ASSIGNMENT BRIEF
QUALIFICATION UNIT NUMBER AND TITLE
PEARSON BTEC EXTENDED DIPLOMA IN BUSINESS
07. MANAGEMENT ACCOUNTING (LEVEL 3)
(QCF)
INTERNAL VERIFIER UNIT TUTOR
ABROO ASAD
DATE ISSUED SUBMISSION DATE RESUBMISSION DATE
Monday,4th May ,2020 Monday,1st June 2020
ASSIGNMENT TITLE COSTING AND BUDGETING FOR BUSINESS PERFORMANCE ANALYSIS
LEARNING OUTCOME AND ASSESSMENT CRITERIA
PASS MERIT DISTINCTION
LO1 UNDERSTAND HOW PRODUCTION COSTS ARE DETERMINED AND USED TO
CALCULATE PRICES
P1 EXPLAIN HOW AN ORGANIZATION
CAN COST A PRODUCT AND DETERMINE
ITS PRICE AT ANY ACTIVITY LEVEL
LO2 BE ABLE TO USE BREAK EVEN ANALYSIS
D1 EVALUATE THE RELIABILITY OF
M1 ASSESS THE IMPLICATIONS OF BREAK-EVEN ANALYSIS IN ESTIMATING
P2 CARRY OUT A BREAK-EVEN
DIFFERENT ACTIVITY LEVELS USING THE
ANALYSIS FOR A SELECTED BUDGETED ACTIVITY LEVELS FOR A
RESULTS OF A BREAKEVEN ANALYSIS
ORGANIZATION SELECTED ORGANIZATION
FOR A SELECTED ORGANIZATION
LO3 BE ABLE TO USE APPROPRIATE STATISTICAL INFORMATION TO REVIEW AND
PREDICT BUSINESS PERFORMANCE
P3 USE ACCOUNTING DATA AND M2 ANALYZE THE IMPORTANCE OF
STATISTICAL INFORMATION TO ACCOUNTING DATA AND STATISTICAL
MEASURE BUSINESS PERFORMANCE INFORMATION TO ASSESS AND PREDICT
[CT] BUSINESS PERFORMANCE
LO4 BE ABLE TO USE BUDGETARY TECHNIQUES
D2 EVALUATE THE IMPLICATIONS OF
BUDGET VARIANCES FOR A SELECTED
M3 ANALYZE THE IMPACT ON A ORGANIZATION.
P4 USE BUDGETARY TECHNIQUES TO
BUDGET OF CHANGES IN COSTS AND
PREPARE BUDGETS FOR A SELECTED
SELLING PRICES FOR A SELECTED
ORGANIZATION
ORGANIZATION.
P5 DESCRIBE HOW BUDGETS CAN BE
USED TO SET TARGETS, TO MONITOR
AND CONTROL AN ORGANIZATION.
SUBMISSION FORMAT
THE SUBMISSION IS IN THE FORM OF A REPORT.
THE REPORT SHOULD BE WRITTEN IN A CONCISE, FORMAL BUSINESS STYLE USING SINGLE SPACING AND FONT STYLE CALIBRI
AND SIZE 11. YOU ARE REQUIRED TO MAKE USE OF HEADINGS, PARAGRAPHS AND SUBSECTIONS AS APPROPRIATE, AND ALL
WORK MUST BE SUPPORTED WITH RESEARCH AND REFERENCED USING THE HARVARD REFERENCING SYSTEM. PLEASE ALSO
PROVIDE A BIBLIOGRAPHY USING THE HARVARD REFERENCING SYSTEM.
ASSIGNMENT SCENARIO AND GUIDANCE
SCENARIO 1 – COST CLASSIFICATION
ANDY AND JULIE RECENTLY SET UP A SMALL BUSINESS PARTNERSHIP. THEY RENTED A SMALL KIOSK IN A SHOPPING MALL, TO
MAKE AND SELL MINI PIZZAS TO SHOPPERS, SHOP WORKERS AND NEARBY OFFICE STAFF. THEY GOT THE IDEA FROM A KIOSK
THEY SAW TOGETHER ON A HOLIDAY WHERE THE SELLER MADE PERSONALIZED PIZZA ACCORDING TO THE TASTE OF THE
BUYER.ANDY AND JULIE DECIDED TO MAKE THEIR OWN PIZZA BASES ON THE PREMISES AND USE FRESH INGREDIENTS FOR
TOPPINGS. THEY THOUGHT THAT THE AROMA OF BAKING PIZZAS AND THE DISPLAY OF THE TOPPINGS THEY ADD WILL
ATTRACT CUSTOMERS. THE OVEN THAT THEY LEASED ALLOWED MINI PIZZAS TO BE BAKED IN BATCHED OF 10.
