BTEC Assignment Brief
BTEC Assignment Brief
Qualification Pearson BTEC International Level 3, Extended Diploma in Business
Unit or Component number and title Unit 13: Cost and Management Accounting
Learning aim(s)
(For NQF/RQF only) A Explore absorption and marginal costing techniques for decision making
B Carry out standard costing and variance analysis statements
C Explore budgets for financial planning and control
D Undertake investment appraisal of long-term capital investment
Assignment title Cost and Management Accounting techniques in financial planning and decision making
Assessor Mr. Naveed Akhtar
Hand out date 15-01-2024
Hand in deadline 20-03-2024
Vocational Scenario or Context Cost accounting and Management accounting are usually different. Cost accounting reports are necessary for management accounting to generate profit and loss statements by class, identify business drivers, and support data-based decision-making. In short, both do help business owners make smart, profit-driving decisions.
You have recently been appointed as a trainee of the Cost Accounting manager in the Accounting and Finance department of a company. YOut manager has given you tasks related to costing methods and management accounting decisions used widely in business organisations.
You must prepare and submit the required reports given to you by your manager from time to time which could help the company as a part of its financial planning and also assist in making effective decisions.
Task 1 In the first task, you are asked to write a report explaining the difference between cost and management accounting. Categorize and explain the different types of cost. Explain the costing methods like absorption costing and marginal costing used by business in different decision-making situations like the ones provided below by preparing accurately the absorption and marginal cost statements. Further, the VC has also asked you to assess the appropriateness of these methods used for decision-making in the given situations and give justified recommendations to improve the financial performance of the business.
Problem 1: The normal capacity of a plant of Prakash Company is 20,000 units per month or 240,000 units per annum. Variable cost per unit are:
Direct Material $ 3
Direct Labour $ 2.25
Variable FOH $ 0.75
Total $ 6__
Fixed FOH is $300,000 per annum ($25,000 per month) or $1.25 per unit at normal capacity. The unit of production basis is used for applying overhead. Fixed marketing and administrative expenses are $ 5,000 per month or $60,000 per annum and variable marketing and administrative expenses are $3,400. $3,600, $4,000 and $3,000 for the 1st, 2nd, 3rd and 4th months respectively.
Here actual and applied variable FOH are assumed to be the same. There is no work in progress inventory.
The sales price per unit is $10, and actual production, sales and finished goods inventories in units are:
1st Month 2nd Month 3rd Month 4th Month
Opening inventory - - 3,000 1,000
(Units)
Units produced 17,500 21,000 19,000 20,000
Units sold 17,500 18,000 21,000 16,500
Ending inventory - 3,000 1,000 4,500
(Units)
Required:
An income statement using absorption costing
An income statement using direct costing
Computations explaining of the difference in operating income (loss) for each quarter under the two concepts.
Moreover, you need to:
Make an assessment how the business can use absorption and marginal costing techniques to make appropriate decisions.
Recommendations to improve the financial performance of the business company
Checklist of evidence required A written report
Accurate absorption and marginal cost statements
Criteria covered by this task:
Unit/Criteria reference To achieve the criteria, you must show that you are able to:
A.P1 Categorise and explain different types of costs and costing methods in given scenarios.
A.P2 Produce accurate absorption and marginal cost statements for given scenarios.
A.M1 Assess the appropriateness of absorption and marginal costing techniques used for decision making in given scenarios.
A.D1 Make justified recommendations to improve the financial performance of the business in the given scenarios.
Task 2 Standard costing and budgetary control are both cost management tools used in accounting and finance. Budgetary control is basically the projection of financial accounts while standard costing is the projection of cost accounts. Now that you have understood different costing techniques and how to use them appropriately in given business scenario, in the next step, the VC wants you to write a report on how to use standard costing and to do variance analysis in costing.
Based on the given data calculate the overall and sub variances.
Problem 2: The Cordell company has a budgeted normal monthly capacity of 10,000 labour hours, with a standard production of 8,000 units at this capacity. Standard costs are:
Materials .2 Kg @ $ 0.5
Labour ..$9 per hour
FOH at normal capacity:
Fixed expense $5,000
Variable expense $1.50 per labour hour
During May, actual factory overhead totalled $17,550 and 9,000 labour hours cost $76,500. During the month, 7,000 units were produced using 14,400 kg of materials at a cost of $0.51 per kg.
Required:
Material price variance
Material usage variance
Labour pay rate variance
Labour efficiency variance
Spending variance
Volume variance
Estimated and actual sales for the month are as follows:
Units Amount ($)
Budgeted Sales 5,000 250,000
Actual Sales 6,500 390,000
Calculate:
Sales volume variance
Sales price variance
You are also asked to further analyse the reasons for the above variances for the company.
