COLLEGE OF BANKING AND FINANCIAL STUDIES DEPARTMENT OF PROFESSIONAL STUDIES Assignment front sheet Assignment - 1 Qualification Unit number and title Pearson BTEC Level 5 HND Diploma Business Unit 9- Management Accounting Costing and Budgeting Semester Batch III Fall-2016-2017 Student name Assessor name Mr. Feroskhan Student No. Internal Verifier (IV) name Mr.Farzan Date issued Completion date Submitted on 20/10/2016 21/11/2016 Assignment title Cost Classifications, techniques ,Information, Forecasting And budgeting In this assessment you will have the opportunity to present evidence that shows you are able to: Learning Outcome Learning outcome Assessment Criteria LO1 Be able to analyse cost information within a business 1.1 Classify different types of cost 1 1.2 Use different costing methods 2 1.3 Calculate costs using appropriate techniques 3 1.4 Analyse cost data using appropriate techniques 4 LO3 Be able to prepare forecasts and budgets for a business 3.1 3.2 3.3 3.4 Explain the purpose and nature of the budgeting process. Select appropriate budgeting methods for the organization and its needs. Prepare budgets according to the chosen budgeting methods Prepare a Cash Budget Task no. Evidence (Page no) 5 6 7 8 Learner declaration I certify that the work submitted for this assignment is my own and research sources are fully acknowledged. Student signature: Date: 1 2 In addition to the above PASS criteria, this assignment gives you the opportunity to submit evidence in order to achieve the following MERIT and DISTINCTION grades Grade Descriptor Indicative characteristic/s M1 Identify and apply strategies to find appropriate solutions Effective judgements have been made.2. An effective approach to study and research has been applied. 3. complex problems with more than one variable have been explored M2 Select / design and apply appropriate methods / techniques 1. relevant theories and techniques have been applied 2.a range of methods and techniques have been applied 3.a range of sources of information has been used M3 Present and communicate appropriate findings 1 .the appropriate structure and approach has been used coherent, logical development of principles/ concepts for the intended audience 2.a range of methods of presentation have been used and technical language has been accurately used D1 Use critical reflection to evaluate own work and justify valid conclusions D2 Take responsibility for managing and organising activities D3 Demonstrate convergent /lateral / creative thinking Conclusions have been arrived at through synthesis of ideas and have been justified. 1.Autonomy/independence has been demonstrated 1. ideas have been generated and decisions taken 2. convergent and lateral thinking have been applied Contextualisation To achieve M1, you should make effective judgements in classifying the cost based on cost behavior, nature and this should be reflected in the preparation of cost sheet (task 1) And you should solve the given complex problem and more than one variable should have been explored. (Explore the use of Overhead absorption rate per machine hours) (task 2) Discussion of different type of techniques used in presenting cost data (task 4).Use journal articles and literatures to explain the nature and purpose of budgeting (task 5). You should make effective judgements in selecting the appropriate budgeting method and you should explore problems with more than one variable (Task 7). you should demonstrate understanding on how to budget for cash and credit sales ( task 8) To achieve M2, you should use relevant theories and techniques in different costing methods to substantiate your answer. (task 2)and you should use range of methods and techniques to present the cost data.(Use Bar chart, pie chart and trend analysis) task 4. For both task you will have to use journal articles and text book as references. To achieve M3, you should have used the appropriate structure and approach coherently in preparing the cost sheet and consider the intended audience who will use the cost sheet. (task1).You should have used an appropriate structure and approach coherently in preparing the profit statement. (task3). You should have used an appropriate structure and approach showing ranges of methods of presentation of cost data. (Task 4). For both task you will have to use journal articles and text book as references. To achieve D1, you should validate the profit calculated under AC and MC though reconciliation. (Task 3) Conclusions should have been arrived (areas need cost control), through synthesis of ideas and it should be justified based on the given cost data. (task 4) To achieve D2, you should demonstrate autonomy independence in calculating cost and selling price (task 2), you should have planned and used substantial activities or investigations in explaining the purpose of a budget. You could explain beyond budgeting. (task 5) You should have planned and managed substantial activities, projects or investigations in different budgeting method used in organizations (task 6). You should demonstrate more autonomy and independence in preparing cash budget (Task 8). To achieve D3, you should have arrived at conclusions through synthesis of ideas and justified your conclusion pertaining to prepared cost card. (Task 1) you should demonstrate effective thinking and self-evaluation in preparation of budgets. Self-evaluation based on appropriateness of the budget and its practicability need to be assessed. (task 7) 3 Assignment brief Purpose of this assignment The aim of this assignment is to assess the learner’s ability to demonstrate understanding on the importance of management accounting to all businesses. It looks at costing and budgeting, and how to use current or historical financial data to plan for the effective finances and costs of the business for the future. 