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ACCM4100 Management Accounting

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ACCM4100 Management Accounting

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Course Code: ACCM4100
University: Kaplan University

MyAssignmentHelp.com is not sponsored or endorsed by this college or university

Country: United States

Question:

Assume the following in your answer:

Work-in-process inventories are negligible and ignored.
Direct materials inventory and finished goods inventory are costed using the FIFO method.
Unit costs of direct materials purchased and finished goods are constant in September 2018.

REQUIRED:
1) Prepare the following budgets for September 2018:

a) Revenues budget
b) Production budget in units
c) Direct materials usage budget and direct materials purchases budget (both budgets in units and $)
d) Direct manufacturing labour budget
e) Manufacturing overhead budget
f) Ending inventories budget (direct materials and finished goods)
g) Cost of goods sold budget

For each budget, prepare by product (Premium and De Luxe) and in total.
2) Management has also requested your team to give them some understanding on a new aspect of budgeting that has come to their attention. They have outlined a few questions for your team to address:

a) What is Kaizen budgeting?
b) How does kaizen budgeting differ from traditional budgeting?
c) How could Sweden Ltd incorporate elements of kaizen budgeting into its current budgeting process? Would you recommend they do so and why or why not?

Are allocated for presentation, grammar, spelling and appropriate Harvard referencing where needed.
Are allocated for appropriate teamwork as evidenced by your minutes and any other observations
made by your lecturer
The team should have a minimum of three meetings (the team may have as many meetings as they need to) and should maintain minutes of those meetings which should be included with the team assignment as an attachment. The minutes of meetings should (at the very least) contain –
1) Where and when the meeting was held
2) People present; absent; apologies
3) What was discussed, any disagreements/conflicts, points that were agreed on;
3) The follow up action relating to each member of the team;
4) Any other relevant matters, anything else that is significant to the successful completion of the assignment.

Answer:

Answer 1.
a.

Revenue Budget

Particulars

Premium cabinets

De Luxe cabinets

Budgeted Sales Units

740

390

Budgeted Selling Price ($)

1020

1600

Budgeted Sales

754800

624000

 
b.

Production Budget (Units)

Particulars

Premium cabinets

De Luxe cabinets

Sales

740

390

Less : Opening Inventory

20

5

Add : Closing Inventory

30

15

Production Units

750

400

 
c.

Direct Materials Usage Budget (Units & $)

Particulars

Mirror

Softwood

Hardwood

Balsa Wood

Premium Cabinets : (750 Units)

Required per Unit

2

1

4

1

Total Required Units (a)

1500

750

3000

750

Cost per unit ($)

160

125

12

16

Total Cost ($)

240000

93750

36000

12000

 

De Luxe Cabinets : (400 Units)

Required per Unit

0

5

1

4

Total Required Units (b)

0

2000

400

1600

Cost per unit ($)

160

125

12

24

Total Cost ($)

0

250000

4800

38400

 

Total Required Units (a+b)

1500

2750

3400

2350

 

Direct Materials Purchase Budget (Units & $)

Particulars

Mirror

Softwood

Hardwood

Balsa Wood

Premium Cabinets :

Required

1500

750

3000

750

Add : Ending Inventory

24

6

80

4

Less : Beginning Inventory

40

10

100

4

Purchases to be made (Units)

1484

746

2980

750

Cost per unit ($)

160

125

12

16

Total Cost ($)

237440

93250

35760

12000

De Luxe Cabinets :

Required

0

2000

400

1600

Add : Ending Inventory

0

40

4

44

Less : Beginning Inventory

0

30

5

40

Purchases to be made (Units)

0

2010

399

1604

Cost per unit ($)

160

125

12

24

Total Cost ($)

0

251250

4788

38496

 
d.

Direct Manufacturing Labour Budget

Particulars

Premium cabinets

De Luxe cabinets

Planned Production (Units)

750

400

Direct Labour Hours Per Unit (hrs)

3

5

Budgeted Labour Hours

2250

2000

Manufacturing labour cost per hour ($)

30

30

Budgeted Labour Cost ($)

67500

60000

 
e.

Manufacturing Overhead Budget

Particulars

Premium cabinets

De Luxe cabinets

Total

Budgeted Labour Hours

2250

2000

Budgeted Variable Manufacturing Overhead Rate per labour hour ($)

35

35

Total Variable Overhead ($)

78750

70000

148750

Total Fixed Overhead ($)

42500

Budgeted Manufacturing Overhead ($)

 

 

191250

 
f.

