Вы находитесь на странице: 1из 22


Unit 5
Management Accounting

Student Name:

Unit 5 Accounting Management Assignment

Unit 5 Accounting Management Assignment


Management accounting assignment is held responsible for managing the organisational activities as
well as their funds in effective manner. To manage their activities they prepare different policies.
BRUNEI Co. follows the budgeting process to manage their liquid funds that helps in balancing their cash
flows. Different budgeting methods will be discussed and utilised. They will make their performance
evaluation with the use of variance analysis.

Task 1

A. Explain why organisations use budgeting (LO 1.1; 1.2)

 Budgeting:It is the process of allocating the available resources in effective manner for the
purpose of optimum utilisation. It also make inclusion of forecasting related to income and

expenditure. There are various benefits due to which organisation follow the budgeting process

such as:
 Manage cash flows: It helps in effective forecasting that helps in estimating requirement of
funds and also estimate the expenses ratio. With the use of this estimation information they
make adequate level of balance in their cash flows (inflows and outflows) (Ya & A, 2012).
 Decision making: With the help of the estimating they gather effective set of information that
get utilised for decision making process. With the use of this information they took decisions
related to the use of available finance as well as made expenses accordingly.
 Setting benchmark: With the use of budget results they set the effective benchmark for their
department. By following these benchmarks they control their mismanagement of available
resources (Ya & A, 2012).
 Evaluate performance: It also get utilised for the purpose of making evaluation of their
performance. In order or make performance evaluation they compare their actual outcomes
with their budgeted outcomes. With the help of attained variances the evaluate their
performance as they attain favourable results or adverse results.
 Allocate resources properly: Budgeting process renders adequate requirement of the resources
that helps in allocated resources properly. On the basis of the requirement they allocate and
utilise their available resources in order to get desired outcomes.
 Proper communication: Management make effective communication with the use of the
prepare budget in order to process the activities accordingly. They set effective benchmark for
the purpose of processing and executing their activities in effective manner (Anessi-Pessina, et.
al., 2016).

B. Explain the administrative procedures used in the budgeting process. (LO 1.1; 1.2)

The administrative procedures having three steps process that get utilised in budgeting process. Below
three steps get discussed such as:

 Appoint budget officer: Budget officer is such authorised body that put adequate level of
control over budgeting process. He/she can be elected preferentially or from the members of
their budget committee. He plays a channel role or mediator among the budget committee and
managers & employees. They effectively deal with the problems or issues raised so that they
make effective changes in their budget well before time. He is responsible for making effective
communication in context to budget.
 Budget committee: It is a team of authorised persons that engaged into supervision of
budgeting process. Member form every department get included in budget and these get
selected on the basis of their designations and experiences. They also get termed as
coordinator. They effectively measure the organisational performance by conducting variance
analysis and if they get adverse results they search reasons for it. They also engage into
approving budgets and after this they send it to management accounting department for the
preparation of "Budget Manual" (Anessi-Pessina, et. al., 2016).
 Prepare budget manual: It is such document that explain the prepared budget in a documented
form. It make inclusion of all the details related to different division and processes. It shows the
deadlines for attaining the desired results and departments follow them in effective manner. It
also make segregation of the liabilities among the authorised personals after which they attain
responsibility to make communication related to the budget among their employees and make
them motivated so that they attain it effectively (Anessi-Pessina, et. al., 2016).

C. Describe the stages in the budgeting process (including sources of relevant data, planning and
agreeing draft budgets and purpose of forecasts and how they link to budgeting). (LO 1.1; 1.2)
Budgeting process is denoted as strategic management tool and it get utilised for forecasting and
decision making. Below are the stages involved in budgeting process such as:

 Budget preparation: It is first stage and it include the basic requirements of every department.
In budget preparation below points get followed such as: -
o Follow organisation structure:It make inclusion of the goals and objectives, vision and
missions of the organisation.
o Forecast revenue and expenditure: Make forecasting in context to revenue and
expenditure. For this purpose make use of adequate sources.
o Budgeting technique: Make use of optimum budgeting technique such as zero based or
incremental or any other. Their management utilise best suitable technique.
o Allocate the resources: It is necessary to allocate the resources in adequate manner as
it results into proper utilisation of resources.
o Follow government policies: Management need to follow all the implied policies in
order to make the budget most effective and efficient (Morozov, 2013).
 Budget approval: It is 2nd step where prepared budget need to be approved from the budget
committee. Budget committee is such authorised body that approve the budget prepared by
their management. The make effective analysis and if it is not prepared accordingly they must
reject it. They make effective alternations or amendments before approving prepared budgets.
 Budget execution: It is the 3rd step where approved budget get executed in effective manner.
Budget manual is required for the purpose of making effective communication among different
department. Effective changes are made in the approved budget also with any change in their
market (Morozov, 2013).
 Budget evaluation: It is the last and final step of budgeting process where worthiness of
prepared budget get evaluated. It can be termed as audit of the budget where variances get
calculated. If the variances are favourable then it can be termed as successful budget otherwise
different reasons get measured. Benchmark or standards get set in order to make adequate use
of their budgets (Morozov, 2013).

Task 2

a) Explain and illustrate with examples classifications used in the analysis of the product/service costs
including by function, direct and indirect. Fixed and variable, stepped fixed and semi variable costs.
(LO 2.1)

 Function cost: It is such part of cost that get segregated as per the requirement of the activity. It
also denoted as activity based cost.
 Direct and indirect: The cost that have direct relation with the product and its absence impact
its profitability directly. Cost of material is production process having direct relation.
The cost that have indirect relation with the product and its absence is having indirect impact
over its profitability. Depreciation over machinery having indirect relation in production process
(Brook, 2012).
 Fixed and variable: The cost which remain same from the starting point to the end point termed
as fixed cost. Rent is best suitable example..
The cost that keep on varying with the change in activity is denoted as variable cost. Material

cost is best suitable example.

 Stepped fixed: The cost which is fixed for a group but it is variable for different cost.
Maintenance cost is best suitable example (Brook, 2012).
 Semi variable: The cost which is fixed from starting to an extent after which it become variable.
Electricity bill is best suitable example (Brook, 2012).

b)Calculate the fixed and Variable cost using the high low method and justify your reason of
application. (LO 2.1)

Given data:

Months Units Costs

Jan 6,200 £69,700
Feb 3,500 £45,300
March 3,100 £44,100
April 4,900 £64,100
May 7,100 £88,100
June 4,200 £57,800

Formula:Variable cost per unit = Total cost (high cost - low cost) / Total units (High level unit - low level

Particulars Amount
High cost £88,100
Low cost £44,100
High units 7,100
Low units 3,100

Per unit variable cost = (88,100 - 44,100) / (7,100 - 3,100)

= 44,000/4000 = £11 per unit (Liou, 2011)

Calculation of fixed and variable cost using high low method such as: -

At high level

Particulars Amount
At 7,100 units
Variable cost (7,100 units * £11/ unit) £78,100
Fixed cost (£88,100 - £78,100) £10,000

At low level

Particulars Amount

At 3,100 units
Variable cost (3,100 units * £11/ unit) £34,100
Fixed cost (£44,100 - £34,100) £10,000

Analysis: In the above tables variable and fixed cost get calculated in order to segregate the semi-
variable cost of organisation. Previous years costs as well as units get utilised for the purpose of making
calculation with the use of high low method. In calculation high and low costs as well as units get utilised
(Liou, 2011).

Task 3

a. Demonstrate and discuss the effect of absorption and marginal costing on inventory valuation and
profit determination. (LO2.1 & 2.2)

BRUNIE Co. follow two costing methods for making inventory evaluation and profit determination such

 Absorption costing: -This costing method emphasis over inclusion of all available costs whether
it is variable (direct cost) or fixed cost (indirect cost) as well as all other overhead costs.
 Marginal costing: -This costing method emphasis over the inclusion of all variable costs but
didn't make inclusion of fixed costs. Only direct cost is utilised for calculation (Srithongrung,

