AAF043-6 Management Accounting and Financial Planning Assignment Sample
Module code and Title: AAF043-6 Management Accounting and Financial Planning Assignment Sample
Introduction
The impact of using the costing measures is essential for understanding the budgetary influence of an organization. In this report, a critical evaluation of standard costing is going to be presented. The manufacturing and service sector will be considered under standard costing. The impact of the modern initiative on standard costing is also highlighted. Critical discussion of the approach to decision-making is highlighted. The role of financial planning in main financial decisions is also going to be presented in this report.
The behavioral factor of costing and implementation of budgeting approaches is also going to be highlighted (Khan et al. 2020). Discussion on the real rate of return and money rate return will be calculated for maintaining business activities. In order to provide a proper approach, Tesla, as a company has been selected (Tesla.com, 2022). The main objective of this project is to highlight whether the implication of business activities is associated in a proper way or not.
1. Critical evaluation of the application of standard costing in manufacturing and service business
Standard costing is used both in service as well as in the manufacturing sector. In the case of the manufacturing process, there are two applications such as
Improved control of cost
In the case of manufacturing units, a vital portion is controlled with the help of controlling the cost of material and overhead costs. The modern application consists of data analysis of the financial data which helps in understanding the decision (Lisbona et al. 2018, pp. 8). The allocated cost for making an average model of Tesla is around $ 36000 (Tesla.com, 2022). Based on these costing measures the company had decided to reduce their manufacturing cost so that in future they can sell their car at a much more affordable rate.
Useful during budget-making
Standard cost is made with the help of forecasting future data. During the time of making a budget, it can be seen that organizations are focused on estimating the requirement of cost from different departments. The course on standard costing is helpful in terms of process management and manufacturing system (Tsai et al. 2020, pp.4). In this case, standard costing can help to make a budget that will remain accurate in future so that the difference between the actual and predicted budget can be mitigated.
In the case of service, the implementation of standard costs are as follows
Increase in efficiency
In companies such as Tesla where direct labor is used for services through their car units, the implication of standard costing is useful. In this company direct material and overhead cost plays a vital role in the maintenance of activities. In this case, the use of predetermined rates of raw materials helped Tesla to forecast their costing in the future. This is the reason the management is able to keep the cost at an effective rate. For instance, the paying criteria of labor are the compilation of certain units of work.
Information for taking a decision
There are various types of pricing decisions that are taken based on standard costing. Tesla is a mass manufacturing company, in the year 2021 the company produced 184800 electric cars among them model 3 and model Y have major demands. The costing model helps to understand the units that are manufactured and the sources of activities for maintenance of the course of action.
Impact of modern initiative for continuous performance improvement and reduction of cost
The impact of modern initiatives for the continuous performance of standard costing can help a business to remain effective in its course of action. The primary help that can be reached from standard costing activities is the removal of waste. Standard costing helps to regulate each and every portion of business activities. It can also be seen that there are various forms of business operations that are helpful in terms of maintaining the course of business activities.
It also helps in changing the life cycle of the product (McKinstry et al. 2019). The consumption model also states that there are various types of activities that are helpful for stimulating business action. It can also be evaluated that there are different types of business activities which are effective and play a vital part in estimating the course of business activities.
Standard costing is helpful in terms of setting targets especially when a company is operating in an efficient condition. On the other side, the costing measures are considered to be effective in terms of maintaining business activities (Dover et al. 2020). The standard costing system can take initiative for improving the production process. It can also be seen that there are different types of activities that are essential for maintaining the type of business activity.
As per the views as well as the findings of (Dahal et al. 2020), it can also be seen that there are different forms of business activities which are essential in terms of maintaining the course of business activities. In the case of Tesla standard costing helps in a continuous way where the type of activities is noticed. It can also be seen that forecasting the condition of the business helps the organization mitigate the course of action of business activities.
The cost reduction process is essential for maintaining the business activities and maintaining these activities is also helpful for maintaining the type of business activities. The reduction of cost by implementing standard costing is possible by reducing the wastage. In this type of situation, the business organization saves a lot of activities (Buick et al. 2018).
