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Management Accounting Costing and
Budgeting
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Management Accounting Costing and Budgeting Individual Assignment
ACKNOWLEDGEMENT
Firstly I would like to thank our lecturer Mr Anuruddha Yapa, who gave me full support on
the assignment from the day he presented to us. he never made us !ored and all of his
classes were full of "oy and pleasure, therefore as an individual I have gained a good
knowledge a!out the module which is Managing Financial #esources $ %ecisions. &he
su!"ect has designed in a way that provides the current issues and opportunities an
organi'ation could face in a Management Accounting, Costing and Budgeting
econdly my sincere thanks to the management of ICB& who gave me the opportunity to
follow ()% in !usiness management and for giving such an e*cellent e*perience to do an
assignment that I had on this particular su!"ect. &hank you to all my colleagues who gave
thoughtful ideas to carry out the assignment and gave to critics to improve my writing skills
in an effective way. I could confidently say that the support from everyone had helped me do
this particular assignment without any hassles.
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Executive Summary
&his paper e*plains a!out the Management Accounting in terms of costing and !udgeting. It
has !ecome one of the vital areas in most of the organi'ation. &oday many Companies are
moving forward with their !usiness and it is a must factor that the cost should !e maintainedin a way that could increase the performance effectiveness. &he assignment !rief gives an
opportunity to understand the different scenario a!out costing and !udgeting and how it
should !e looked in a way to improve the standard. &he paper starts with understanding the
different costs and methods that e*ist in the world of !usiness. &hese particular methods help
and lead the Companies to understand the !usiness in a !etter way.
&his assignment is also !ased on the advantages and disadvantages of !udgeting and costing
that will provide to a company. It helps the company to identify their finance standards and
how to handle the current situations in the !usiness. +ater on the marginal and a!sorption
costing are calculated for the Mo!ile hone Company. &he third -uestion is !ased on +IF,
FIF, Average price and tandard price.
ther part of the assignment is a!out tar +imited and its Calculations are on /ero !ased
methods. &he calculations such as production -uantity, material usage, and material purchase,
direct la!our and !udgeted profit and loss account. &his whole assignment has provided the
insights of costing and !udgeting. 0very Company should make sure that the costing $
!udgeting is maintained in a high standards. &his would help the organi'ations to compete in
the market for a long time.
&he Company has to !e aware that the !udget is carried out with correct and relia!le
information which would !ring the real outcome results for the Company. It can create
valua!le decisions such as pricing, profit sharing, etc. o it is clear that the !udget $ costing
will create a great total of impact on each $ every organi'ation in the world. &herefore the
assignment portrays the significant if !udgeting and costing and also how it should !e
maintained in a way that will give a clear picture a!out the Company and how they operate in
the market place with high standards.
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Management Accounting Costing and Budgeting Individual Assignment
ContentsACKNOWLEDGEMENT............................................................................................1
Executive u!!a"#...............................................................................................2
$%t"&'ucti&%........................................................................................................... (
1. Di)e"e%t t#*e+ c&+t...........................................................................................,
2. D$--EENT TPE O- COT$NG METOD.........................................................
$%te"*"etati&%.......................................................................................................26
CONCL$ON....................................................................................................... 2
E-EENCE........................................................................................................ 23
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Introduction
&hese days so many organi'ations are focusing on costing and !udgeting to get their
o!"ectives and goals in and valua!le way. It helps to decide the financial issues that happen
in the !usiness environment. &hese financial issues can !e related to develop decisions,
pricing decisions, wage control and material cost. &his will make any company1s financial
structure strong and also it can carry out in a competitive environment.
)ormally costing is evaluated !y using the past information in order to make a decision with
the current e*penses !ut the !udget is something which talks a!out the future and how the
capital can !e utili'ed in an appropriate way. It would compose the Companies to identify
with the !usiness performance and how it may possi!ly to move towards to the ne*t level.
Many organi'ations have their own services to take out the costing and !udgeting activities
!ecause it has the power to come to a decision the company1s success in the long run.
)owadays finance is one of the key areas in any unit which needs to supported !y others
departments as well.
