
2. Closing inventory of finished product at 30 June 2017 in units.	40 units	30 units	60 units
4. Direct labour hours required per unit of each product	5 hours	6 hours	4 hours
5. Raw material content (quantity) per unit of each product.                                                                                                   Plastic Aluminium Steel	3 kilos  2 kilos 2 kilos	3 kilos 2 kilos 2 kilos	4 kilos 2 kilos 4 kilos
6. Direct labour -the standard wage rate of direct labour is R.O 4 per hour.

The following information is available regarding raw materials:

Plastic Aluminium Steel
a) Closing inventory requirement in Kilos at 30tht June 2017 in units. 1450 Kilos 1850 Kilos 1350 Kilos
b) Opening inventory at 1st January 2017 in units. 1550 Kilos 2150 Kilos 1250 Kilos
c) Budgeted cost of raw material per kilo R.O. 4 R.O. 5 R.O. 6

Task 5

Explain the purpose and nature of the budgeting process.

To achieve Pass you must,

- Explain the purpose and nature of the budgeting process of ZIZ Ltd.

To achieve M1, you should have used an effective approach to study and research the purpose of budgeting. Use journal articles and literatures to explain the nature and purpose of budgeting.

To achieve D2, you should have planned and used substantial activities or investigations in explaining the purpose of a budget. You could explain beyond budgeting.

Task 6

Select appropriate budgeting methods for the organization and its needs.

To achieve Pass you must,
- Select the most appropriate budgeting methods in preparing the budget for ZIZ Ltd.

To achieve M2 you must, you should use range of methods and techniques to present the cost data

To achieve D2, you should have planned and managed substantial activities, projects or investigations in different budgeting method used in organizations.

Task 7

Prepare budgets according to the chosen budgeting methods

To achieve Pass you should prepare (Using data presented in scenario 5)
- sales budget,
- production budget in quantities,
- direct material usage budget,
- direct material purchase budget
- direct labour budget

To achieve M1, you should make effective judgements in selecting the appropriate budgeting method and you should explore problems with more than one variable.

To achieve D3, you should demonstrate effective thinking and self-evaluation in preparation of budgets. Self-evaluation based on appropriateness of the budget and its practicability need to be assessed.

Scenario 6

TOY Ltd is planning to start its business operation in January 2018. AXN Ltd has the following information for the first six months of trading.

Capital introduced to the business	80,000
Monthly rent	2,500
Cash payment for an equipment  payable in April	25,000
Cash sales  per month	8,300
Credit sales per month (credit sales are made on two month's credit; no bad debts are expected)	19,000
Credit Purchase per month  (credit purchase  are made on One month's credit)	6,000
Cash purchase per month	4,000
The monthly cash expenditure on salaries	4,000

Task 8

Prepare a Cash Budget

To achieve Pass, you should,
- Prepare a cash budget for the six months from January 2017

To achieve M1, complex problems with more than one variable have been explored in preparing the cash budget. ( demonstrate understanding on how to budget for cash and credit sales)

To achieve D1, you should propose Realistic improvement to be made in cash budget of TOY Ltd.
To achieve D2, you should Demonstrate autonomy and independence in preparing the cash budget.