In the case of different forms of activities, the requirement of business can help to bring the uses of business actions. It can also be stated that the role of business activities is essential in terms of maintaining the course of maintaining the business.
2. Critical discussion of the contribution approach for making decisions
Standard costing can be helpful in terms of contributing to the approach of making decisions. In order to make the business more cost-effective standard costing is used. Tesla as a company had a huge impact on maintaining the course of business activities. Costing is helpful in terms of understanding the impact of cost reduction and gross profit evaluation (Tsai et al. 2019).
It can also be seen that the course of business actions is essential for maintaining the types of business activities. China is the main hub for supplying manufacturing units.
It is also helpful in making decisions because it increases the efficiency of the business and also improves business action. The improvement in quality is one of the major aspects of considering standard costing (Barnett et al. 2020). It can also be implemented that the business activities can help in terms of taking decisions and maintaining the type of business activities can be estimated for maintaining the business action (Neri et al. 2019).
On the other side, it can also be seen that there are different types of business activities that are essential for maintaining business functions. There are various types of business activities that are helpful for estimating budgeting activities.
Example
| Contribution analysis | Existing ($) | New project ($) |
| Sales | 75000 | 60000 |
| Variable cost | 45000 | 40000 |
| Net contribution | 30000 | 20000 |
| Contribution margin | 40 | 33.33 |
Table 1: Estimation of cost contribution (Source: Self-made)
It can be seen that here two different projects are considered, one that is existing and the other one is a new project. In the case of the first contribution, the existing project is able to generate $75000 of revenue. On the other side, the new project can generate $60000 of revenue. It can be seen that the variable cost is $45000 for the existing project and for the new one it is $40000.
The net contribution is done by (variable cost – net contribution). The value that is received was $30000 in the case of an existing project and for the new project, it is $20000. After calculating the contribution margin, it can be seen that in the case of an existing business it is 40% and in the case of a new project it is 33.33%. It can be seen that there are different forms of business activities that are essential in terms of maintaining improvement.
Limitations
There are different types of limitations in the case of standard costing such as:
The standard cannot be determined
In the case of maintaining different activities, difficulties arise in determining the standards. The availability of both financial and non-financial data is difficult to maintain the course of activity. In case of misinterpretation of standards issues in case of analysis, interpretation and decision making get compromised.
Expensive nature
In order to determine the cost, various aspects of production are needed to be considered. This creates difficulties in terms of maintaining the types of business activities. It can also be seen that business actions are essential to maintain the course of business activities so that the course of action can be justified. Most of the activities are significant in nature and need a lot of capital. This is the reason behind the course of action.
Suitability issues
Standard costing is not suitable for every project, it can be seen that the business activities are essential in terms of maintaining the course of action. It can also be seen that there are various forms of business activities which are essential in maintaining the term of business activity. This is the reason behind the unsuitability of every venture.
3. Critical discussion on the role of costing decisions for financial planning
Performance on financial statement
Standard costing is helpful in terms of planning for decision-making. Standard costing is helpful in terms of understanding the performance of the organization. Financial planning is considered only after understanding the performance of the business. This is the primary reason why standard costing is useful in terms of stand costing.
Helps to understand the expenses
In the case of financial planning, it is important to understand the expenses of the organization. During the time of standard costing the direct and indirect costing measures are considered for maintaining business actions. The direct and indirect costs are known then which can help in taking decisions. This is the reason that after knowing the expenses it is easier for the organization to perform financial planning.
Helps in forecasting.
Costing helps to understand the price that will be allotted in the future. This aspect helps in forming forecasting in terms of financial planning. It is helpful in terms of maintaining forecasting measures so that business activities can be measured. The role of estimating the type of business activity is helpful so that the course of business can be mentioned.