THE COST INCURRED BY THE BUSINESS IS AS FOLLOWS:
• RENT FOR KIOSK - $1400 PER MONTH
• LEASE OF OVEN - $500 PER MONTH
• OTHER FIXED COSTS - $100 PER MONTH
• BASES - $5.50 PER BATCH
• TOPPINGS - $3.50 PER BATCH
• OTHER VARIABLE COSTS $1 PER BATCH
LAST YEAR THE COMPANY MADE AND SOLD 15000 PIZZAS IN TOTAL AND THE FIXED COSTS FOR THE YEAR WAS $24,000
AND THE VARIABLE COSTS WERE $15000 AND THE ORGANIZATION MADE A PROFIT OF $19600.
SCENARIO 2 – COST, VOLUME AND PROFIT ANALYSIS
SERENITY PLC OPERATES A MOTEL CLOSE TO A SKI RESORT. THE FOLLOWING FORECASTS HAVE BEEN MADE FOR THE YEAR
ST
ENDED 31 MARCH 2012:
OCCUPANCY:
LOW SEASON (6 MONTHS) – 4500 ROOMS
HIGH SEASON (6 MONTHS) – 6500 ROOMS
THERE ARE 40 ROOMS IN TOTAL AND THE MOTEL IS OPEN 7 DAYS PER WEEK FOR 52 WEEKS.
INCOME: STANDARD ROOM RATE IS £80 PER DAY.
COSTS:
LOW SEASON £ HIGH SEASON £
VARIABLE COST PER DAY: 20 25
FIXED COSTS FOR PERIOD:
STAFF COST 110,000 130,000
MAINTENANCE 32,000 40,000
DEPRECIATION 40,000 50,000
THE MANAGEMENT OF SERENITY PLC IS CONSIDERING TWO ALTERNATIVE POLICIES:
ALTERNATIVE 1: TO REDUCE ROOM OCCUPANCY RATE FOR THE LOW SEASON TO 70 PER DAY. THIS IS EXPECTED TO INCREASE
OCCUPANCY BY 10%. ADDITIONAL ADVERTISING COST OF 20,000 WILL BE INCURRED FOR THE SEASON.
ALTERNATIVE 2: TO CLOSE THE MOTEL FOR 3 MONTHS IN LOW SEASON. THE CLOSURE WOULD SAVE ALL STAFF COST FOR THE
3 MONTH PERIOD BUT DEPRECIATION AND MAINTENANCE WILL REMAIN UNCHANGED. SET UP COST TO REOPEN WOULD BE
£9,000.
SCENARIO 3 – PERFORMANCE MEASUREMENT
FINANCIAL RATIOS
THE FOLLOWING DATA RELATES TO TWO DIFFERENT BUSINESSES IN THE SAME SECTOR, FOR THE YEAR ENDED 31 JANUARY
2019:
ACE LTD KING LTD
£000 £000
SALES IN YEAR 5800 6200
COST OF SALES FOR THE YEAR 2800 2700
TOTAL EXPENSES FOR THE YEAR 1800 2400
AVERAGE STOCK VALUE 129 145
CLOSING STOCK VALUE 120 135
CLOSING DEBTORS 550 490
CLOSING CREDITORS AMOUNT 315 292
CLOSING TOTAL CURRENT ASSETS 780 795
CLOSING TOTAL CURRENT LIABILITIES 665 425
NOTE: ALL SALES, COST OF SALES AND EXPENSES ARE ON CREDIT
SCENARIO 4 (MOVING AVERAGE / INDEX)
A BUSINESS IS FORECASTING THE VALUE OF THEIR SALES FOR THE FIRST QUARTER OF THE COMING YEAR, CURRENT YEAR
VALUES TO DATE ARE AS FOLLOWS –
MONTH SALES VALUE
JUNE 851
JULY 771
AUGUST 916
SEPTEMBER 935
OCTOBER 855
NOVEMBER 1000
DECEMBER 1019
THE BUSINESS USES 3 MONTH MOVING AVERAGE.
SCENARIO 5 - CASH BUDGETS
Angelina and Charlie wish to form a new partnership business in the name of ‘A & C’. The new business
will start its operations from 1st January 2015. The business will provide tourist services in the city
Angelina and Charlie are anxious to know whether they will have sufficient cash to keep them afloat for
the first six months of trading.
• Angelina and Charlie are to both put £25,000 each into the business bank account on 1st January.
• They are to borrow a further £50,000 from Standard Chartered Bank at 8.5% per annum rate of
interest with effect from 1 January. First quarterly payment on 1st April.
• The forecast of the monthly sales are estimated to be as follows:
January - £6500
February - £12500
March - £12500
April - £13500
May - £14000
June - £12500
• All clients are expected to settle their accounts one month after the sales go through.
• Angelina will draw £1500 per month for personal use, but this will commence from 1st February
• Staff salaries are estimated to cost £1850 per month, payable in the month.
• Light and heat is estimated to cost £140 quarterly, paid by direct debit, the first quarter being due on
1ST April.
• Premises are to be purchased for £105,000 and paid for by 5 equal monthly installments, the first 4
with effect from 1 January with a final installment payable in June.