For inventory valuation and profit determination they make use of the marginal costing as they include
all the variable costs for their calculation without inclusion of fixed cost as it is not incurred directly over
the production of their product. It helps in focusing over the direct costs that has fluctuations on the
other hand fixed cost having same nature during whole process. There is effective level of differentiation
among the marginal costing and absorption costing for the purpose of profit determination such as: -

 High level of profits get extracted in absorption costing when there is increase in the inventory
 As per the marginal costing method organisation attain higher profits when their inventory level
 When inventory level remain fixed or didn't show any change it results into similar profit
(Srithongrung, 2010).

b. Differentiate between Job costing, Batch costing, Process costing and Service costing. (LO2.2)

Differentiation shows in below table such as:

Job Costing Batch costing Process costing Service Costing

Production process Organisation renders
Cost calculation make include lots of steps and services instead of
Cost calculation is based
inclusion of the batch or each step is taken in to products and cost is
over cost of every order.
unit of same product. consideration for cost calculated over services
calculation. only.

Different and unique In batch standardized At every step or process Services are considered

products are included products are included. product is easily instead of products.
and it can be termed as differentiated.
customised products.
The size of batch is big as Services are rendered
Under this costing type Size get varies as it can
there are lots of products and cost is calculated
products size is small. be small or big.
included under it. over them only.
Both type of industry
Customised industry
Most of the standardised Majority of standardised whether it is customised
follows this type of
industry follows it. industry follows it. or standardised follow
this method.

c. Prepare a profit and loss statement for each area, East and West, and in total, on an absorption
costing basis.  (LO2.2 & 2.3)

  slim soccer Decani

  £ £ £
selling price 50 58 70
purchasing price 32 36 44
gross profit 18 22 26

Profit and loss account for area East and West such as:

area   east west total

gross profit:     £   £ £
  slim  94000*18   1,692,000.00  32000*18      576,000.00   2,268,000.00
  soccer  45000*22      990,000.00  46000*22   1,012,000.00   2,002,000.00
  decani  26000*26      676,000.00  42000*26   1,092,000.00   1,768,000.00
        3,358,000.00     2,680,000.00   6,038,000.00
Packaging     437768.24   162231.76  
Advertising     486315.79   353684.21  
Transport     335291.96   264708.04  
 total cost     1259375.99   780624.01  
Profit     2098624.01   1899375.99  

Working notes:Cost apportionment

cost app.            

  basis of App.          

Packaging no of orders East 85000 (220000+380000)/116500   5.15


    West 31500      

Advertising sales units East 165000 (280000+560000)/285000   2.95
    West 120000      
Transport   East 9130000 (350000+250000)/16338000    £ 0.037
    West 7208000      
    Slim soccer decani    
East S.P. 50 58 70    
  no of units 94000 45000 26000    
  total sales value 4700000 2610000 1820000 9130000  
    Slim soccer decani    
West S.P. 50 58 70    
  no of units 32000 46000 42000    
  total sales value 1600000 2668000 2940000 7208000  

d. Prepare a profit and loss statement for West only, using marginal costing, showing the relevant
information for each product and the total profit or loss in that area. (LO2.2 & 2.3)  

Profit and loss account for west only such as:

Marginal Costing   Slim Soccer Decani Total

    £ £ £ £
gross profit per unit   18 22 26  
no. of units   32000 46000 42000  
gross profit   576000 1012000 1092000 2680000
Packaging   £12,274.68 £28,326.18 £18,884.12 £59,484.98
Advertising   £31,438.60 £45,192.98 £41,263.16 £117,894.74
Transport   £34,275.92 £57,155.10 £62,982.01 £154,413.02
TVC   £77,989.20 £130,674.26 £123,129.28 £331,792.74
contribution   £498,010.80 £881,325.74 £968,870.72 £2,348,207.26
fixed cost       858207.26
Profit         £1,490,000.00

Working notes: Cost Apportionment

Particulars Basis of apport. Calculations   Results  

7 Page

Packaging no of orders 220000/116500   £1.89  

Advertising sales units 280000/285000   £0.98  
Transport   350000/16338000   £0.02  
    Slim soccer decani  
west s.p 50 58 70  
  no of units 32000 46000 42000  
  total sales value 1600000 2668000 2940000 7208000