In the next step, the VC wants you to prepare a report on how budgeting is used in business for financial planning and control. In order to check your budgeting abilities he has provided you with the following information of the various companies. He wants you to prepare various subsidiary budgets and the Master budget based on information provided below.
Problem 3: The balance sheet of Walsh Ltd, as at 31 December 2023 is given below. This gives us our opening gures for stocks of raw materials, stocks of nished goods, cash (including bank) balance, creditors, debtors, etc. Next, well produce budgets for the six months ending 30 June 2024.
Walsh Ltd
Balance Sheet
as at 31 December 2023
Fixed assets Depreciation
Cost to date Net
Machinery 4,000 1,600 2,400
Motor vehicles 2,000 800 1,200
6,000 2,400 3,600
Current assets
Stocks: Finished goods (75 units) 900
Raw materials 500
Debtors (2023 October 540 + November 360 +
December 450) 1,350
Cash and bank balances 650
3,400
Less Current liabilities
Creditors for raw materials
(November 120 + December 180) 300
Creditors for indirect
manufacturing expenses (December) 100
( 400)
Net current assets 3,000
6,600
Share capital: 4,000 shares 1 each 4,000
Prot and loss 2,600
6,600
The plans for the six months ended 30 June 2024 are as follows:
(a) Production will be 60 units per month for the rst four months, followed by 70 units per month for May and June.
(b) Production costs will be (per unit):
Direct materials 5
Direct labour 4
Variable overhead 3
12
(c) Fixed indirect manufacturing expenses are 100 per month, payable always one month in arrears.
(d) Sales, at a price of 18 per unit, are expected to be:
January February March April May June
No. of units 40 50 60 90 90 70
(e) Purchases of direct materials (raw materials) will be:
January February March April May June
150 200 250 300 400 320
(f) The creditors for raw materials bought are paid two months after purchase.
(g) Debtors are expected to pay their accounts three months after they have bought the goods.
(h) Direct labour and variable indirect manufacturing expenses are paid in the same month as the units are produced.
(i) A machine costing 2,000 will be bought and paid for in March.
(j) 3,000 shares of 1 each are to be issued at par in May.
(k) Depreciation for the six months: machinery 450; motor vehicles 200.
Required: Prepare the following budgets:
Material budget
Production cost budget (in units and in pounds)
Creditors budget
Debtors budget
Cash budget
Master budget
You need to explain how budgeting is used in this company for financial planning and control.
Once you have done with preparation of various subsidiary and master budget, VC further wants you to assess the viability of the prepared budgets for the company. Further, he wants you to evaluate the usefulness of costing and budgetary control systems to the business.
Checklist of evidence required Written report and calculations
Accurate subsidiary and master budgets
A table of overall and sub variance calculations
Criteria covered by this task:
Unit/Criteria reference To achieve the criteria, you must show that you are able to:
B.P3 Calculate sub- and overall variances in given scenarios using standard costing.
B.M2 Analyse the reasons for the variances in given scenarios.
C.P4 Explain how budgeting is used in a selected business for financial planning and control.
C.P5 Prepare accurate subsidiary and master budgets in a given scenario.
C.M3 Assess the viability of the completed budgets in a given scenario.
BC.D2 Evaluate the usefulness of costing and budgetary control systems to the business.
Task 3 There are several capital budgeting analysis methods that can be used to determine the economic feasibility of a capital investment. They include thePayback Period, Discounted Payment Period, Net Present Value, Protability Index, Internal Rate of Return, and Modied Internal Rate of Return. The VC has provided you with details of AVM Chemical Company and asked you to apply the different investment appraisal methods for this company.
Problem 4: AVM Chemical Company is considering the replacement of two old machines with a new, more efcient machine. It has determined that the relevant after-tax incremental operating cash ows of this replacement proposal are as follows:
END OF YEAR
0 1 2 3
Cash ows $404,424 $86,890 $106,474 $91,612
END OF YEAR
4 5 6 7 8
Cash ows $84,801 $84,801 $75,400 $66,000 $92,400
Required: What is the projects net present value if the required rate of return is 12 percent? Is the project acceptable?
Problem 5: AVM Chemical Company is considering a new product line to supplement its range line. It is anticipated that the new product line will involve cash investment of $700,000 at time 0 and $1.0 million in year 1. After-tax cash inows of $250,000 are expected in year 2, $300,000 in year 3, $350,000 in year 4, and $400,000 each year thereafter through year 10. Though the product line might be viable after year 10, the company prefers to be conservative and end all calculations at that time.
Required: a. If the required rate of return is 10 percent, what is its internal rate of return?
b. What is the projects payback period?
In the next step, VC also wants you to provide explanation of how the non-financial considerations that can affect the capital investment proposals.