American water has !een maintaining their costing and !udgeting !y using educated
employees and part of the assignment would make clear a!out the types of costing which is
!eing used !y the Company. ince the Company is one of the largest water providing
companies in ri +anka, it is their responsi!ility to produce -uality water services for the
people. It might !e achieved !y eliminating the unnecessary cost that is related to the
services. As well this will direct the consumers to get the high -uality product2services in a
low price. &herefore every company must focus on having a good and successful costing and
!udgeting.
&he report gave the opportunity to understand the marginal and a!sorption costing. &his is
imports for all the organi'ation and employees must ensure the procedures are followed
according to the re-uirement. &he ignorance will cost many issues that will affect the
company1s !usiness functions. &herefore the organi'ations must take is into consideration in
a massive manner.
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LEARNING OUTCOME !"
"# Di$$erent ty%e& co&t
'i(ure "
Ty%e& o$ Co&t
&oday environment need to know the different types of cost that are in the !usiness. &his
knowledge will help the organi'ations to classify the different types of cost and raise their
functions in a !etter way. )ormally there are many types of cost e*isting in the world of
!usiness and the types are given !elow and are !riefly discussed. 0very cost element will
e*plain the different way that a !usiness can handle and how it can improve it to survive in
the environment.
&here are many different costs that e*ist and every organi'ation must understand what is
important for them and how they must use in order to reduce the un!alance of the !usiness.
It may increase the chances to create the competitive advantage and also to sustain the
!usiness with high reputation.
'I)ED COST
&his is one of the common costs that occur in the !usiness and it doesn1t change according to the
!usiness activity within a period of time. Furthermore it won1t change !ased in the output2turnover
and it will remain in a constant manner. ome of the e*amples are rent, insurance premium, e*ecutive
BM/60/02 P a g e | 5
Opportuni
ty CostMarginal
Cost
Fixed and
variable
C&+
Average
Sunk
Diret
and
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salaries, depreciation and incense fee. &herefore the given cost are inter related to a specific period of
time. It can !e clearly mention that the fi* cost incur !ased on the time scale and not on the level of
activity.
*ARIA+LE COST
&his is known as the opposite of the fi*ed cost which can !e change !ased on the !usiness activity.
)ormally it changes according to the -uality of the output that produced and it has a direct
relationship with the production. Many Companies show a great interest towards this cost and also to
find ways to reduce so it would !ring profits to the relevant unit. &he following are the e*amples for
varia!le cost.
#aw material cost
ackaging cost
%irect material cost
MARGINAL COST
Marginal cost is !ased on the total cost and the -uality produced in a !usiness. It is the change that
occur in the total cost which will happen when the -uality change !y one unit. Also it is known as the
additional cost that involves in the each level of production. &his additional cost needs to !e
monitored to keep up the performance in a positive way.
0.g. In order to make an e*tra ta!le it will involve the additional cost of wood and la!our
O,,ORTUNIT- COST
An opportunity cost is a cost that measures the opportunity that is lost or sacrificed when the
choice of one course of action re-uires that an alternative course of action !e given up. It is
important to note that opportunity costs only apply to the use of scarce resources.
.# DI''ERENT T-,ES O' COSTING MET/ODS
)ormally in this world there are different kinds of costing methods, which would help to achieve the
goals and o!"ectives in an effective and efficient manner. ome of the costing methods are unit
costing, "o! costing, contract costing, !atch costing, process costing and operating costing etc. 0very
organi'ation follows different costing methods in order to find the cost of their production. &here are
many methods e*isting and the Company must know which method would suit for their !usiness. &he
costing methods are e*plained !elow.
Ty%e& o$ co&tin( met0od&
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'i(ure .
UNIT COSTING
&his method is used for products which can !e known as indistinguisha!le -uantity and also
can !e related to the manufacturing process that happens in a continuous !asis. For e*ample
paper manufacturing. In simple terms this cost allocated to a selected unit and commonly
calculated as the cost over a period of time divided !y the num!er of items produced. Also
unit cost includes all fi*ed and varia!le costs that are involved in the production. &his is one
of the significant costing methods which help to Companies to grow, lower the unit cost it
can achieve through economies of scale.
