Management Accounting

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Table of Contents
Section 1..........................................................................................................................................3
1A....................................................................................................................................................3
Introduction......................................................................................................................................3
Budget and Management Accounting Policies................................................................................3
1B.....................................................................................................................................................5
The methodology and policies for direct and indirect cost (overheads) and revenue (analysis).....5
1C.....................................................................................................................................................6
The Business Performance Analysis...............................................................................................6
1D....................................................................................................................................................8
The Budget Setting Approaches......................................................................................................8
References......................................................................................................................................11
Document 2....................................................................................................................................12
2A..................................................................................................................................................12
An Analysis of Actual Performance against the Budget...............................................................12
2B...................................................................................................................................................15
The Practical Problems Associated with Conducting Variance Analysis.....................................15
Conclusion.....................................................................................................................................18
Reference.......................................................................................................................................19

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Section 1

1A

Introduction
The chosen consulting company is Deloitte Touche Tohmatsu Limited. Deloitte is a UK based
multinational consulting firm specializes in auditing and assurance, financial services,
consulting, risk and financial advisor, fraudulent, risk management, accounting policy and
budgeting, and related services for selected companies and businesses (Kane, 2015). It has
enormous strategies such as manufacturing operations including value chain and production,
innovation and acquisition, service for different sectors, risk advisory tax legal, and financial
management. This consulting company was founded by William Welch Deloitte in 1845.
Headquarter of Deloitte is located in London, England, UK. Around 334,800 employees and
professionals are working globally and Deloitte is operating in more than 150 countries and
territories. They are working for clients to solve the business issues and also examine the
transactions (Deloitte UK, 2021).

Budget and Management Accounting Policies

Budget is the process of estimating the cost, forecasting income and revenue, implementing
plans using financial and other resources. To align the objectives, increase the growth of revenue
and control the expenses, budgeting is needed for every organization. Budget for service
providing company differs than each other. The company that are consulting firm has different
budget prepared before to a defined time period. The budget is created for planning, controlling,
communicating, motivating, and evaluating performance of the organization. To determine
whether the organization has sufficient funds for running the business (Weimer, 2017). The
budget is made for considering financial values to estimate the income and expenses. There are
some budgeting methods which are acquired by consulting firms. Budgets act as a target for
employees and motivate them to work toward a goal. The different types of methods include
incremental, activity based method, zero-based method, rolling method. Deloitte UK creates its
budget using the rolling based method and sometimes the traditional method which is Zero-
Based method. The budgeting policy in Deloitte are reflected by various things such as sales
budget, cash budget and also sales and expenses. They are responsible for facilitating the budget
process and management through fiscal year. The policies in Deloitte are maintained by the
board of directors, advisory and CEO. They prepare the annual budget including sales, expected
cash, disbursement and also other types of budget. There are master budget, operating budget
and static budget, and cash flow budget. For a service providing company, budgeting policy
differs. After preparing the budget, it compares the budgeted transaction with actual one to check
the variance in the activity level and revenue. In the budgetary policy, the cost buffering is must
to create. Deloitte plans for every year beforehand to estimate the cost and also consolidates
estimation. The budgetary policy in Deloitte often depends of government spending and also

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Brexit has put impact on it. The budgets are observed by the ministry of finance and also policy
changes. The information of budget often gets disclosed to the auditors and board members are
aware of that audit information. The government spending policies are concern for budgeting
process and also financial performance during the year can unfold the resilience for revenue
estimation. Deloitte has an annualized timeline and also makes sure about budget and accounting
line items are in sync. It creates surplus budget for measuring realistic revenue and stable
expenses. The strategic initiatives has a budget impact on income and expense. To allocate the
budget line items to the organizational activities, they use a reliable method to calculate them.

Sr. Particulars Quarter 1 Quarter 2 Quarter 3 Quarter 4

A Sales Unit 5,000.00 6,000.00 7,000.00 8,000.00

Forecasted

B Price per Unit 6.00 6.00 7.00 7.00

C Total Gross 30,000.00 36,000.00 49,000.00 56,000.00

Sales (A*B)

D Sales Discount 600.00 720.00 980.00 1,120.00

and Allowance
(2% of Gross
Sales)
E Total Net Sales 29,400.00 35,280.00 48,020.00 54,880.00
(C-D)

Table: Sales Budget

Managerial accounting is a process of cost analysis, planning, controlling and implementing and
providing the clear sketch to the managers. These lead managers to take best decisions. To
prepare budgets and accounting records, Deloitte implements some principles and policies to
prepare the financial statements. The risk management method should be adopted by Deloitte to
avoid risks. It emphasizes on timeliness and report controlling. The accounting policies includes
delinquency collection policy, accounting policies used in the financial statements, FIFO method
etc.

