Sales budget (in £s and units)

Particular 1st quarter 2nd quarter 3rd quarter 4th quarter Total

Sales Units 22000 25000 15000 27500 89500

Selling price per unit 400 400 410 410

Sales Revenue (in £) 8800000 10000000 6150000 11275000 36225000

Production budget (in unit)

Particular 1st quarter 2nd quarter 3rd quarter 4th quarter Total

Opening stock 6000 2500 1500 2750

Production unit 18500 24000 16250 28750 87500

Total goods available 24500 26500 17750 31500

Less: Closing stock 2500 1500 2750 4000

Sales unit 22000 25000 15000 27500

Material usage budget (in units)

Particular 1st quarter 2nd quarter 3rd quarter 4th quarter Total

Components R(4 units) 74000 96000 65000 115000 350000

Components T(3 units) 55500 72000 48750 86250 262500

 Total 129500 168000 113750 201250 612500

Production cost budget (in £)

Particular 1st quarter 2nd quarter 3rd quarter 4th quarter Total

Raw materials

Production Units 18500 24000 16250 28750

Component R 444000* 576000* 390000* 690000*

Component T 111000# 144000# 97500# 172500#

Cost of materials 555000 720000 487500 862500

Labour cost Per Unit 33 33 33 34.32

Labour cost 610500 792000 536250 986700

Total Direct cost

Variable overhead 185000 240000 162500 287500

Total cost of
64,25,450
production 13,50,500 17,52,000 11,86,250 21,36,700

* Use of component R is calculated as follows:

For First Quarter= 74000x6=444000

For Second Quarter= 96000x6=576000

For Third Quarter= 65000x6=390000

For Fourth Quarter= 115000x6=690000

# Use of components T is calculated as follows:

For First Quarter= 55000x2=111000

For Second Quarter= 72000x2=144000

For Third Quarter= 48750x2=97500

For Fourth Quarter= 86250x2=172500

Meaning and critically evaluation on the use of continuous or rolling budgets .

Continuous or rolling budget is a budget which constantly changes throughout the year and is
updated regularly after the earlier budget expires. For example, a budget covers January to
December of 2021 and when January 2021 finishes, we can add January 2022.

Every time we create financial statement, we can update our rolling forecast so it has up to date
numbers which gives a company’s accurate upcoming financial representations.

Some of the advantages of using continuous or rolling budgets are listed below:

 Budgets determines the decision making process, using continuous or rolling budget
helps us to avoid unnecessary spending more than we have to. This will help the business
to generate negative cash flow.
 Continuous or rolling budget also gives us a perpetual 12 month forecast, which can be
used for coming next year’s betterment of the business.
 In a business, certain unexpected events could occur. So, it is easy to chance in
continuous or rolling budget than in tradition budget systems.
 Continuous or rolling budget is easy to understand which brings responsibility and
objectives amongst the employees in a business.
 Using this budget system, a business could find its strength and weakness. This will help
business to take steps to remove the defects and weak points of the business.

Talking about the disadvantages of this budget system, some points are listed below:

 It is easy to understand but as it is frequently changing so some employees may be

confused while making the budget.
  As the budget must be changed in every month instead of changing once a year, it is time
consuming and every business may not have the time to change it every month.
 Higher staffing cost due to the new software tools and technology needed to update the
budget time and again.
 This budget system is not effective for those business where the condition and budgets
does not change frequently and transformation policies are not in existence.
 There may be chances of errors as the budget must be updated frequently and unexpected
errors may occur in the budget system. (Anand, 2022)

A simple numerical example of rolling or continuous budget is shown in the below table:

Particular 2020 2020 2020 2020 2021 2021 2021 2021

1st 2nd 3rd 4th 1st 2nd 3rd 4th
quarter quarter quarter quarter quarter quarter quarter quarter
Sales Units xxx xxx xxx xxx xxx xxx xxx xxx

Selling xxx xxx xxx xxx xxx xxx xxx xxx

price per
unit
Sales xxx xxx xxx xxx xxx xxx xxx xxx
Revenue (in
£)

i) Standard costing system:

The creation of standard costs and their application to measuring changes brought on by the
difference between the standard and actual cost is known as standard costing. This difference is
known as variation. The calculation of such variance is to maintain the efficiency at the highest
point in the production. The main objective of standard costing is to exercise cost control and
reduction.
For managers looking to create a more precise budget, standard cost accounting may be a very
useful tool. A firm that has accurate budgeting may wind up being more successful and effective.
This is so that managers have a predicted understanding of spending expenses thanks to a
common costing methodology. These managers will be able to decide if new business practices
need to be implemented once they can compare standard expenses to real costs.
NOTE: Formula to calculate standard cost for manufacturing a product is:
Direct Material cost + Direct labour + Indirect Materials Cost + Indirect Labour Cost +
Manufacturing Overhead.
Now, for any organization to imply standard costing, the following are the pre-requisites:
A) Establishment of cost Centre: Cost Centre are essential to determine the cost and cost
control. Hence, one of the pre-requisites of standard costing is Cost Centers.
B) Determination of types of standard: The types of standard should determine after setting
Cost Centre in standard costing system. Some Standards Are Current Standard, Ideal
Standard, Expected Standard, Basic Standard and Normal Standard.
C) Setting the Standard: The process of setting the standard for material, labour and
overhead falls under this. The standard may be both monetary and non-monetary. The
table below will clearly show the setting of standard.