Task 4

a) Advise the BRUNEI CO. with supporting figures as to whether to cease production of A and D. (LO

Calculation of contribution without A & D:

details B E TOTAL
  £'000 £'000 £'000
SALES 1100 1200 2300
MATERIAL -290 -290 -580
LABOUR -280 -280 -560
VAR OVERHEADS -250 -280 -530
FIXED OH -300 -300 -600
PROFIT/(LOSS) -20 50 30
CHANGE -150 -150  

Calculation of contribution made by A & D:

  A D
SALES 760 900
MATERIAL -185 -290
LABOUR -240 -280
VAR OH -210 -310
TOTAL VAR. COSTS -635 -880
Analysis: BRUNEI Co. management propose to close down the production of Product A & D as it is
considered that they lead to loss situation. As per the results of the profit calculation without inclusion
of A & D results that Product B is yielding loss whereas Product E yields only minor profit. With the
inclusion of Product A & D it is clearly observed that they are not attaining huge profits but they didn't
attain loss and with the help their sales they easily meet out their expenditure and earn adequate level
of profits for their business. Now it is suggested that they need not to close down the production of
Product A & D (Libby & Lindsay, 2010).

b) Based on the above figures, calculate

(i) The contribution to sales ratio, based on the sales mix of the four products above. (LO 2.4)

Calculation is in below table such as:

Details A B D E TOTAL
  £'000 £'000 £'000 £'000 £'000
SALES 760 1100 900 1200 3960
MATERIAL -185 -290 -290 -290 -1055
LABOUR -240 -280 -280 -280 -1080
VAR OVERHEADS -210 -250 -310 -280 -1050
TOTAL VAR. COSTS -635 -820 -880 -850 -3185
CONTRIBUTION 125 280 20 350 775
16.45% 25.45% 2.22% 29.17% 19.57%

(ii) The break-even point in £000.  (LO 2.4)

Breakeven point = Total fixed cost / contribution to sales ratio

Total fixed cost = 600

Contribution to sales ratio = 0.1957

= 600/0.1957 = 3,065.806

Breakeven point = £3,605.806(Pollack, 2014)

(iii) The required sales in £000 to earn a profit of £200,000.  (LO 2.4)

Targeted sales = Total fixed cost + targeted profit/ contribution to sales ratio

Total fixed cost = 600


Targeted profit = 200

Contribution to sales ratio = 0.1957

= 600 +200/ 0.1957

= 800/0.1957= 4,087.742

Required sales = 4,087.742(Pollack, 2014)

c) If labour is paid at a rate of £10 per hour and labour is restricted to 98,000 hours, state, with
supporting figures, the combination of products (in £000) that would maximise profit for the period. 
(LO 2.5) 

Particulars A B D E TOTAL  
Labour cost 240000 280000 280000 280000 1080000  
Lab. Cost/hr 10 10 10 10 10  
No. of lab.
24000 28000 28000 28000 108000 Hrs. needed
          98000 Hrs. available
          -10000 Hrs. Shortage
  A B D E    
No. of lab.
24000 28000 28000 28000    
Contribution  £ 125,000  £ 280,000  £ 20,000  £ 350,000    
 £       5.21  £     10.00  £     0.71  £     12.50    
Ranking 3 2 4 1    

Product mix: -

No. of Contribution / Total

Product Sales value  
Lab. Hrs lab hr. contribution

E  £1,200,000 28000 £12.50  £      350,000  

B  £1,100,000 28000 £10.00  £      280,000  
A  £760,000 24000 £5.21  £      125,000  

D  £ 578,571.43 18000  £  0.71  £   12,857.14  


  TOTAL 98000      
         £ 767,857.14 Maximised Cont.
         £ 600,000.00 Less: Total FC
         £ 167,857.14 Maximised Profit

d) If a further 8,000 hours become available, calculate the increase in profit that would arise. (LO 2.5)