Ending Inventories Budget

Finished Goods

Particulars

Premium cabinets

De Luxe cabinets

Direct Material per unit

509

733

Direct Labour per unit

90

150

Manufacturing Overhead :

 

Variable

105

175

Fixed

30

50

Total Cost per unit ($)

734

1108

Ending Finished Goods Units

30

15

Ending Finished Goods inventory ($)

22020

16620

 

Working Note 1 :

 

 

 

It has been stated in the sum that fixed overheads are to be allocated to the finished good units on the basis of direct labour manufacturing hours.

So,

 

 

 

Total Budgeted Fixed Overheads

=

$42,500

 

Total Budgeted Labour Hours

=

4250 hours

 

Fixed Cost per Labour Hour ($)

=

$10/hour

 

 

Working Note 2 :

 

 

 

 

 

Calculation Of Direct Material Cost Per Unit Of Finished Goods :

 

 

 

 

 

 

 

 

 

Particulars

Mirror

Softwood

Hardwood

Balsa Wood

Total ($)

Premium Cabinets :

 

Required per Unit

2

1

4

1

 

Cost per unit ($)

160

125

12

16

 

Total Cost per unit of finished goods($)

320

125

48

16

509

De Luxe Cabinets :

 

 

 

 

 

Required per Unit

0

5

1

4

 

Cost per unit ($)

160

125

12

24

 

Total Cost per unit of finished goods($)

0

625

12

96

733

 

Working Note 3 :

 

 

 

Calculation Of Direct labour & Manufacturing Cost Per Unit Of Finished Goods :

Particulars

Direct Labour Cost ($30/hour)

Variable Manufacturing Cost ($35/hour)

Fixed Manufacturing Cost ($10/hour)

Premium Cabinets :

Direct Labour Hours

3

3

3

Cost per unit

90

105

30

 

 

 

 

De Luxe Cabinets :

Direct Labour Hours

5

5

5

Cost per unit

150

175

50

 

Ending Inventories Budget

Direct Materials

Particulars

Mirror

Softwood

Hardwood

Balsa Wood

Premium Cabinets  :

Cost per unit

160

125

12

16

Ending Direct Materials Units

24

6

80

4

Ending Direct Materials ($)

3840

750

960

64

De Luxe Cabinets  :

Cost per unit

160

125

12

24

Ending Direct Materials Units

0

40

4

44

Ending Direct Materials ($)

0

5000

48

1056

 
g.

Cost Of Goods Sold Budget (in $)

Particulars

Premium cabinets

De Luxe cabinets

Materials Cost

381750

293200

Labour Cost

67500

60000

Manufacturing Overhead :

 

Variable

78750

70000

Fixed

22500

20000

Total Manufacturing Cost

550500

443200

Add : Opening Stock

10840

4850

Less : Closing Stock

22020

16620

Cost Of Goods Sold

539320

431430

Answer 2.
The process that the management of the company adopts to improve the procedures so that there is a reduction in costs is known as kaizen budgeting. This budgeting process shows slow improvements over a large span of time. It is basically used by the management to control costs on a continuous basis (Atkinson, 2012).
Kaizen budgeting involves huge time and resources and therefore the management has to plan in great details before the execution process is carried out. It has to look upon various business aspects such as its location and the possible improvement projects before implementation. These projects will be successful only when the management plans it with great efficiency (Berry, 2009). The expected savings and the costs that will be involved in these improvement projects must be taken into consideration while preparing this project.
The cost reductions that have occurred because of the occurrence of Kaizen activities can be budgeted on the basis of planned improvement projects. It is difficult for the management to relate particularly few improvements to entire period and therefore the investment projects has shorter period but the normally the budget is prepared for once a year.  The management can also enter percentages of cost reduction in the budget and then rely on the basis of kaizen activities that are carried out by the management (Boyd, 2013).
The kaizen budgeting helps to compare between the performance of the management and the budgets taking into consideration the reduction in cost that has occurred over time. Such information can also be useful while taking decisions in relation to promotion and issuance of bonus.
The two main problem of adopting kaizen budgeting is as follows:

It is easier for the management to reduce costs in the initial years. However, it becomes difficult to reduce costs in the subsequent years. There is a pressure build on the management when it is observed that the percentage of kaizen triggered cost reduction has also fallen.
There might be unfavourable variances found in the budget if there is no cost reduction in relation to kaizen budgeting. As a result the management is unable to achieve profits and expected cash flows (Case, 2012).

