Management Accounting for Decision Makers
Management Accounting for Decision Makers
Introduction
Bite is the company which is involved in producing and delivering sandwiches to business through the West End and City of London. This company is running by David Nalbandian, who is also a CEO. However, recently David Nalbandian facing problems regarding the accuracy of a quote and charges, lack of budgeting system concept by David Nalbandian. In this paper we will revised the prediction for sandwiches along with the recommendation, purpose, role and function of the company and hence recommending the proper budgeting technique to Mr. David Nalbandian.
Discussion
Part 1) Revised estimate for 100 sandwiches
The above cost was taken for the production of the 100 and 50 sandwiches as
SIUATION
VARIABLE
ABSORPTION
Sales volume> production volume
The utility is greater
Production and reduce inventories of finished goods
Sales volume
The production and finished goods inventories increase
The utility is greater
Sales volume is the volume of production
Equal profits
Estimated costs:
Their determination is based on experience that companies have obtained in previous years or in the cost estimates made on the subject specialists. Companies using the basis of predetermined costs usually prefer the estimate.
Standard costs:
Is based, primarily, on the cost that would result in optimal conditions with roast in manufacturing inquiries are made ??about the specifications and techniques of the machinery used. This cost represents a measure of efficiency and consider its adoption in our country has grabbed almost nil.
Product price
£ 100
Variable unit cost of manufacturing
£ 40
Indirect manufacturing costs
£ 200
Normal production level
100 units
Fixed manufacturing unit costs
£ 20
Variable unit cost of sales and administration
£ 15
Fixed costs of selling and administrative
£ 100
It is assumed that unit costs of the initial inventories are equal to the current unit costs:
Units produced
Income under absorption costing
Utilities under the direct costing
Units
sold
50
Units
Sold
100
Units
Sold
200
Units
sold
50
Units
Sold
100
Units
Sold
200
50
100
200
£ (20,000)
(50,000)
70.000
£ (20,000)
100.000
220.000
£ 130,000
250.000
370.000
£ (170,000)
(170,000)
(170,000)
£ 100,000
100.000
100.000
£ 370,000
370.000
370.000
Assumptions
Following assumptions have been made in order to produce an estimate for 100 sandwiches.
Direct material cost totals £100.00 for 100 sandwiches.
Packaging amounts to £1.40 for each tray holding 50 sandwiches; therefore, this cost doubles for 100 sandwiches.
Total three hours are consumed for labours; this labour hour requirement is assumed to remain same across the production level.
It is assumed that ingredient cost will remain stable across the period at £50.
Fixed overheads will remain uniform at a rate of £10.77/ direct labour hour.
Evaluation
Company has been following traditional costing method for reporting the expenses of producing sandwiches. It is improper to remove the fixed costs of manufacturing work in process inventory and finished goods. The argument that there is manufacturing capacity in the long run regardless of the levels of production capacity in the short term is considered specious. The fixed costs as variable costs are recorded for the production and therefore should apply to such products. Opponents also claim direct cost excluding fixed costs of manufacturing inventories constitutes a serious violation of the principle of comparative accounting period the larger the amount of costs that may to products more accurate the measurement utility.
Proponents of traditional costing argue that the balance sheet does not reflect economic values. Opponents of traditional costing system claim that this would produce an even more conservative balance sheet and less than is currently ...