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1B

The methodology and policies for direct and indirect cost (overheads) and
revenue (analysis)
Cost is demonstrated in management accounting as classifying, recording and allocating
expenditure to determine the cost of services and helps management to take prudent business
decisions. Costs are classified into various segments depending on cost objects, preparing
financial statements, activity changes and decision making process. There are two types of costs
based on assigning the objects. These are direct and indirect cost. Direct cost is a cost that is
used for producing the goods or creating or sourcing data and which can be traced quickly and
conveniently. In Deloitte, if they assign costs to its different offices, the salary of the managers
will be direct cost. The indirect cost will be referred as overhead expense as supporting staff,
dispatchers, training and cleaning crew. Cost of paper and binding will be direct cost. Direct cost
for service providing industry uses project material and has direct labors. They have services as
subcontracted and incur the shipping expense. There are some eligibility of costs which must be
incurred by the recipient, the period is set out for incurring, and cost budgets are indicated
(Razzouk, D., 2017).
The cost policy also depends on inflation rate of the country and this can vary. All costs
associated with the organization's premises and office, including rent as well as  rent, mortgage
costs, depreciation, facility management, building insurance, rates, maintenance and cleaning,
groundwork and gardening, utilities, catering, vending services, and residential accommodation,
are included in this category. Deloitte has fixed and variable cost as well where the fixed cost
doesn’t vary with production volume.

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The principles of Deloitte UK are concrete with methods of costing for finance department. The
cost control and cost reduction policy aim in reducing cost of goods which is used for producing.
Pricing of output should be in concern and the absorption of overhead is the process of spreading
overhead costs across all of a department's goods. It's the process of allocating overhead to each
output unit. The cost policy will also depend on delivery partner, direct program cost, premises
and office cost, central function costs. Indirect (F&A) expenses are those that are incurred for a
common or joint purpose that benefits more than one cost target and are not easily assignable to
the cost objectives that are particularly benefited, without excessive effort compared to the
outcomes obtained. In the decision making process, there are few costs like differential cost,
sunk cost and opportunity cost. The policies for revenues are relied on financial statements,
internal control process, debts and others. The policies are made to help ensuring the sound
financial management practice. A revenue policy also includes revenue recognition policy and it
can help controlling over receivables.

1C

The Business Performance Analysis

The business performance of a company refers to financial analysis and it’s a process consists of
few techniques applied to observe and assess the performance of a company in a given period of
time. A consulting firm has different insights to oversee the performance and an analysis of
performance is reckoned by firm-wide performance and financials. In Deloitte UK, the growth of
revenue has increased from £3.95bn in 2019 to £4.31bn. In the time of COVID pandemic, this
consulting firm has crucially been impacted and the growth of this company dropped to around
2%.
This firm objectifies that the business performance isn’t all about financials of the company
rather they have taken initiatives thinking of people. The firm can improve its performance by
proper financial budgeting, tracing records of success, having an experienced team, reasonable
cost structure, adding value, communication skills or the firm. The most effective thing among
these procedures is communication skill. If Deloitte is always listens to their clients and
communicate in a better manner, then clients of Deloitte would be more dedicated to the firm.
Attention must be paid to the needs of clients and the given opinions should be legit and not
biased at all. When the firm offers solution for the problems that clients face, it makes the
business performance more worthwhile. Assessing the business efficiency might help in
improving the performance of Deloitte UK. To acquire the level of performance of the firm,
financial performance should be compared to the averages. The consultancy firms can draw
different metrics to solve the issues. The ratio analysis is an efficacious tool for performance
analysis. As, Deloitte is a leading company in the sector of auditing and accounting consultancy,
so they have to conduct the competitor analysis. Company’s performance is measured by
profitability ratios based on invested capital and the revenue. The ratio can be calculated
comparing balance sheet to the income statement data. The ration analysis of a firm can help
with liquidity issues, debt and return on sale and investment. Deloitte can review their financial
statements for variances and also cost adjustments for spending regularly. The performance

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analysis of Deloitte shows a metric about product line and management which can generate the
sales in high volume (Maheshwari, 2021).

The business performance analysis can be conducted through variance analysis, research
variance, analytical metrics, reviewing market context, and KPI. SWOT analysis is a significant
tool to measure the performance and improve it applying different potential method.
Deloitte has enormous positive outcomes from its performance as it has been doing great in
business deals and it enabled IT and business-led. The technological dimensions will help them
to serve customer better. This firm has already reached massive areas with best possible services
such as audit, tax, management and many more. Global presence and huge workforce of Deloitte
is the strength to be considered for long term benefit. The global financial services can be met by
Deloitte and it does have the opportunities as market share, firm’s acquisitions and business
operations. These are the tools to give better insider for the firm.