If there is an extra 8,000 Hrs. available then the profit will arise by: -

8,000 hrs. * 0.71 = £5,714.29

Increase in profit is by £5,714.29 (Alino & Schneider, 2012)

Task 5

a) Board of BRUNEI CO. Ltd wants you explain the differences between these budgeting methods and
to advise which one will be more appropriate to which type of business (LO 3.1)

 Incremental: The management of BRUNEI Co. make use of their previous year's information or
figures for the purpose of preparing their budget for current year. In previous year budget they
made effective changes on the basis of required improvements, current trend as well as changes
in the market. These changes shows increment in their budget and with this effect budget get
known as incremental budget (Kurunmäki & Miller, 2011).
 Zero based: The management of BRUNEI Co. prepare the budget with the fresh figures no
information related to their previous year get utilised. They are not allowed to make use of
previous year's figures for preparing their current year budget. New organisation follows this
method for preparing their budget (Kurunmäki & Miller, 2011).
 Fixed: The management of BRUNEI Co. prepare budget report for one time and it get followed
by them for a longer time period. There is no change is made into it and most of the time it
provide rigidity among organisation.
 Flexible: The management of BRUNEI Co. prepare budget in the starting of the year and make
effective changes into it for the purpose of attain desired results from it. With the use of this
method management as well as organisation attain high level of flexibility and helps in attaining
desired benefits from it (Easterday & Eaton, 2012).

b) You are required to perform the below listed tasks help the board of BRUNEI CO. understands the
cash flow and how they can be managed to improve efficiency within the Working Capital:

(i) Calculate the amount of direct materials purchases in each of the month of July, August and
September. (LO 3.2)

The amount of direct materials purchases in each of the month is as follows such as:

    July Aug Sept


    £ £ £
  closing stock 11500 16000 13000

add usage 22000 28000 32000

    33500 44000 45000
less opening stock 16000 11500 16000
   £ 17,500.00  £ 32,500.00  £ 29,000.00
purchase costs

(ii) Prepare the cash budgets for July, August and September. (LO 3.1, 3.2 and 3.3)

Cash budget for the three months such as July, August and September is as follows such as:

    July August September

  Receipts £ £ £
  cash sales 43500 48000 57000
  receivables 60000 101500 112000
  Total Receipts 103500 149500 169000
  wages 38000 42000 47500
  overheads 16000 20500 24500

purchase of
  17500 32500 29000
direct materials

  tax bill     78000

  Total Payments 71500 95000 179000
Net Receipts/
  32000 54500 -10000
Opening Cash
  15000 47000 101500
Closing Cash
  47000 101500 91500

(iii) Describe briefly the advantages of preparing cash budgets. (LO 3.1, 3.2 and 3.3)

The advantages of preparing cash budgets are as follows:

 Cash in hand get managed in effective manner.

 It build savings habit.
 Unnecessary expenses get minimised.
 Financial awareness get increased among management.
 The balance between cash inflows and cash outflows get managed in effective manner.
 It reduces the chances of getting out of liquid funds.
 It make the organisation's liquid position strong (M Peter 2010).

(iv) Assess and advise the Board for any changes which should be made to improve the cash flow

variances. (LO 3.4)

 Analysis over the prepared cash budget: As per the prepared budget it get analysed that there
is effective level of increase among revenues and expenditure. But the difference is the rate of
speed of increase in revenues is bit slower as compare to increase in expenditure. Management
need to maintain the balance between the cash inflows as well as cash outflows. For this
purpose they need to increase the level of their revenue earning capacity as well as slow down
the increment of their expenditure. With the effect of it they become able to manage their cash
(M Peter 2010).
 Recommendations to improvements such as: Management need to lower down their prices but
have to increase their product qualities to increase their sales.

They need to shorten the time period for their debt collection to increase the level of their revenues
There is requirement of enhancing their credit policy for the purpose of better cash inflows.
They need to restrict the unnecessary spending that results into huge savings.
In order to lower down the ratio of salaries and wages they need to hire skilled labour that helps in
making effective savings (M Peter 2010).