• A motor vehicle for £12600, to be paid for 3 equal installments commencing in January. Depreciation
of motor vehicle is at 30% per annum. Computer equipment valued at £2500 is to be purchased in
January with a 10% deposit followed by 5 equal monthly installments. The equipment is depreciated at
same rate as motor vehicle.
• An advertising and promotional campaign is expected to cost £1500 per month for the first 4 months
and £1250 for final 2 months.
• Motor expenses are expected to be £250 per month, payable in the month.
• General overheads are expected to be £400 per month – payable one month in arrears.
• Rates, water, insurance and other various costs are estimated to be £1400 per month for the first 4
months of business, rising by 20% thereafter. All costs are paid one month in arrears.
SCENARIO 6 Budgeting and variances D2
Alpha ltd produces and sells one product only. the standard cost and price for one unit being as follows
direct material A – 10 kg at £12 per kg £120
direct material B – 6 kilograms at £5 per kg £30
direct wages – 5 hours at £8 per hour £40
fixed production overhead £60
total standard cost £250
standard gross profit £50
standard selling price £300
The fixed production overhead included in the standard cost is based on expected monthly output of
750 units. Alpha ltd uses a marginal costing system.
During April the actual results were as follows –
sales 700 units @ 320 £224,000
direct material:
material a : 7500 Kg £91500
material B: 3500 kg £20,300
direct wages 3,400 hours £27,880
fixed production overhead £37,000
£176,680
gross profit £47, 320
NOTE: ALPHA ltd does not hold any inventory.
TASK 1 – SCENARIO 1 (LO1: P1)
P1) EXPLAIN HOW AN ORGANIZATION CAN CLASSIFY THE COSTS AS MENTIONED IN THE SCENARIO AND THE DIFFERENT
PRICING STRATEGIES THAT CAN BE USED BY ANDY AND JULIE FOR PRICING THE PIZZAS. ALSO EXPLAIN THE CONCEPT OF
ABSORPTION COSTING AND MARGINAL COSTING.
TASK 2 – SCENARIO 2, (LO2: P2) (M1 AND D1)
P2) CARRY OUT A BREAK-EVEN ANALYSIS FOR A SELECTED ORGANIZATION: YOU ARE REQUIRED TO CALCULATE THE
FOLLOWING;
CALCULATE THE NUMBER OF ROOMS OCCUPANCY REQUIRED TO BREAK-EVEN IN EACH OF THE SEASONS BASED
UPON ORIGINAL FORECAST.
CALCULATE THE MARGIN OF SAFETY IN NUMBER OF ROOMS FOR EACH OF THE SEASON BASED UPON ORIGINAL
FORECAST.
CALCULATE PERCENTAGE OF TOTAL CAPACITY WHICH WILL BE OCCUPIED AT BREAKEVEN CAPACITY.
TO ACHIEVE M1, EVALUATE WITH SUPPORTING CALCULATIONS EACH OF THE ALTERNATIVE POLICIES OUTLINED ABOVE.
TO ACHIEVE D1, EVALUATE THE RELIABILITY OF BREAK-EVEN ANALYSIS IN ESTIMATING BUDGETED ACTIVITY LEVELS FOR THE
SELECTED ORGANIZATION
TASK 3 – SCENARIO 3 (LO3: P3) (M2)
P3)
A. USE SCENARIO 3 ACCOUNTING DATA TO MEASURE BUSINESS PERFORMANCE; YOU ARE REQUIRED TO CALCULATE
AND ANALYZE THE PERFORMANCE OF EACH BUSINESS :
(I) THE NET PROFIT TO SALES PERCENTAGE
(II) THE EXPENSES TO SALES PERCENTAGE
(III) THE STOCK TURNOVER RATE
(IV) THE DEBTOR TURNOVER RATIO IN DAYS
(V) THE CREDITOR TURNOVER RATIO IN DAYS
(VI) THE CURRENT RATIO
(VII) THE ACID TEST RATIO
B. USE DATA FROM SCENARIO 4 AND USING A 3 MONTH MOVING AVERAGRE CONCEPT, FORECAST
THE SALES VALUE FOR JANUARY TO MARCH.
TASK 4 - (LO4:P4, P5) ( M3 AND D2) SCENARIO 5-6
A. DESCRIBE HOW BUDGETS CAN BE USED TO SET TARGETS, TO MONITOR AND CONTROL AN ORGANIZATION. P5.
B. USING SCENARIO 5, USE BUDGETARY TECHNIQUES TO PREPARE CASH BUDGETS FOR THE SELECTED
ORGANIZATION. P4
TO ACHIEVE M3, ANALYZE THE RESULTS OF THE CASH BUDGET.
C. USING SCENARIO 6, calculate all possible variances and reconcile the budgeted profit with the
actual profit. To achieve D2, evaluate the results of the variances calculated.
EVIDENCE CHECKLIST SUMMARY OF EVIDENCE REQUIRED BY STUDENT
TASK 1 Report
TASK 2/3 Report
TASK 4 Report