Useful for reduction of waste
In certain cases, financial planning is also made so that the reduction of liabilities can be rescued. The liability of the business is also helpful if the business activities can be justified. This is the reason why the implication of business activities is estimated. The wastage of activities is estimated so that the type of business actions is resolved in terms of maintaining the business actions.
Preliminary to consider the standard costing.
There are different types of preliminary expenses that are considered so that business activities can be maintained. This is the reason why costing is considered to be useful in terms of maintaining financial activities. It can be seen to reduce the preliminary expenses of business activities.
Financial decision
Making is required for a positive organizational performance and brand name of the company. Costs have a major role to shape financial decision-making. Costs assist the management and stakeholders to develop the price distribution plan. It is typically used to develop the pricing strategy for customers, employees and different distribution channels in different geographical locations. It will help the company to measure the product line and process to choose the subsidiaries. Hence, the implementation of proper costing would become fruitful for financial performance and decision-making.
| Statement of cost sheet | total ($) | per unit (1000) |
| Raw material consumed. | 325000 | 325 |
| labor | 175000 | 175 |
| direct expenses | 50000 | 50 |
| prime cost | 550000 | 550 |
| factory overhead | 0 | |
| factory expenses | 50000 | 50 |
| works cost | 600000 | 600 |
| office and administrative overhead | 0 | |
| office expenses | 60000 | 60 |
| cost of production | 660000 | 660 |
| selling and distribution overhead | ||
| distribution cost | 35000 | 35 |
| total cost | 695000 | 695 |
| profit (15% on cost) | 104250 | 104.25 |
| sales | 799250 | 799.25 |
Table 2: Calculation of cost sheet (Source: Self-made)
Analysis
It can be seen that the consumption of raw materials is 325 units and the cost of labor is 175 units. All the types of aspects such as: direct expenses, the overhead of the factory, and selling and distribution expenses. It can be seen that the total cost is 695 units, and the margin of profit is 104.24 units.
The unit of sales is 799.25. This helps to understand the financial condition of the business by analyzing the cost sheet. This helps in considering the marketing activity and based on that the financial planning will be prepared. The major reason for estimating the cost of business activities is essential so that cost-effectiveness can be estimated.
4. Discussion of the behavioral factor born in the mind for budgetary control
The activity of budgeting can bring a positive impact on the behavioral factor of an individual. It is helpful in terms of maintaining different types of strategies that are based on the cost-effectiveness of the organization. Dysfunctional behavior is one of the reasons behind budgetary control. An organization implementing budget control feels more organized and effective regarding goals and objectives.
The satisfaction of financial freedom can be estimated by considering financial behavior (Grover et al. 2020, p. 91). It is based on the planned behavioral theory used during the time of accounting activities. Under behavioral factors, frequent feedback on performance can be noticed (yourarticlelibrary.com, 2022). Budgeting is a type of forecasting that remains flexible and helps in building budgetary control.
Proper budgeting can provide a realistic approach regarding the expenses an organization can expect (Gomes et al. 2021). Under participative budgeting, encouragement to the managers is done so that they can provide their suggestions to the organization.
Difficulties of applying them in budget and budget control
Indecisive for finances
Budgeting is an approximation of any type of required capital, in certain cases, this estimation may not be maintained properly. In the year 2019 Tesla had invested an amount of $ 81.5 million in their R&D team. Budgeting can also create pressure on the managers if they are not able to maintain cost-effectiveness as per budget (Damayanti, 2018, p. 85). This increased the expenses and resulted in a loss of $50 million. This creates difficulties in terms of undefined requirements of finances creating problems in business operations.
Future uncertainties
To run a business there are several types of future uncertainties that may arrive. Based on that, it is difficult to maintain the budget and thus creates difficulties (Bernatska, 2018). The director of Tesla had estimated that the Model X will sell for around $30000 in the future as per future demand. However, at present, the prices vary from $40000 to $50000. This is creating pressure on the R&D team so that they can reduce manufacturing costs.