1O+ COSTING
It is related with the "o! function and normally the information collected !ased on the "o! in
order to make necessary decisions. It is the process of tracking and understanding the
e*penses that incurred on a "o! against the revenue that has !een produced !y the "o!. &his is
one of the vital costing methods for the Companies which are pairing a relatively high value
volume per customer with a relatively low num!er of customers such as !uilding contractors,
architects, etc.
,ROCESS COSTING
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#nit
Costing$ob
CostingOperating
Costin
%roes
s
Contrat
Costing
&at'
Costing
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Management Accounting Costing and Budgeting Individual Assignment
rocess costing is an accounting rule that traces and totals the direct costs and allocates the
indirect costs of a manufacturing process across the num!er of units produced.
Manufacturing costs are assigned to products manufactured in large groups, and costs are
assigned to manufactured units on an average cost !asis. rocess costing involves certain
speculations a!out standard costs and can !e su!"ective3 therefore, process costing is only
appropriate for companies that make large num!ers of units thousands or millions of units
per month. %eveloping a ro!ust and perfect process costing system is important !ecause
inaccurate costs will misrepresent the financial picture of the company.
&oday most of the Companies are showing great concern a!out process costing and they
have understood that it will make an impact on the organi'ation1s day to day activities.
&herefore maintaining the cost in an effective manner would increase the capacity of a
!usiness firm and also to produce a strong financial structure to the Company.
+ATC/ COSTING
&his method is used for products which are !ased on !atch production and to make an easy
task, each !atch is considered as a separate unit. 4enerally this costing applies for where
-uantity of identical items is manufactured as a uni-ue !atch. In a similar way to "o! costing,
!atch costing is used in situations where a specific customer order determines the work to !e
done. (owever, "o! costing is for situations where a single cost unit is !eing made 5e.g. a
single item of !espoke furniture6 whereas !atch costing is used where a uni-ue !atch consists
of identical items 5e.g. a printing company producing a !espoke !atch of 7888 identical A9
adverts6.
O*e"ati%g +tate!e%t u%'e" a4+&"*ti&% c&+ti%g
5*e"i&' 1a7e+ 8609000
5: *"&'ucti&% c&+t
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*"&'ucti&% c&+t 53., x
(09000
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C7&+i%g +t&c; 53.,x
10900053,9000 52,,9000
C&%t"i4uti&% c&+t 10,9000
e77i%g a%' a'!i%i+t"ati&%5309000
Net *"&
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-igu"e ,
Figure !
BM/60/02 P a g e | 1*
O*e"ati%g +tate!e%t u%'e" a4+&"*ti&% c&+ti%g
5*e"i&' 8a7e+ 3(09000
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609000
,109000
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e77i%g a%'a'!i%i+t"ati&%
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Management Accounting Costing and Budgeting Individual Assignment
O*e"ati%g +tate!e%t u%'e" !a"gi%a7c&+ti%g 5*e"i&' 1
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-ixe' c&+t 58x (09000 51209000
e77i%g a%'
a'!i%i+t"ati&%
5309000
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Management Accounting Costing and Budgeting Individual Assignment
a'!i%i+t"ati&%
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Management Accounting Costing and Budgeting Individual Assignment
-ixe' c&+t 51209000
e77i%g a%' a'!i%i+t"ati&% 5309000
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Management Accounting Costing and Budgeting Individual Assignment
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Management Accounting Costing and Budgeting Individual Assignment
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LEARNING OUTCOME !2
"# COM,AN- +ACKGROUND4AMERICAN ,REMIUM WATER
S-STEMS
American remium :ater ystems was esta!lished in Fe!ruary ;88< as a "oint venture with American
+i-uid ackaging ystems Inc., ride International 5vt6 +td and &he &rend 4roup of Companies in
ri +anka. &hese three Companies have successfully contri!uted their efforts in order to create
American :ater as the num!er one !ottled drinking water !rand in ri +anka. &he Company1s core
focus is to produce a clean and hygienic water to -uench the thirst. &he advanced research
technologies helped the Company to follow an effective packaging and disposal methods which
would eliminate the redundant production cost. &he -uality and standards are maintained in order to
satisfy the clients for many years.