Table 1: Setting of Standards

Direct materials Standard quality of material

Standard price per unit of material
Direct Labour Standard time or labour hour required for one output unit
Standard rate per hour or per period
Overheads Standard variable overhead rate
Standard fixed overhead

Analysis of variance in standard costing system:

As the objective of standard cost system is to exercise cost control and reduction. The
difference between standard cost and actual cost in an organization is known as variances
where it may be favorable or unfavorable. If the actual cost is less than the standard cost, the
 variance will be favorable otherwise it will be unfavorable. Variances of different items of
cost provide the key to control the cost as they disclose whatever and to what extent
standards set have been achieved. Analysis of variance may be done in respect of each
element of cost and the cost variance may be classified into three parts which are:
a. Material variances
b. Labour/wages variances
c. Overhead variances

In the context of an organization, Standard costing can be defined with a numerical example as
shown below:
Information given are,
Standard quantity of raw material usage for production- 40kg
Actual quantity of raw material used for production- 48kg
Standard price per kg- Rs. 15
Actual price per kg- Rs. 10
Then, material usage variance = Standard price (standard quantity – actual quantity)
= 15 (40-48) = Rs. 120 (unfavorable)
According to this example, Organization has set a standard of 40kgs of materials will be required
for production but actually it required 48kgs for production which is more than the standard.
Extra materials will also cost extra for the organization. Hence, the more the unit produced by
the organization the more it will cost for the organization.

ii) Balance scorecard approach

The balanced scorecard is an approach which aims to translate an organization’s strategic goals
into a set of organizational performance objective that are monitored, measured and changed if
necessary.
The balanced scorecard provides a more comprehensive view to stakeholders by complementing
financial measures. The balanced scorecard measures the performances by four perspectives,
which are:
i) Financial analysis
ii) Customer analysis
 iii) Internal analysis
iv) Learning and growth perspectives
The use of balanced score card in the context of an organization:
Using balanced scorecards, organizations may evaluate their intellectual capital in addition to
their financial data to identify internal process achievements and failures. Organizations may
find inefficiencies, create improvement strategies, and convey goals and priorities to their staff
and other stakeholders by consolidating data from previous performance into a single report.
This single report is one of the most significant benefits since it may help you save time, money,
and resources. Along with collecting financial data, it also enables businesses to monitor their
performance in terms of quality and customer service. Balanced Scorecards helps organizations
to identify and eliminate inefficiencies.
An example of Balanced scorecard in an organizational context; Apple which is a computer,
tablets and phone manufacturing company used the balanced scorecard approach to improve
senior management's perspective beyond measures like gross margin, return on equity, and
market share.
A small steering group that was knowledgeable about top management's strategic thinking
decided to include all four scorecard areas and create metrics for each one.
 According to the financial perspective, Apple made a focus on shareholder values.
 On the basis of customer perspective, it highlighted the market share and customer
satisfaction.
 For internal processes, it focused on the core competencies in the market.
 For the innovation and improvement category, it placed a strong emphasis on the
employee attitudes.

iii) Divisional performance management

Activity Based Costing(ABC):

In simple term, Activity based costing is a system which is used to find the costs of production
by breaking down costs of overhead between activities related to production. Each activity
related to production, such as workers testing a product, is given a cost by the ABC system. It is
a method for allocating costs to cost units based on the benefits obtained from the indirect
activities. This costing system breaks down overall overheads into two or more production
activities before using the appropriate cost drivers to determine the cost per unit of overheads. By
using this costing system a manufacturing organization can consider both the direct and the
indirect costs for producing each product. An organization can set the price of the product in
more reasonable and accurately. Adopting this costing system, an organization can see which
overhead cost could be able to cut for the production.
Explaining about the advantages of this ABC,
 An organization can determine the actual cost or accurate cost as this activity based
concept provides accurate data for overhead absorption.
 Using this ABC, it will make ease to understand the behavior of overhead and their
relation to products, service, customers and market segments.
 This costing system will keep the control over the costs as all overheads are distributed
on the basis of suitable cost drivers.
 An organization could do better at decision making regarding the product strategies,
products designs, product mix and marketing by using this ABC system.
 ABC system will be very helpful for any organization regarding the evaluation of new
process technologies in multiproduct.
 As it focuses on activities rather than resources, it will give better information for
performance measurement than any other costing system.
 This system will provide accurate information on profit margin and performance
measurement for improvement on profits.
Talking about the disadvantages of ABC system, it does have some limitations which are point
down below:
 It will be a bit difficult to use for any organization in comparison to traditional costing
because of the usage of different cost drivers to distribute overheads.
 Without the proper/right cost driver this system will not give accurate results for the
overhead absorption.
 To use ABC system, it requires specialized accounting system and skilled accountant
which will cost a lot to an organization.
 As the ABC concept is still in first stage of development which its applicable is still
doubtful.
 The ABC system is costly so it may not be useful for small organizations.