Task 6

(i) Prepare a flexed budget and calculate the total variances (LO 4.1, 4.4)

Flexed budget as well as calculation of total variances is in below table such as:

original flexed actual

  Particulars variances  
budget budget budget
  sales units 8100 8400 8400    
  production units 8900 9100 9100    
    £ £ £ £  
  Sales 793800 823200 798000 -25200 adverse
  Materials 195800 200200 170455 29745 favourable
  Labour 267000 273000 244515 28485 favourable
  variable overheads 106800 109200 89348 19852 favourable
  fixed overheads 160200 163800 136074 27726 favourable
  production cost 729800 746200 640392    
  less closing inventory 65600 57400 57400    
less cost of sales 664200 688800 582992    
  Profit 129600 134400 215008 80608 favourable

(ii) analyse each of the cost variances clearly identifying possible causes of these variances and
recommend corrective action for the identified variances (LO 4.2, 4.3)

a. Materials

Material price variance   £  

actual cost of material for 36464 kg      £ 170,455.00  
36464 kg @ std cost of £5.50/kg      £ 200,552.00  
       £   30,097.00 Fav.
material usage variance (explain)        
actual usage     36464 Kg
std usage for the actual production        
  9100 @ 4kg   36400 Kg
      -64 Adv
    at std cost of £5.50 -£        352.00 Adv
total material variance=30097-352=      £   29,745.00 Fav.
Particulars Variances F or UF Causes Actions
Material price £   30,097 F Availability of low quality Purchase good quality
material. material

Unnecessary wastage get Allocate raw-material

Material usage 64 kg A
increased. following EOQ method

Fluctuations in its prices Follow quality standards.

b. Labour

Particulars     £  
Labour rate variance        
actual hours paid at
actual cost
actual hours at std cost
(46400 hrs @£5)
      -12515 A
labour idle time variance        
no. of actual labour hrs
no. of actual labour hrs
1300 hrs @ std cost of £5     -6500 A
labour efficiency

actual hrs worked     45100  


std hrs worked on actual

  9100*6   54600  
      9500 F
  9500 hrs @ std cost    £ 47,500.00 F
total labour variance=   47500-6500-12515 =  £ 28,485.00 F
Particulars Variances F or UF Causes Actions
Labour rate High adverse labour idle time.
-12515 A Minimise the idle time ratio.
Labour idle time Increase in the over shift work
-6500 A Remove over shift facility
Increase in unskilled labour
Introduce new machinery.
Labour efficiency
47,500 F
variance Focus on hiring skilled
High fluctuation in labour

c. Variable overheads

Variance Overhead     £  
actual hours worked@
actual cost
actual hours worked@
   45100*£2 90200  
std cost
       £      852.00 F
variable overheads
efficiency variance
actual hours worked     45100  
std hrs for the actual
  9100*6 54600  
  at std cost@ £2    £ 19,000.00 F
total variable
overheads variance=     £19852 F
Particulars Variances F or UF Causes Actions
Variable Available resources utilised in Build adequate contract that

overhead £852 F adequate manner. helps in reducing price

capacity fluctuations.

Variable £19,852 F Set plans get followed in

effective manner. Allocate resources in
efficient manner.
d. Fixed overheads

fixed overheads variance   Calculation Results  

actual fixed overheads     136074  
original budget total     160200  
       £ 24,126.00 F
capacity variance     Hrs  
actual hours worked     45100  
budgeted hours   8900*6 53400  
      8300 A
  at std cost of £3 8300*£3  £ 24,900.00 A
fixed overheads efficiency variance        
actual hours worked     45100  
std hrs worked for the actual production        
    9100*6 54600  
      9500 F
  at std cost of £3 9500*£3  £ 28,500.00 F
total fixed overheads variance   24126-24900+28500 =  £ 27,726.00 F
Particulars Variances F or UF Causes Actions
Fixed overhead Management having poor
£ 24,126 F Put emphasis over facts and
variance estimations.
figures for decision making
capacity variance £24,900 A process.
The accuracy level of available
Fixed overhead information is not adequate.
28,500 F Review the information
efficiency reliability before using.