MISSION
&o provide high -uality products to the customers the Company has !een sta!le with their mission
statement which is educated !y the Management to all their employees. &he !rand is widely
recognised in ri +anka through their logo which is distinguished from other competitors. Followingis the mission statement of American :ater.
We are committed to providing pure drinking-water to the public via an environment-friendly
process, maintaining high standards of hygiene, giving good value for money backed by a solid
customer-care service satisfying customer needs, amidst an atmosphere of professionalism where
workers find it stimulating to work in excellence, contributing toward company growth, while we
ensure fairness and integrity prevail in all our decisions concerning our people, our products and ourcustomers
*ISION
&he vision of the Company was invented from its founders to clearly e*press the long term focus of
which is !ased identifying opportunities and creating the success for the employees. 0ach year the
Company evaluates their performance !y recruiting young talents to !ring up new ideas to !uild
professional relationship in the industry. &he vision of American :ater is given !elow.
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Management Accounting Costing and Budgeting Individual Assignment
To be the leader in providing purified drinking-water in the South sian S!" region, enriching
shareholder and stakeholder interests, while creating opportunities for employees to share in the
group#s success
,UR,OSE O' +UGETINGince American :ater ystems is one of the largest water producing Companies in ri +anka, they
must understand the gravity of maintaining a proper !udget for their organi'ation. Budget is a process
and also known as a -uantitative plan which is used as a tool in order to decide the activities that will
!e chosen for the future uses. &he !udget helps American water to plan their !usiness activities in an
effective way. &he Company is aware that it is a vital aspect for them and also it will help them to
produce a good performance internally and e*ternally. &herefore the Company must make sure that
they provide accurate information in order to develop a !udget which could !e used for the future
needs.
&oday American :ater ystem prepares their !udget annually in order to focus the future needs of
the Company. It helps the Company to see the !usiness activities in a proactive manner and also to
carry out the day to day activities in a most effective manner. &he Management is aware that the
!udget should !e prepared to cater the needs of the Company and also the amendments should !e
made to according to the changes that could happen in the !usiness environment. &he !elow are some
of the points that !udget helps American water to move forward in the !usiness.
It helps to identify the Company resources and utili'e in a ma*imum way
&o understand the financial performance of the company in many areas
(elps to forecast the future and make the necessary ad"ustment in the !usiness functions
+earning and understanding the outcome of the Company
(elps to maintain the reputation of the Company in the society
lays a ma"or role in !usiness sustaina!ility and also to carry out good !est practices
It will create a credi!ility among the employees and also to retain them in the Company
=nderstand the economic changes and other changes that occur in the !usiness environment
and how it should !e taken into consideration
AD*ANTAGE 5 DISAD*ANTAGE O' T/E +UDGETING
It had !een argued that the !udget is a vital aspect for any organi'ation and American :ater
Company is maintaining it in a great manner. 0ven though !udgeting could carry !oth advantages
and disadvantages. &herefore the Company needs to know the insights of it and how they could
tackle the !usiness to move forward. Below given are some of the advantages of !udgeting.
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Management Accounting Costing and Budgeting Individual Assignment
It helps the Company Managers to !e more focused and identify the relevant areas
It can work as a tool in !etween different layers of Management
Budget could lead to design effective !usiness plan
It will !e a motivating tool for the employees and Managers so they can use it as a statistic
(elps to evaluate the Company performance and make changes in the current !usiness
activities
It will help the Company to understand and move forward with !usiness1s day to day
activities
Following are some of the disadvantages of the !udgeting. &hese factors need to !e considered !y
American :ater ystem in an appropriate manner. A small error could !ring massive outcomes to the
performance of the Company. &herefore understanding will help the Company to !e more focused and
also to learn the !usiness environment.