Traditional budgeting is a technique of preparing different kind of budgets using the forecasted or estimated data whereas the Kaizen budgeting is a method of budgeting in which the activities are revaluated after the budget has been already set. The traditional form of budgeting usually focuses on the past expenditure level but in case of Kaizen it focuses on the new economic appraisal.  Traditional budgeting is accounting oriented and therefore there is no requirement of the justification of the current period whereas Kaizen budgeting is a judgemental process as it includes decision making (Datar, 2015). In this case, a proper justification in relation to benefits and cost is required. If there is any kind of justification provided in the traditional budgeting system then it is given by the top management but in case of kaizen budgeting justification is provided by the manager of that particular unit. The clarity as well as responsiveness is lower in traditional budgeting when compared to Kaizen budgeting. Traditional budgeting is a routine approach whereas Kaizen budgeting is a straight forward approach.  Traditional budgeting gives priority firstly to past expenditures, secondly to demand for inflation and then to the new programs. Kaizen budgeting involves decision units that is divided into comprehensive packages and is ranked as per their relevance (Holtzman, 2013).
As already familiar with the kaizen theory, where the aim is to reduce cost and maximize profits, Sweden Company is done with the preparation of budgets. However, due to absence of certain information such as market rate, substitutes in the market, make or buy conditions, etc it is difficult to give an appropriate answer for how the company can adopt a cost effective approach towards its operations (Paul, 2014).
As already known from the prepared budget, the company specializes in two products (Paul, 2014). If we individually assess the profit derived from each product, we understand that the profit coming from the first product, that is, premium cabinet is $286 while the profit from De Luxe cabinet is $492. Though the number of units sold in first product is 740 and in case of another product, it is 390 units, the profit derived from the second product is more than the first one. Also, as we do not know the limiting factor or the target sales of the company, we can make a suggestion of producing more of the Deluxe cabinet than premium cabinet or the company can also choose the option of shutting down the first product and producing only the second one (Seal, 2012).
However, it is difficult to make plans for the cost reduction due to constraints on information. We can still consider hypothetical situations that can be used for cost reduction:
Use of market price in the market: the company can consider the price of the direct materials or the product itself provided through other substitutes and can switch to some other source if that happen to be cheap. In the same way, the company can adopt buy the product from market and use the same finance in some other productive manner.
Make or buy: the company can produce the parts required to prepare its products, that is, premier cabinets and de luxe cabinets. In that way, it can compare the production cost and purchase cost and accordingly make the best decision tha contributes towards the cost reduction objective.
Use of marginal costing: the company can use the marginal costing where the fixed costs are absorbed in total and not allocated. This would somewhere give the real cost as fixed cost has to be incurred no matter what. Also, decisions are taken better by using marginal or volume based method as in that case the products are compared on the basis of contribution from each unit and not on the basis of profits from each unit.
As evident from the above, the fixed costs are absorbed or allocated to each unit which can be changed into marginal costing method as they would help Sweden Ltd to take a better decision of producing which product or producing what number of each product (Siciliano, 2015).
Thus, It is recommended to adopt the kaizen theory in the budget so as to have a better approach and the company could use the saved costs in some other fruitful ways.
References
Atkinson, A. A. (2012). Management accounting. Upper Saddle River, N.J.: Paerson.
Berry, L. E. (2009). Management accounting demystified. New York: McGraw-Hill.
Boyd, W. K. (2013). Cost Accounting For Dummies. Hoboken: Wiley.
Case, P. (2012). Environmental Risk Management and Corporate Lending: A Global Perspective. Boca Raton, Fla.: CRC.
Datar, M. S. (2015). Cost accounting. Boston: Pearson.
Datar, S. (2016). Horngren’s Cost Accounting: A Managerial Emphasis. Hoboken: Wiley.
Holtzman, M. (2013). Managerial Accounting For Dummies. Hoboken, NJ: Wiley.
Paul, K. (2014). Managing extreme financial risk. Oxford: Academic Press, Elsevier.
Seal, W. (2012). Management accounting. Maidenhead: McGraw-Hill Higher Education.
Siciliano, G. (2015). Finance for Nonfinancial Managers. New York: McGraw-Hill.

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