4 Scenario 1 Robber Co. manufactures burglar alarms, installing the unit in the apartments, villas and business establishments. Every product comes with a one year warranty offering free repairs if any faults arise in this period. It currently produces and sells these units in local market, with production of them being restricted by the short supply of labour. Each burglar alarms includes two main components – one key pad and one display screen. At present, Robber Co. manufactures both of these components in-house. However, the company is currently considering outsourcing the production of keypads and display screens. A newly established company based in China is keen to secure a place in the market, and has offered to supply keypads and display screens at the price of O.R.70. The new management of Robber Co. have second thoughts and have raised concerns over this deal. They would like the management accountant to analyse on the cost factor in the third quarter of 2016. Robber Co. estimates to produce 1000 units of “burglar alarms” during the third quarter of 2016. Now the Management of Robber Co. wants a detailed analysis of the total cost of making the product, so that it will help the firm to make decision on outsourcing and at the same time enhance the overall profitability. Estimated data for the forthcoming period is as follows:1.Each unit of “burglar alarms” requires materials as follows-:  Electronic component costing R.O 2.5 each  Plastic covering costing R.O 1.5 each 2. Each “burglar alarms” requires 6 hours of skilled labour at R.O 5 per hour and 4 hours of unskilled labour at R.O3 per hour. 3. Other direct expenses to be incurred per “burglar alarms” are R.O 4. 4. In addition to the above following is the overhead costs; these costs are divided on the basis of units manufactured. I. Robber Co. Incurs a fixed production cost for factory rent, rates and insurance of R.O 5000 per quarter. II. Robber Co. incurs sales department salaries of R.O 3000, advertising expenses of R.O 4000, office salaries and other office expenses of R.O 5000. Task 1 – LO1 - Assessment Criteria 1.1 (M1, M3, D3): Classify different types of cost To achieve Pass you must  Identify the different types of cost (material, labour and overhead) incurred in making “burglar alarms.” and record this information in the unit cost card showing prime cost, production cost and total cost of burglar alarm. In addition to the above Having identified the different types of cost, classify them on the basis of - Nature and Behaviour To achieve M1, you should make effective judgements in classifying the cost based on cost behavior, nature and this should be reflected in the preparation of cost sheet. To achieve M3, you should have used the appropriate structure and approach coherently in preparing the cost sheet and consider the intended audience who will use the cost sheet. To achieve D3, you should have arrived at conclusions through synthesis of ideas and justified your conclusion pertaining to prepared cost card. 5 Scenario 2 Xtream limited is involved in modifying off road vehicle. This business is popular among the residences who prefer a different outlook for their vehicles. Xtream limited also makes exhaust system for off road vehicle on special orders. It has two production departments and the overhead absorption rates for each department is as below;Modification Department is involved in modifying cars as per the customer’s specification and Exhaust Department performs the fixing of sophisticated exhausted system. Department Modification Department Exhaust fixing Department Overhead absorption rate per direct labour hour R.O. 4 R.O. 5 Two cars (FJ cruiser and FJ cruiser) need to be modified for customers on a special order. Direct costs are as follows. Direct materials Direct labour FJ cruiser R.O.250 8 hrs (Modification Department) 6 hrs (Exhaust Department) Xterra R.O.360 5 hrs (Modification Department) 4 hrs (Exhaust Department) Labour rates are as follows: R.O 5 (Modification Department), R.O 6 (Exhaust Department). The firm quotes prices to customers that reflect a required profit of 30% on cost price of the Job. Required: Task 2 – LO1 - Assessment Criteria 1.2 (M1, M2, D2): Use different costing methods To achieve Pass you must  Identify the need for different costing methods at Xtream limited  Use appropriate costing method to calculate the cost and the selling price of modifying FJ cruiser and Xterra. To achieve M1, you should solve the given complex problem and more than one variable should have been explored. (Explore the use of Overhead absorption rate per machine hours) To achieve M2, you should use relevant theories and techniques in different costing methods to substantiate your answer. To achieve D2, you should demonstrate autonomy independence in calculating cost and selling price. 