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Financial and Management Accounting Individual Assignment - Essay Example

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Worplestrop Partnership’s costing and information system This report provides Worplestrop Partnership management with the product cost and budgetary control methodologies options and recommends the most appropriate in line with its business model. It…
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Financial and Management Accounting Individual Assignment
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Worplestrop Partnership’s costing and information system This report provides Worplestrop Partnership management with the product cost and budgetary control methodologies options and recommends the most appropriate in line with its business model. It outlines the vital information outputs given by the costing system that helps management in decision making. Lastly, it provides sample reports to the employees to assist in making operational adjustments to keep the business profitable. Tracking expenditures is a vital task in a company as the management needs to continually establish if the business is running profitably.

Costing systems helps in this task as it provides data output that is incorporated into the company’s accounting system. These systems therefore allow for timely production of user specific reports used for strategic, operational and tactical decision making, by the management, to position the company in a positive growth path. It also allows the management to obtain business performance cost; this is turnover less other operational expenses and overhead costs. This information shows company profitability when needed and not necessarily at the end of a trading period (Bhimani et al, 2008)1.

Product cost This is the total cost of materials used by Worplestrop Partnership plus the cost of labour and overheads used to make the final product offered to the market. It also includes other expenses for instance, advertisement costs which is used to market the same product. When entering this in accounting books, it is charged to cost of goods sold in the income statement provided by the partnership. Direct costing: this uses the cost of materials, overhead costs and labour as a determinant of cost of goods sold.

It does not take in to cognisance the machine depreciation used to change the product form and other costs for instance, those associated with delivery delays. Standard costing: Worplestrop Partnership may want to incorporate the expected costs to the overall figures to get a more accurate determination of product cost. The calculation is based on the bill of materials (BOM) and the expected product demand. This form of costing is used to set the target product level on a daily basis and is vital for a complex production business as it gives detailed reports used in improving operational efficiency and cost reduction initiatives.

This method is thus ideal for this company (Bragg, 2001)2. Budgetary control methodologies When undertaking specific business activities, budgets, matched with the relevant expertise, are prepared to ensure a steady flow of the process. Budgetary control is necessary in determining if the realised results are within the budgetary limits. If there are variances that show inefficient use of company resources, the individuals tasked to carry out the functions bear responsibility for the discrepancy.

The management, in consultation with other staff, then re-evaluates the original plan to make the process more cost effective. These are the three budgetary control methodologies Worplestrop Partnership will use when undertaking its specific tasks: Variance analysis: this is a monthly review of these specific projects to compare attained results with the corresponding budgetary allocation. It provides timely results used by the management to adjust plans without necessarily waiting on the bi-annual budget cycle review.

The variance in this case can be either negative or positive depending on employee efficiency. Forecasting: this is a detailed foresight that helps the management set out a project implementation plan. Different departments within Worplestrop Partnership prepare their own plans, with the corresponding resource determination, which are then taken to the board for review. Any multiplicity of functions is removed to encourage efficient use of resources. The resultant product should be flexible to allow for periodic review when need be in restructuring the process.

Control centres: there are specific centres within a company responsible for maintaining company budget in expected levels. These are closely monitored to maintain business operations at a steady pace with adequate resource allocations. The four centres of responsibility are the revenues, expenses, investment and profit. These are entries in the periodically produced cash flow statements which determine company profitability. In the balance sheet, the working capital is determined by subtracting current liabilities from current assets.

However, the accountants should go deeper by noting the money tied up in running stock which form part of assets and money owed by the customers on already delivered goods or services. A declining working capital is a symbol of operational inefficiencies (Jones, 2004)3. Variance analysis is the ideal methodology Worplestrop Partnership can use to monitor its operations as it gives timely reviews of budget plans. This is unlike the control centres methodology which is normally evaluated during accounts reconciliation at the end of a trading period.

It reduces budget rigidity as it allows for alteration of these processes for maximum productivity. Information outputs at operational, tactical and strategic levels Detailed outputs are used by the management to determine if the inputs are used efficiently in company operations. The following are the examples of information outputs that support decision making at the three levels: Strategic: these decisions deal with long term business objectives. The outputs assisting the management in decision making at this level include: business description in terms of its nature and culture, this is used in setting long term business goals and align it with its vision.

The identified competition also helps in making the partnership design its products in a way that appeals to the market. This also shapes marketing and publicity campaign strategies. Operational: these decisions assign resources and people to specific tasks in daily business operations, the outputs include: the total cost of goods sold, which is used to determine the market price of the product. Another output is demand estimations which determines the number of products supplied to the market on a daily basis.

Tactical: these are decisions aimed at assisting the company achieve overall objectives. An example of information output used to come up with such determination is a measurement of employee capability. This helps in analysing human resource requirements that helps in attaining overall company goals. Routine and “on-demand” reports Balance sheet: It lists the assets, liabilities and working capital at the end of a trading period. In strategic decision making, this report helps the management in determining the right and number of equipment to aid in the production process.

This form part of the fixed company assets and is a measure of its capital base (Palepu & Healy, 2008)4. Profit and loss account: This is a breakdown showing company’s income and expenditure which is then used to determine the attained earnings over a definite period. This will show the sales volumes and company expenses which the management uses for making operational decisions for instance, increasing market price to reflect high production cost. This maintains the product mark-up at a profitable rate.

Cash flow statement: This periodic report helps management track financing activities in a company. Capital flow is monitored to ensure resources are allocated to the right projects in tactical and strategic decision making. For instance, it helps the management evaluate investment options when undertaking an expansion program. Bibliography Bhimani, A., Horngren, C. T., Datar, S. M., & Foster, G. (2008). Management and cost accounting (4th ed.). Harlow [etc.: Financial Times Prentice Hall.

Bragg, S. M. (2001). Cost accounting a comprehensive guide. New York: John Wiley. Jones, T. T. (2004). Business economics and managerial decision making. Chichester, England: J. Wiley. Palepu, K. G., & Healy, P. M. (2008). Business analysis & valuation: using financial statements (4th ed.). Mason, OH: Thomson/South-Western.

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