Major difference between marginal costing approach and the absorption costing approach is that the profit in the first approach is influence by sales and profit using the later one is influence
TASK
Task 1:
Major difference between marginal costing approach and the absorption costing approach is that the profit in the first approach is influence by sales and profit using the later one is influence by both sales and production (Atril and McLaney, 2021)
Critically evaluate the marginal costing and absorption costing methods.
Task 2
| Jan (£000) | Feb (£000) | Mar (£000) | Apr (£000) | May (£000) | June (£000) | July (£000) |
| Sales Revenue | £230 | £265 | £400 | £380 | £175 | £300 | £230 |
| Purchase | £185 | £195 | £230 | £104 | £89 | £200 | £68 |
| Administration Expenses | £55 | £60 | £68 | £48 | £57 | £54 | £49 |
| Selling Expenses | £35 | £40 | £26 | £28 | £25 | £30 | £22 |
| Taxation Payment |
| £60 |
| £25 |
|
|
|
| Finance Payment | £12 | £12 | £12 | £12 | £12 | £12 | £12 |
| Shop Refurbishment |
|
| £8 | £10 | £16 |
| £15 |
Notes:
- Inventory level at 1st Jan was £100,000. CheeZy LTD prefers to maintain minimum inventory level £80,000 of goods over the period to 31st July.
- Suppliers allow one month credit. The first three months’ purchase are subject to a contractual agreement which must be honoured.
- The gross profit margin is 35%.
- Cash sales are received in the month of sale. However, 50% of the customers pays with the credit card. The credit card handling company charge 5% to the CheeZy LTD. This charge is an additional charge to the selling expenses mentioned above. The credit card handling company pays the CheeZy LTD in the month of sales.
- The CheeZy LTD has a business loan which its pays by instalment of £12,000. The interest elements represent 20% of each instalment.
- Administration expenses are paid when they occurred. The item includes depreciation charge of £20,000 each month.
- Selling expenses are payable in the following month.
Required:
A) Prepare a cash budget for the CheeZy LTD for the 6 months from February to July.
B) Identify and critically assess FIVE inherent weaknesses of the annual budget model irrespective of the budgeting approach that is applied.
Learning Outcome
This assignment is designed to assess learning outcome:
L1. Demonstrate an in-depth knowledge and understanding of cost classifications.
L3. Analyse the complex issues arising from the budgetary process