5. Rate of return for NPV calculation
Use of money rate of return for calculating NPV
It can be seen that the money rate of return is above the inflation rate. Such as if the inflation rate is 3% then the rate of money return will be 5%. In the case of estimating NPV the requirement of this return rate is to calculate the difference between the inflow of cash and the outflow of cash (McMahon, 2018). The rate can help to bring different types of approaches towards the growth and development of the present value of the organization. It is helpful for maintaining the course of action for better business estimation.
Use of real rate of return in NPV
It refers to the return rate that is considered after deduction of the inflation and taxation. In this case, the net present value is calculated by using the real rate of return so that the value of NPV can be estimated in real-time (Carvajal and Popovici, 2020). Estimating the npv is essential for the investors to understand the financial position of an organization. NPV can also help to understand the actual condition of the company in terms of maintaining its course of action (Asmuniet al. 2020). It can also be seen that there are several types of business opportunities for better estimation of activities.
Illustration for calculation of NPV
| WACC | 10% | PV (using rate of return) | ||
| Year | ($30,000) | ($30,000) | ||
| 2017 | 0 | $8,000 | $8,000 | |
| 2018 | 1 | $7,000 | $7,000 | |
| 2019 | 2 | $10,000 | $10,000 | |
| 2020 | 3 | $25,000 | $25,000 | |
| 2021 | 4 | $15,000 | $15,000 | |
| NPV | $65,000 | |||
| ROI | 5% |
Table 3: Calculation of NPV using Real rate and money rate (Source: Self-made)
Analysis
It can be seen that there are various modes of factors which can be useful for maintaining the cause of activities. In this given table it can be seen that the initial rate for investment is $30000. In year 1 the PV had resulted in $8000, in year 2 the value had reduced to $6364 and this type of procedure was followed and after the end of 4 years, the value was $51656.
This is how an NPV can be calculated by using the two different rates of return (Kaminska and Roberts-Sklar, 2018). It can also be seen that the role of activities is to maintain the activities. Estimation of the course of action can also help in developing different forms of business activities.
Conclusion
It can be concluded that the need of maintain the requirement of costing and budgeting is essential. The role of standard costing is estimated and proper calculation is also shown. The activities of Teslais highlighted so that the maintained of activities. The requirement for the mode of different types of business activities can build a better source of business which can help in the calculation.
The requirement for the source of action is also helpful so that the business activities can be estimated. The importance of the cost sheet is essential in terms of managing business activities so that it could highlight the main gestures such as profitability and cost-effectiveness of the organization. The example is presented so that the importance of business activities can be understood. This is the reason behind maintaining the need for business activities.
References
Journals
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Barnett, M.L., Henriques, I. and Husted, B.W., 2020. Beyond good intentions: Designing CSR initiatives for greater social impact. Journal of Management, 46(6), pp.937-964.
Bernatska, N., 2018. Formation of modern model of budget management based on methods of public administration. Baltic Journal of Economic Studies, 4(1), pp.39-48.
Buick, F., Blackman, D. and Johnson, S., 2018. Enabling middle managers as change agents: Why organisational support needs to change. Australian Journal of Public Administration, 77(2), pp.222-235.
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Kaminska, I. and Roberts-Sklar, M., 2018. Volatility in equity markets and monetary policy rate uncertainty. Journal of Empirical Finance, 45, pp.68-83.
Khan, A.I., Keshavarzi, A. and Datta, S., 2020. The future of ferroelectric field-effect transistor technology. Nature Electronics, 3(10), pp.588-597.
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Website
yourarticlelibrary.com, behaviroal implecation,2022Acessed on 5th July, 2022, from: https://www.yourarticlelibrary.com/accounting/budgeting-accounting/behavioural-implications-of-budgeting-6-implications/52800.
Tesla.com,model 3, 2022 Accessed on 3rd July , 2022, from: https://www.Tesla.com/solarpanels?gclid=Cj0KCQjwzqSWBhDPARIsAK38LY_dgYlaw_e2D2–2OCeBkcZ1ee7QfflBv1_2tYssKvBcEu5H6yKxcMaAleiEALw_wcB
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