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Cost, Budgets and Strategic Decision Making in Management Accounting - Assignment Example

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Management accounting focuses on the identification, measurement of relevant information. Similarly, management accounting includes the interpretation of the gathered cost, revenue and other relevant financial…
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Cost, Budgets and Strategic Decision Making in Management Accounting
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Download file to see previous pages The projected next period’s revenues are normally grounded on the prior accounting periods’ actual revenue trends.
Second, the production facility budget is prepared. The production budget is grounded on the projected next accounting period’s revenues. If the next accounting period’s expected revenues is 50 cars and the last month’s unsold cars is 15 cars, then the production budget will be to produce only the remaining 35 cars [50 cars revenue – 15 unsold cars from the prior accounting period = 35 cars] (Warren, 2015).
Third, the direct materials budget and labor budget are prepared (Warren, 2015). The direct materials are used as part of the finished product. If each car needs 2 cans of paint and there are 17 cans of paint remaining from the prior accounting period, the company must purchase 53 paint cans ([35 cars x 2 cans per car] – 17 cans from prior accounting period = 53 new can purchases). If one can costs £ 5, then the budget for the next accounting period includes £ 265 (53 cans of paint x £5 per can). The labor costs must be included in the budget (Warren, 2015). The labor cost is the salary of the workers directly making the products, the car painters.
Furthermore, the factory overhead budget is computed (Kinney, 2012). The factory overhead is composed of all other costs that do not fall under direct materials or direct labor classification. This includes the indirect materials figures and indirect labor amounts. The other amounts include the factory Janitors’ salaries, electricity payments, water payments, and telephone amounts.
Next, the selling and administration expense budget is prepared (Bromwich, 2009). The selling expense budget includes the amounts allocated to sell the finished products, including the cars. The selling expense budget includes the sales department’s salaries and commissions, advertising, and other sales department expenses. The ...Download file to see next pagesRead More
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