6 Scenario 3 NDB Ltd makes and sells a single product. It is unsure as to which costing method would be appropriate and has asked you to analyse on the costing methods. At the beginning of period 1, there is no opening inventory. Variable production cost is R.O 15 per unit and Sale price is R.O 50 per unit. Fixed cost is R.O 10000 per period of which RO 2000 is fixed nonproduction overheads. Budgeted production for each period is 8000 units. Actual production units are equal to the budgeted units. Over/under absorption for each period is nil.(zero) Sales Production Period-1 7600 Units 8000 Units Period-2 8,400 unit 8000 units Calculate profit for each period using the following methods and give your opinion as to why you would choose the method for calculating profit. Your opinion should be based on calculation showing 1. Absorption Costing 2. Marginal Costing 3. Reconciliation of the profits calculated in 1 & 2 above Task 3 – LO1 - Assessment Criteria 1.3 (M3, D1): Calculate costs using appropriate techniques To achieve Pass you must  Calculate cost for each period using Absorption Costing Marginal Costing techniques. To achieve M3, you should have used an appropriate structure and approach coherently in preparing the profit statement. To achieve D1, you should validate the profit calculated under AC and MC though reconciliation. Scenario 4 7 A) “MasterMind” is an event management company providing service to its customers though managing the customers’ events such as weddings, parties and conferences. Following cost data (estimated and actual) has been extracted from past events. The managing director of the company is very much concerned about the companies cost estimation and quotations. He noted that unrealistic estimation may lead the company to poor pricing decision and affect the profitability. You work in this company as a cost accountant. Site Room and hall fees Site staff Equipment Tables and chairs Estimated 500 300 50 250 Actual 600 250 75 200 Decorations Flowers Candles Lighting Balloons Paper supplies Estimated 350 10 45 15 10 Actual 300 15 40 10 10 Publicity Graphics work Photocopying /Printing Postage Estimated 400 30 20 Actual 450 30 15 Miscellaneous Telephone Transportation Stationery supplies Fax services Estimated 30 50 5 5 Actual 20 55 15 5 Refreshments Food Drinks Linens Staff and gratuities Estimated 900 300 60 90 Actual 800 250 70 75 Program Performers Speakers Travel Hotel Estimated 850 50 85 300 Actual 900 50 65 275 Prizes Ribbons/Trophies Gifts Estimated 400 200 Actual 300 150 8 Task 4 – LO1 - Assessment Criteria 1.4 (M1, M2, M3, D1): Analyse cost data using appropriate techniques To achieve Pass you should present the data provided in scenario 4, using an appropriate technique. To achieve M1, you should have adopted an effective approach to study and research has been applied in the Discussion of different type of techniques used in presenting cost data. To achieve M2, you should use range of methods and techniques to present the cost data.(Use Bar chart, pie chart and trend analysis) To achieve M3, you should have used an appropriate structure and approach showing ranges of methods of presentation of cost data. To achieve D1, conclusions should have been arrived (areas need cost control), through synthesis of ideas and it should be justified based on the given cost data. Scenario 5 (Tasks 5, 6 and 7) Tigo Ltd manufactures three types of industrial equipment. (A, B and C) and is preparing its budget for forthcoming six month. The budget for the forthcoming six months from 1st January 2017 to 30th June 2017 is to be prepared. Forecasted information for the next six months is as follows. A B C 1. Demand for the company’s product Sales Demand in units for six months 2200 units 2600 units 2400 units Selling price per unit R.O 23 R.O 34 R.O 32 2. Opening inventory of finished product at 1st January 2017 in units. 250 units 220 units 320 units 2. Closing inventory of finished product at 30 June 2017 in units. 4. Direct labour hours required per unit of each product 40 units 30 units 60 units 5 hours 6 hours 4 hours 3 kilos 2 kilos 2 kilos per hour. 4 kilos 2 kilos 4 kilos 5. Raw material content (quantity) per unit of each product. Plastic 3 kilos Aluminium 2 kilos Steel 2 kilos 6. Direct labour –the standard wage rate of direct labour is R.O 5 The following information is available regarding raw materials: a) Closing inventory requirement in Kilos at 30tht June 2017 in units. b) Opening inventory at 1st January 2017 in units. c) Budgeted cost of raw material per kilo Plastic 1450 Kilos Aluminium 1850 Kilos Steel 1350 Kilos 1550 Kilos 2150 Kilos 1250 Kilos R.O. 5 R.O. 6 R.O. 7 9 Task 5 – LO3 - Assessment Criteria 3.1 (M1, D2): Explain the purpose and nature of the budgeting process. To achieve Pass you must,  Explain the purpose and nature of the budgeting process of Alderley Ltd. To achieve M1, you should have used an effective approach to study and research the purpose of budgeting. Use journal articles and literatures to explain the nature and purpose of budgeting. To achieve D2, you should have planned and used substantial activities or investigations in explaining the purpose of a budget. You could explain beyond budgeting. Task 6 – LO3 - Assessment Criteria 3.2 (M2,D2): Select appropriate budgeting