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1D

The Budget Setting Approaches

Budget system depends on different firms how it takes to make the budget. The approach of
budgeting doesn’t imply that it may deploy the strategies for one-time cost-reduction. Budget is
defined as a quantitative statement which is created to estimate expenditure and income budgets.
There are four types budgeting methods according to the needs of consulting firm and its
operation systems. Deloitte uses Zero based budgeting for its clients and also for itself.
Sometimes, it adopts rolling budgeting system (Citrin, 2013).
Zero-based budgeting is a process of budgeting which initiates the procedure from zero bases
and allocate resources. Zero-based budgeting is ideal for managing non-essential running costs. 
However, because it is a time-consuming strategy, many companies only utilize it on a limited
basis. The single expenses should be justified by this budgeting and it’s good for cost
containment (Ibrahim, M.M., 2019). This budgeting method helps in eliminating the duplication
of activities. It ensures the accuracy and makes the preparation of budget effective. Incremental
budgeting method is applied to business comparing the previous budget to actual performance to
forecast the future budget. This budget isn’t prepared newly rather it takes account in the prior
budget. When the funds are continuously available, this approach can make on the basis. Rolling
budget approach is a newly adopted model for consulting firm and other sort of businesses.

Budgeted Income Statement

Sales 440,000

COGS 226,200

Gross Profit 213,800

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Sales and administrative Expenses 87,000

Uncollectible Expenses 22,000

Income before Expense 104,800

Interest Expense 954

Income Tax 4,000

Net Income 99,846

Cash Budget

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References
Kane, G.C., Palmer, D., Phillips, A.N., Kiron, D. and Buckley, N., 2015. Strategy, not
technology, drives digital transformation. MIT Sloan Management Review and Deloitte
University Press, 14(1-25).
Weimer, D.L. and Vining, A.R., 2017. Policy analysis: Concepts and practice. Taylor & Francis.
Abdusalomova, N., 2019. PROBLEMS OF MANAGEMENT ACCOUNTING AND WAYS TO
SOLVE THEM. International Finance and Accounting, 2019(3), p.2.
Hrubliak, O.M., Karvatskyi, M.V. and Zhavoronok, A.V., 2018. Methodical approaches to assess
the efficiency of the budget process in Ukraine. Науковий вісник Полісся, 2(2 (14)), pp.108-
113.
Maheshwari, S.N., Maheshwari, S.K. and Maheshwari, M.S.K., 2021. Principles of Management
Accounting. Sultan Chand & Sons.
Razzouk, D., 2017. Methods for measuring and estimating costs. In Mental Health Economics
(pp. 19-33). Springer, Cham.
Citrin, L. & Blath, R. 2013."Critical management tools for getting costs under control".
Physician executive, vol. 39, no. 6, pp. 28.
Ibrahim, M.M., 2019. Designing zero-based budgeting for public organizations. Problems and
Perspectives in Management, 17(2).

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Document 2

2A

An Analysis of Actual Performance against the Budget

The variance in any organizational financial report is occurred because of variable cost items.
The consulting firm is a leading company for services of accounting, auditing who should be
more expertise in their business performance. The managers in high level plans the budget and
controls for the execution. The budget is basically made for forecasting the upcoming sales and
expenses. To distinguish between actual and budgeted performance, budget variance is the main
issue. The budgeted costs should not be more than actual cost. If actual costs exceeds the
budgeted costs then the budget variance is defined as unfavorable. The budgets are few including
flexible budget, actual budget and static budget. The static budget is often called planning budget
which is planned prior to an actual budget. If there is any transaction deficit or errors in actual
budget after comparing to static budget then the flexible budget is used to fix the issues.
Performance is evaluated using the variance analysis process. In order to meet the business goal,
the variance analysis is applied for analyzing the variance between existing budget and current
year actual result for meeting commitments. Co-relation of negative or positive in variance are
difficult for business planning. Spending variance is the difference between the actual amount of
cost and predicted cost. When the cost is lower than expected, the spending variances occurs
(Arnold, 2019).
Variance can help to gain competitive advantage, find the issues and identify the changes needed
for business, manage risk, increase shareholders value. Revenue variance is another variance in
the financial management which is used to measure the sales. This process formulates the
difference between actual and expected number of units sold multiplied by the budgeted price
per unit.
(Begiazi, 2019) has stated that budget variations can be caused by a variety of reasons, both
controlled and uncontrollable. For example, a poorly planned budget and labor costs are
elements that can be controlled. Some external issues of a firm which are not controllable such as
disasters. It is important to regulate the reasons of variances so that management can rectify the
unfavorable variances. The budget variance reasons are errors, changing business strategy, and
other issues. These reasons are measured for price variance, service usage, stuff or labor rate
variance, labor efficiency variance, overhead expenditure variance, overhead volume. In Deloitte
consulting firm, the variances in the revenue should be examined if any issues occur. In the
reason for overhead volume variance, there are few probable causes may arise including sales
demand (over/under), the changes in the capacity, working hours issues for inefficient planning.
To compare the actual budget with static budget, the variance can be in budget slack, repair cost
or other areas in the budget (Schuster, 2021).The firms may face revenue variances from
budgeted performance to the actual activity. Under the revenue variances, sales volume, selling
price and sales mix variances are perceived by Deloitte UK. The reasons can be drawn for why
revenue variances occur in the firm’s budget and actual statement. Those are cannibalization,