It is a time consuming process to develop !udgets
It only considers the financial outcome of the Company
ometimes it will lead the Company to make rigid decisions
ne wrong decision will create a massive change in the Company and it will affect the
Company1s internal and e*ternal stakeholders
It will tarnish Company1s good name and the reputation
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2.
Figure1,
8. +ero budget
1.a7e+ 4u'get
,0?09000 89,009000
2. P"&'ucti&% 4u'get
BM/60/02 P a g e | 1)
Bu'geta"# c&%t"&7 +tate!e%t
-7exe' 4u'get c&!*a"e it actua7 "e+u7t+Ex*e%+e+ t#*e -7exe' 4u'get
,,00 u%it+
Actua7 "e+u7t
,,00 u%it+
Bu'gete'
va"ia%ce$%'i"ect 7a4&" =9,00 =9=00 (00:a've"+e
c&%+u!a47e+ 1=968, 2092,0 61,:a've"+e
a"ia47e
&ve"ea'+
819(0, 2=9200 220,: av&"a47e
-ixe' &ve"ea'+ 229,00 229,00 ,3890(0 3193,0 11=0:av&u"a47e
Bu'geta"# c&%t"&7 +tate!e%t
-ixe' 4u'get c&!*a"e it actua7 "e+u7t+
Ex*e%+e+ t#*e -ixe' 4u'get000 u%it+ Actua7 "e+u7t,,00 u%it+ Bu'gete'va"ia%ce
$%'i"ect 7a4&u" 119000 =9=00 1100:av&u"a47e
c&%+u!a47e+ 2,9000 2092,0 (,0:
av&u"a47e
a"ia47e
&ve"ea'+
(09000 2=9200 10300:
av&u"a47e
-ixe' &ve"ea'+ 229,00 229,00 ,=39,00 3193,0 166,0:
av&u"a47e
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Management Accounting Costing and Budgeting Individual Assignment
a7e+ 09000
5: &*e%i%g +t&c; 5,9000
6,9000
5F c7&+i%g +t&c; (9000
P"&'ucti&% "eui"e' 6=9000
8.Mate"ia7 u+age 4u'get
6=9000?8 209000
WH 6=9000?8 209000
(. Mate"ia7 *u"ca+e 4u'get
WH
+age 209000 209000
5: &*e%i%g +t&c; 5109000 5=9000
1=9000 1=39000
5F c7&+i%g +t&c; 1,9000 189,00
2129000 2119,00
%it c&+t 1 2
T&ta7 2129000 (289000
,.Di"ect 7a4&" 4u'get
*"&'ucti&%
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3. a7ue & c7&+i%g
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TOTAL CA
AA$LABLE
(*-25* )2-*** 1*4-5**
PAMENT
-O DEBTO 1=92,0 239,00 839,00
TA 69000 69000 69000
WAGE ,9000 ,9000 ,9000
OEEAD ,9000 ,9000 ,9000
TOTAL PAMENT 58,92,0 5((9,00 5,(9,00
CA B/C/- 45-*** 4"-5** 5*-***
SA./S
L
MAC 809000 x 20I @ 6000
NE (09000 x 80I @ 129000
L ,,9000 x ,0I @ 29,00
(,9,00
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Management Accounting Costing and Budgeting Individual Assignment
AGT
NE (09000 x 20I @ 39000
L ,,9000 x 80I @ 169,00
AGT (,9000 x ,0I @ 229,00 (9000
EPTEMBE
L ,,9000 x 20I @119000
AGT (,9000 x 80I @ 189,00
EPTEMBE 6,9000 x ,0I @ 829,00
,9000
%#0CAS/
L
NE 1,9000 x 1,I @ 292,0
L 209000 x 3,I @ 19000
1=92,0
AGT
L 209000 x 1,I @ 89000
AGT 809000 x 3,I @ 2,9,00
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239,00
EPTEMBE
AGT 809000 x1,I @ (9,00
EPTEMBE (09000 x 3,I @ 8(9000 839,00
LEARNING OUTCOME !. AND !3
a"ia%ce
1.DML
P"ice va"ia%ce T&ta7 !ate"ia7 va"ia%ce
18,00
12000 1,005A
+age va"ia%ce 2000 5A
12,00
12000 ,005A
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2.DL
ate va"ia%ce T&ta7 7a4&" va"ia%ce
=,00=000 ,005A
Ecie%c# va"ia%ce 1=(0 5A
=000
,60 1((05A
8. O/ A$ANCE
Ex*e%'itu"e va"ia%ce T&ta7 va"ia47e O/
va"ia%ce18=00
12==8 =06.2,5A
Ecie%c# va"ia%ce 005A
12==8
18200 206.2,5-
OA @ (.12,
-OA @ 8.,=8,
OA @ 8.213,
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Management Accounting Costing and Budgeting Individual Assignment
(.- O/ A$ANCE
Ex*e%'itu"e
va"ia%ce
Ca*acit#
va"ia%ce
&7u!e
va"ia%ce
T&ta7
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Management Accounting Costing and Budgeting Individual Assignment
@ (,0 ? 2 @ =00