methods for the organization and its needs. To achieve Pass you must,  Select the most appropriate budgeting methods in preparing the budget for Alderley Ltd. To achieve M2 you must, you should use range of methods and techniques to present the cost data To achieve D2, you should have planned and managed substantial activities, projects or investigations in different budgeting method used in organizations. Task 7 – LO3 - Assessment Criteria 3.3 (M1, D3): Prepare budgets according to the chosen budgeting methods To achieve Pass you should prepare (Using data presented in scenario 5)  sales budget,  production budget in quantities,  direct material usage budget,  direct material purchase budget  direct labour budget To achieve M1, you should make effective judgements in selecting the appropriate budgeting method and you should explore problems with more than one variable. To achieve D3, you should demonstrate effective thinking and self-evaluation in preparation of budgets. Self-evaluation based on appropriateness of the budget and its practicability need to be assessed. 10 Scenario 6 AXN Ltd is planning to start its business operation in January 2017. AXN Ltd has the following information for the first six months of trading. Capital introduced to the business Monthly rent Cash payment for an equipment payable in April Cash sales per month Credit sales per month (credit sales are made on two month’s credit; no bad debts are expected) Credit Purchase per month (credit purchase are made on One month’s credit) Cash purchase per month The monthly cash expenditure on salaries 90000 3000 39000 5300 18000 8000 4000 5000 Task 8 – LO3 - Assessment Criteria 3.4 (M1, D1, D2): Prepare a Cash Budget To achieve Pass, you should,  Prepare a cash budget for the six months from January 2017 To achieve M1, complex problems with more than one variable have been explored in preparing the cash budget. ( demonstrate understanding on how to budget for cash and credit sales) To achieve D1, you should propose Realistic improvement to be made in cash budget of AXN Ltd. To achieve D2, you should Demonstrate autonomy and independence in preparing the cash budget. 11 Evidence checklist Summary of evidence required by student Evidence presented Task 1 Task 2 Drafting the cost card for the given scenario and explain the cost classification Essay on explaining different costing method and drafting statement which shows the cost and selling price of product A and product B Task 3 Drafting statement based on Absorption Costing, Marginal Costing And Reconciliation statement. Task 4 Essay illustrating different sampling methods and appropriate presentation of data in the case scenario. Task 5 Essay explaining the purpose of the budgeting process Task 6 Critically evaluation of various Task 7 Drafting statement which comprise important functional budgets Task 8 Drafting and commenting on cash budget for six month and explaining the importance of cash budgets budgeting methods used by organizations. Resources: List of Websites www.accaglobal.com www.cimagloabl.com http://www.ICAEW.co.uk Guidance notes: 1. Use standard document formats and structures. 2. Word process the documents.(Word count should not exceed 2500 words excluding the tables, calculations and references ) 3. Use 12 point Arial or Times New Roman script. 4. Provide a list of references and use the Harvard referencing system. 5. Complete the title page and sign the statement of authenticity. 6. Upload the entire assignment in MS word format only on Turnitin. 7. Staple only once to keep the pages of your work together. 8. Late submission, late work will only be marked on the next occasion the unit is taught. 9. Submit the work along with the Turnitin report to the respective assessors in their offices. 10. Collect the assignment submission form duly signed by the assessor and the learner. 11. Grades are subject to External Verification. CLASS ID AND PASSWORD FOR TURNITIN: 1) Faroskhan Class Id: 12236914 ; Password: macb 12 Achievement Summary Qualification Unit Number and title Criteria Reference QCF Level: 5 Assessor name Unit 9- Management Accounting Costing and Budgeting Student name 1.1 To achieve the criteria the evidence must show that the student is able to: Classify different types of cost 1.2 Use different costing methods 1.3 Calculate costs using appropriate techniques 1.4 3.1 3.2 Analyse cost data using appropriate techniques 3.3 3.4 Mr. Feroskhan Achieved? (tick) Explain the purpose and nature of the budgeting process. Select appropriate budgeting methods for the organization and its needs. Prepare budgets according to the chosen budgeting methods Prepare a Cash Budget Higher Grade achievements (where applicable) Grade descriptor Achieved? (tick) Grade descriptor M1: Identify and apply strategies to find appropriate solutions D1: Use critical reflection to evaluate own work and justify valid conclusions M2: Select / design and apply appropriate methods / techniques D2: Take responsibility for managing and organising activities M3: Present and communicate appropriate findings D3: Demonstrate convergent/lateral/creative thinking 13 Assignment Feedback Formative Feedback: Assessor to Student Action Plan Summative feedback Feedback: Student to Assessor Assessor Signature Date IV Signature Date Student Signature Date 14