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competition and the change in the price. The cannibalization states when a new service grabs the
sales at the expense of a previous or older service. Competition is at its peak for consulting firms
cause competitors of Deloitte may introduce their services at premium price points that may have
similar facilities and credibility as Deloitte’s. The price reduction sometimes put dramatic impact
for the firm. When the improper budgeting occurs for sales budget, the spending variances may
arise as issues. If the wage rate increases suddenly, and the equipment and machines uses are
inefficient, then the actual result will differ more than expected. Deloitte may deal with
unexpected increase in the indirect cost or other variable costs.
Budget variances don’t only occurs for the above reasons but also for exceeds of team or
underperform prediction. In the case of Deloitte, for instance, it expected to work with 500
clients for a period instead processed 320 so there would be volume variances for Deloitte
(Amka, A., 2020)
Recommendation with corrective action
The budget variance can be positive when the actual sales are more than planned budget. It may
me opposite as well when the budget is improper. An unfavorable variance is occurred when the
costs are higher and the activity level is lower in the planned budget than the actual performance.
As soon as the management level can detect these variances, they can quickly calculate the issues
and eliminate the loss of the firm. Unfavorable variances is the indicator of wrong systems for
the process of firm’s financial statement. The budget variances should be calculated by deducting
the amount which has been budgeted from the actual expense. The management of Deloitte
should adjust the budget for making it pragmatic. It can reconsider the revenue by modifying
prices, sales process and volume. It should overlook at the turnover and market issues. Increasing
the client’s demands by changing service features or generating marketing budget can be more
effective solution to avoid unfavorable variance. The process should be ingenious and innovative
to adjust (Deloitte Access Economics, 2017).

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2B

The Practical Problems Associated with Conducting Variance Analysis

The variance analysis is conducted to make effective budget further for the firm’s growth and
betterment.

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The difference between flexible and planning budget is activity variance. The first above
calculation shows that the revenue is higher in the actual budget which is 4450 of variance. So,
the variance is favorable here but in the downward every other expenses are higher than the
planned budget so those are unfavorable variance. At the end, the net income has a favorable
result of 9290 which is good for the firm. So here the variances occurred are defined as activity
variances. The company can’t create the planned budget where all the expenses are unfavorable
so it shows flexible budget. It should adjust the budget.

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In the last portion, there are few unfavorable variances, like wages and others. The main fact is
here net income which is unfavorable and in the actual result, it is less than planned one. It is
biggest loss for the firm. It will decrease the sales and revenue as well.

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Conclusion
This report concludes the budget planning, variances in budgeting which play vital role in the
success of a firm. The business strategy should adopt the proper methods to run the business and
create goodwill with stakeholders. The report has focused of purpose of budgeting, methods,
approaches and other activities to prepare the budget properly. Variances may have different
reasons and it can be adjusted through mentioned guidelines.

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Reference
Begiazi, K. and Katsiampa, P., 2019. Modelling UK house prices with structural breaks and
conditional variance analysis. The Journal of Real Estate Finance and Economics, 58(2), pp.290-
309.
Schuster, P., Heinemann, M. and Cleary, P., 2021. Variance Analysis and Control. In
Management Accounting (pp. 173-214). Springer, Cham.
Deloitte Access Economics, 2017. Soft skills for business success. DeakinCo.
Arnold, M.C. and Gillenkirch, R.M., 2015. Using negotiated budgets for planning and
performance evaluation: An experimental study. Accounting, organizations and society, 43,
pp.1-16.
Amka, A., 2020. The Integration of Lean Accounting and Activities-Based Public Budgeting for
Improving the Firm’s Performance. The Integration of Lean Accounting and Activities-Based
Public Budgeting for Improving the Firm’s Performance.