e. Sales variance

Sales price variance   Calculation Results  

actual sales at actual selling price     798000  

actual sales at std selling price   8400*98 823200  

      -25200 A

sales volume variance     units  
  actual sales   8400  
  budgeted sales   8100  
      300 F
profit (std profit of £129600/8100) = £16      £ 4,800.00 F
Particulars Variances F or UF Causes Actions
Sales price Fall in the prices of product.
25,200 A
variance Improve the quality of
Product get sold over high products.
discount rates.
Sales volume
300 F Set prices by reviewing
Set prices get affected due to competitors prices.
substitute products.

e. Prepare a statement reconciling the budgeted profits to the actual profit

Reconciliation statement of the variances such as:

Particulars  £  £
Budgeted profits    £ 129,600.00
Budgeted fixed production overheads    £ 160,200.00
Budgeted contribution    £ 289,800.00
Selling Price Variance -£   25,200.00  
Sales Volume Variance  £     4,800.00 -£   20,400.00
Actual sales minus the standard variable cost of sales    £ 269,400.00
Variable cost variances:    
Material price variance  £   30,097.00  
Material usage variance -£        352.00  £   29,745.00
Labour rate -£   12,515.00  
Labour idle time -£     6,500.00  
Labour efficiency  £   47,500.00  £   28,485.00
Variable cost variances  £        852.00  
Variable efficiency  £   19,000.00  £   19,852.00
Actual Contribution    £ 347,482.00
Budgeted Fixed Production Overheads -£ 160,200.00  
Fixed cost expenditure variance  £   24,126.00  
Capacity Variance -£   24,900.00  
Fixed cost efficiency variance  £   28,500.00  
Actual Fixed Production Overheads   -£ 132,474.00

Actual Profit    £ 215,008.00


(iii) Report these findings to the board in accordance with identified responsibility centres. (LO 4.5)
The Board of Directors,
Subject: - Report on variances
Date: - XX-XX-XXXX
This report is represented in order to aware about the overall performance of the organisation. The
results of variance analysis showcase that different requirements require adequate level of
improvements. These variances get utilised for the effective decision making and for these variances
different departmental managers are responsible such as:

Variance Responsible manager

Material variance Production manager
Labour manager or Human
Labour Variance
resource management
Variable overhead Departmental managers
Fixed overhead Departmental managers
Sales variance Sales manager

Conclusion: Management of BRUNEI Co. need to emphasis over their performance enhancement. On
the basis of calculated variances management need to put emphasis over improving the performance of
the different department as per their variance level. Management need to focus over motivated their
employees so that they perform their efficiently.
Management Accountant
(Pilleboue, et. al., 2015)

Task 7

(a) Calculate, both in number of units sold and sales value, the (LO 5.1):

(i) Breakeven point

Breakeven point = Total Fixed cost / Contribution per unit

Total fixed cost = salaries & wages + rent & rates + other fixed costs

= £260,000 + £75,000 + £345,000

Total fixed cost = £680,000

Contribution per unit = Per unit selling price - Per unit buying price

Per unit selling price = £68


Per unit buying price = £53

Contribution per unit = £68 - £53 = £15

Breakeven point = £680,000/ £15 = 45,333.33 units

Breakeven point = Fixed cost/ PV ratio

Fixed cost = = £260,000 + £75,000 + £345,000 = £680,000

PV ratio = Per unit contribution / Selling price per unit * 100

= £15/ £68 * 100 = 22.06%

= £680,000 / 22.06%  = £3,082,502

Breakeven point = £3,082,502 (Simakov, et. al., 2015)

(ii) Margin of safety

Margin of safety = Total sales - breakeven point

Total sales = 56,000 * 68 = £3,808,000

Break-even point = £3,082,502

Margin of safety = £3,808,000 - £3,082,502 = £725,498

Margin of safety = £725,498 (Simakov, et. al., 2015)

(b) Calculate the shop’s profit or loss if 40,500 pairs of shoes were sold during a year. (LO 5.1)

In the below table calculation of profit or loss over sale of 40,500 pairs of shoes such as:

Particulars Calculation Amount

Sales (A) (40,500 units* £68) £2,754,000
Purchase price (B) (40,500 units* £53) £2,146,500
Contribution (A -B = C) (40,500 units * £15) £607,500
Fixed cost (D) NA £680,000
Profit/Loss (C - D) NA (£72,500)

With the sales of the 40,500 pairs of shoes there will be  loss of £72,500 (Li, et. al., 2014)

(c) Calculate how many pairs of shoes would need to be sold if a sales commission of £2per pair of

shoes was paid in addition to other costs and the owner required a net profit of £180,025. (LO 5.1)

Formulae of revised sales = Total fixed cost + desired profit / revised contribution
Fixed cost = £680,000

Desired profit = £180,025

Revised contribution = £15 - £2= £13/ unit

Revised sales = (£680,000 + £180,025) / £13 = 66,156 units.

In the below table above revised sales is tested whether it is correct or not such as:

Particulars Calculation Amount

Sales (A) (66,156 units * £68/ unit) £4,498,603
Purchase price (B) (66,156 units * £55/ unit) £3,638,580
Contribution (A -B = C) (66,156  units * £13/ unit) £860,027
Fixed cost (D)   £680,000
Profit/Loss (C - D)   £180,025

The revised sales of 66,156 units results into attaining a additional profit of £180,025.(Li, et. al., 2014)

(d) Calculate how many pairs of shoes would need to be sold to breakeven if an advertising campaign
costing £25,000 was undertaken while, at the same time, selling prices were increased by 10%. (LO 5.1
and 5.2)

There is increment in selling prices by 10% so new selling price is = £68 + (£68* 10%) = £74.8

New contribution = New selling prices - Buying prices

= £74.8 - £53 = £21.8

New fixed cost = £680,000 + £25,000 = £705,000

New breakeven point = (£705,000 / £21.8) = 32,340 units or 32,339.45 units

If there is increase in selling price by 10% and fixed cost get increased by £21.8 as advertising campaign
then the new break-even point is 32,339.45 units (Li, et. al., 2014).

(e) Recommend and justified appropriate action to improve the financial performance of Indo Ltd in
order to improve its profitability using the answers in part d. (LO 5.2)

The calculation made in the above sections helps in analysing that break-even point get decreased with
the increase in the selling price. Earlier the breakeven point was 45,333.33 units that get reduced to
32,339.45 units by increasing the selling price by 10% only. By increasing selling price they recover their

incurred cost at rapid pace. Breakeven point is at par situation in which organization didn't get losses
nor earn profits. When the breakeven point is low then organisation having chance to earn high profits

and vice-versa. So it recommended to increase their selling process along with adopt the marketing
campaign (Li, et. al., 2014).

It is concluded that BRUNEI Co. utilised different budgeting method to make adequate use of their
available finance. They make cost classification in order to make best utilisation of their cost. They make
different use of their prepared budget such as they evaluate performance, extract useful information in
their decision making process and many more. They follow the prepared budget in order to process the
activities systematically and as per their desired level. In the end they perform variance analysis for the
purpose of evaluating their performance so that they make improvements in their processing.


Alino, N.U. & Schneider, G.P. 2012, "Conflict reduction in organization design: budgeting and accounting
control systems", Academy of Strategic Management Journal, vol. 11, no. 1, pp. 1.
Anessi-Pessina, E., Barbera, C., Sicilia, M. & Steccolini, I. 2016, "Public sector budgeting: a European
review of accounting and public management journals", Accounting, Auditing & Accountability
Journal, vol. 29, no. 3, pp. 491-519.
Brook, D.A. 2012, "Budgeting for national security: a whole of government perspective", Journal of
Public Budgeting, Accounting & Financial Management, vol. 24, no. 1, pp. 32.
Butt, M. 2010, "Variance analysis", Accounting, Auditing & Accountability Journal, vol. 23, no. 6, pp. 816-
Easterday, K.E. & Eaton, T.V. 2012, "Double (accounting) standards: a comparison of public and private
sector defined benefit pension plans", Journal of Public Budgeting, Accounting & Financial
Management, vol. 24, no. 2, pp. 278.