Capital budgeting techniquesfocuses on cash ows rather than prots. It also helpsbusinesses prioritize investments and allocate financial resources more effectively. On the basis of the results based on your investment appraisal calculations, the VC wants you to analyse the results for the companys effective decision-making. Finally, VC wants you to evaluate the financial and nonfinancial considerations for this investment proposal and formulate appropriate and relevant recommendations to the company for making a final investment appraisal decision.
Checklist of evidence required Written report and calculations
Criteria covered by this task:
Unit/Criteria reference To achieve the criteria, you must show that you are able to:
D.P6 Apply investment appraisal methods to alternative capital investment proposals in given scenarios.
D.P7 Explain how non-financial considerations affect capital investment proposals.
D.M4 Analyse the results of the capital investment appraisal for decision making.
D.D3 Evaluate the long-term capital investment proposal, taking into account both financial and non-financial considerations, and formulate a set of appropriate and relevant recommendations.
Sources of information to support you with this Assignment https://www.investopedia.com/ask/answers/041415/what-are-different-types-costs-cost-accounting.asphttps://www.slideshare.net/VaseemParry/demonetization-in-india-193212853https://slideplayer.com/slide/12768880/https://www.thebalancemoney.com/budgeting-what-is-a-master-budget-393049https://www.youtube.com/watch?v=CO8LDV2sO6MOther assessment materials attached to this Assignment Brief FOR L1/2 FIRSTS ONLY: If you have not achieved the Level 2 criteria, your work will be assessed to determine if the following Level 1 criteria have been met.
To achieve the criteria, you must show that you are able to: Unit Criterion reference
Cost and Management Accounting
Pearson BTEC International Level 3, Extended Diploma in Business
ASSIGNMENT TITLE
Cost and Management Accounting techniques in financial planning and decision making
Student Name:
Student ID:
Assessor Name: Mr. Naveed AkhtarDate of submission: 20-03-2024
TABLE OF CONTENT
LEARNING AIM-A
TYPES OF COST (A.P1)
Product cost
Period cost
Fixed cost
Variable cost
Semi variable cost / Mixed cost
Stepped cost / Stair-step cost
IMPORTANT NOTE: Explain all types of cost mentioned above with appropriate examples and try add more types of cost as well.
COSTING METHODS (A.P1)
Marginal Costing
Absorption Costing
IMPORTANT NOTE: Explain both methods of costing mentioned above and explain the differences between the two. You can add appropriate income statements sample formats for two methods of costing.
Do Problem 1 as per TASK-1 given in Assignment Brief (A.P2)
An income statement using direct costing
An income statement using absorption costing
Computations explaining of the difference in operating income (loss) for each quarter under the two concepts.
IMPORTANT NOTE: This part requires both computation and explanation
IMPORTANCE OF MARGINAL AND ABSORPTION COSTING TECHNIQUES IN DECISION MAKING (A.M1)
RECOMMENDATIONS TO IMPROVE THE FINANCIAL PERFORMANCE OF THE BUSINESS UNDER THE TWO COSTING METHODS (A.D1)
IMPORTANT NOTE: Comment on income statements prepared above under both methods and give appropriate recommendations
LEARNING AIM-B
Do Problem 2 as per TASK-2 given in Assignment Brief (B.P3)
ANALYSIS OF THE REASONS FOR THE VARIANCES (In Problem 2) (B.M2)
IMPORTANT NOTE: Analyze the reasons for each variances calculated in Problem 1, including Material variances, Labor variances, FOH variances and Sales variances
USE OF BUDGETING FOR FINANCIAL PLANNING AND CONTROL (C.P4)
Do Problem 3 as per TASK-2 given in Assignment Brief (C.P5)
FEASIBILTIY OF COMPLETED BUDGETS (C.M3)
IMPORTANT NOTE: Do analyze the importance each budget prepared in Problem 3 and its suitability for business
EVALUATION OF USEFULNESS OF COSTING AND BUDGETARY CONTROL SYSTEM TO THE BUSINESS (BC.D2)
LEARNING AIM-C
Do Problem 4 as per TASK-3 given in Assignment Brief (D.P6)
Do Problem 5 as per TASK-3 given in Assignment Brief (D.P6)
AFFECT OF NON-FINANCIAL CONSIDERATIONS ON CAPITAL INVESTMENT PROPOSALS (D.P7)
ANALYSIS OF THE RESULTS OF CAPITAL INVESTMENT APPRAISAL (D.M4)
IMPORTANT NOTE: Do analyze the effect of the results of NPV, IRR and Payback period as calculated in Problem 4 and 5 .Effect of NPV
Effect of IRR
Effect of Payback Period
EVALUATION OF THE RESULTS OF CAPITAL INVESTMENT APPRAISAL (D.D3)
Financial Considerations
Non-Financial Considerations
Recommendations
REFERENCES