=00 x @ 20 ? 8 @ 310
@ 130 ? ( @ 20
2(80
W @ ,00 ? 2 @ 1000
@ 800 ? 8 @ =00
@ 200 ? ( @ 300
2900
Inter%retation
%irect material variance shows an adverse of ;888, they have purchased the products at a
high price3 this can !e reduced !y o!taining trade discounts
%irect material usage has a
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CONCLUSION
0very organi'ation in the world function with certain o!"ective and it helps the country and
the society to live a standard lifestyle. Managing Accounting helps the Companies to forecast
a!out the future and make necessary decision making. &oday the world is moving in a rapid
manner and the Companies must !e ahead of the changes. &his particular paper discusses
a!out the costing and !udgeting in different scenarios and each outcome of the assignment
depicts different Companies and situations. &he assignment gives an understanding that they
are many types of costing availa!le for the organi'ations and also there are different costing
methods used in day to day !usiness. &he !udgeting process helps the Companies to have a
clear control on their performance and also to motivate the necessary parties to take the
!usiness to the ne*t level. From the !udget a Company could a!le to manage the relationship
!etween the income and e*penditure. If the relationship maintains in an effective way, it will
motivate the employees and also the Company can easily achieve their set goals and
o!"ectives.
Most of the scenarios !udget won1t !e an accurate amount since many factors will have an
influence on that particular amount. As already discussed in the a!ove paper, some of the
factors are uncontrolla!le and it needs to !e ad"usted according to the change that happens in
the market. In certain times Company1s !udgeted profit will !e lesser that the actual profit
due to the economic and other changes. &he main advantage of having a !udget is that the
Company can see their future and they can make the decisions to improve it in further way.
Also it gives a clear picture for all the stakeholders and they also can evaluate the Company
performance and level of investment. &herefore it is more evident that the !udget plays an
important role in Company1s performance in the long run.
Most of the Companies do their own !udgeting calculations whereas some have their outsourcing
Companies to handle their !udgeting. &he main reason to outsource this process is that generally it
consumes time and therefore it needs to !e done with more care an effort. As a whole this assignment
provides the insight of costing and !udgeting and how Companies must control in order !oost their
performance. Also it has given a clear picture to understand the underlying factors of maintaining a
good !udget for a Company.
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RE'ERENCESAve"age a%' Ma"gi%a7 C&+t9 Boundless, 201,9 Acce++e' 18t Dece!4e" 201,9
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tt*//tt*+//.4&u%'7e++.c&!/ec&%&!ic+/*"&'ucti&%/*"&'ucti&%:
c&+t/ave"age:a%':!a"gi%a7:c&+t/
A'va%tage+ a%' Di+a'va%tage+ & Bu'get+9 Safari, 201,9 Acce++e' 16t
Dece!4e" 201,9 &u"ce "&!
tt*//tt*//!#.+aa"i4&&;+&%7i%e.c&!/4&&;/
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-ixe' C&+t+9 !nvesting Answers, 201,9 Acce++e' 1(t Dece!4e" 201,9 &u"ce
"&! tt*//tt*//.i%ve+ti%ga%+e"+.c&!/
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