Costs and Revenues - Assignment
23 Pages4695 Words486 Views
Added on 2020-12-09
Costs and Revenues - Assignment
Added on 2020-12-09
ShareRelated Documents
COSTS AND REVENUES
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1TASK 1 ...........................................................................................................................................11.1 Explaining purpose of internal reporting and providing accurate information tomanagement................................................................................................................................11.2 Relationship between various costing systems within an organisation...............................11.3 Identifying cost centres, responsibility centres, profit and investment centres in anorganisation.................................................................................................................................21.4 Characteristics of different kinds of cost classification and their use in costing.................31.5 Difference between marginal and absorption costing ..........................................................3TASK 2 ...........................................................................................................................................42.1 Recording cost information for labour, material and expenses ............................................42.2 Analysing cost information for labour, material and expenses according to organisation'sprocedure.....................................................................................................................................42.3 Defining different stages of inventory .................................................................................52.4 Inventory valuation using different methods .......................................................................5Closing inventory: 50 unit @ (£)15 = (£)750.............................................................................72.5 Describing behaviour of different cost..................................................................................82.6 Recording cost information by using different costing systems ..........................................9TASK 3 ...........................................................................................................................................93.1 Attributing overhead costs ...................................................................................................93.2 Calculating overhead absorption rate .................................................................................103.3 Adjustments for over or under overheads...........................................................................113.4 Methods of allocation, absorption and apportionment .......................................................123.5 Communicating cost related data .......................................................................................12TASK 4 .........................................................................................................................................124.1 Comparing budget cost with actual cost with variances.....................................................124.2 Analysing variance for management report........................................................................124.3 Providing information to budget holders and making suggestions...................................134.4 Preparing management report ............................................................................................13
TASK 5 .........................................................................................................................................155.1 Preparing estimates of future income and cost of decision making ...................................155.2 Explaining effect of changing activity level on unit costs..................................................175.3 Calculating effect of changing activity level on unit costs ...............................................175.4 Identifying factors that affect short and long term decision making .................................18CONCLUSION..............................................................................................................................18REFERENCES..............................................................................................................................19
INTRODUCTIONCost and revenue are the two aspects of an organisation around which all the activitiesrevolves (Abel and Le Roux, 2016). The present report is going to discuss purpose of internalreporting, classification of cost and their behaviours, different costing system and how material,labour and expenses are recorded in these systems. A segment will discuss the importance ofmanagement reports and factors affecting decision making of managers in an organisation.TASK 1 1.1 Explaining purpose of internal reporting and providing accurate information to managementInternal reporting to management is a well defined system of providing businessinformation of all levels to management. This enables managers to measure effectiveness ofdifferent responsibility centres. The main purpose of internal reporting is:To facilitate the managers in their decision making process. Communicating vital information about the company's performance to interestedstakeholders.Providing accurate and reliable information in the form of reports helps the managementin analysing different trends.For examining financial health of the company such as analysis of utilisation of differentresources, cash flow etc.To improve the efficiency and effectiveness of senior management of company.To control the business operations. Cost control and cost reduction is efficiently done byanalysing the reports of each level in an organisation.1.2 Relationship between various costing systems within an organisationThere are various types of costing systems such as marginal, absorption, standard,historical which a company adopts for allocating the cost to different expenditure overheads.Marginal and absorption costing systems shares a prevalence that both the systems helps infinding out the cost per unit and profit per unit. Both the system helps management in theirdecision making regarding estimation of budgets, assessing where the resources are being over1
utilised etc. The management gains from these systems as these methods helps in optimumallocation of cost to different overheads. This leads to accurate determination cost of each inputthat is being used in production process (Dempsey and Kelliher, 2018). However, there is one major difference between these two system is that marginal costingonly considers variable costs as product cost and fixed cost as cost of period whereas absorptioncosting considers both fixed and variable cost as product cost.Standard and historical costing system also shares some similar characteristics such asdetermining cost of each unit. These also helps management in framing out various rationaledecisions regarding the cost allocation within the different overheads. However, standard costingconsiders pre-estimated standards for determining the cost of direct materials, labour, directoverheads whereas historical costing method considers actual costs that have been incurred anddoes not rely estimated standards. 1.3 Identifying cost centres, responsibility centres, profit and investment centres in anorganisationA responsibility centre can be defined as a part of an enterprise for which a specificindividual namely as manager who is responsible for all the operations of that unit. Cost andprofit centres are some typical example of responsibility centre.Cost centre is one of the type of the type of responsibility centre which is concerned witha particular department in a company to which different costs are allocated. Logistics, It,production, R&D are some departments in an organisation which incurs costs that directly orindirectly contribute in manufacturing of the goods and services. Profit centre is a segment of an organisation whose stand-alone profitability is analysed.Profits and losses of this segment is computed separately. The manger responsible for profitcentre is responsible for bringing cash in to the organisation by the way of increase in sale.Selling or sales department is profit centre which is responsible for generating higher sales andfor which profit and loss can be calculated (Hemel, Nou, and Weisbach, 2018).Investment centre is treated as business unit in an organisation for evaluatingperformance of a segment or department of company. This takes into consideration costs,2
revenues, capital expenditure in the form of assets that are used in production process, ultimatelycontributing to profitability of the organisation. 1.4 Characteristics of different kinds of cost classification and their use in costingThere are different types of costs that a company incurs for producing and selling itsgoods and services which are given below:Fixed cost : These are the cost that does not vary with change in production level such asrent of premises, insurance premium, interest payment, depreciation etc. Fixed cost are used incosting for determining the total costs incurred for producing each unit. Variable cost : These are the costs that varies with change in production level such asdirect labour, raw materials, factory's electricity bill etc. Marginal costing considers only variablecost in determining the cost of each additional unit of output. Semi variable cost: These cost are mixture of fixed and variable cost. To an extent, a partof cost remains fixed but after passing the limit, it becomes variable in nature. Direct an Indirect cost : Direct costs are those which directly contribute to the productioncost such as direct labour, material utility. These are summed for up for finding out prime cost ofa product. Indirect cost are those which do not directly contributes to manufacturing of a productsuch as salaries, commissions, packaging etc. These are included in prime cost for finding outtotal cost of production (Holzhacker, Krishnan and Mahlendorf, 2015). 1.5 Difference between marginal and absorption costing BasisMarginal costingAbsorption costingTreatment of fixed cost andvariable cost It considers only variable costas products costIt considers fixed and variableboth costs as product cost.InventoryIt does not take intoconsideration opening andclosing stock whiledetermining cost.It involves opening and closinginventory in its calculation.Purpose and requirementThere is no such legalfoundation and it is generallyIt is legally required to applyabsorption costing and its3
End of preview
Want to access all the pages? Upload your documents or become a member.
Related Documents
Cost and Revenue - Assignment Solutionlg...
|19
|3782
|497
Costs and Revenues Assignmentlg...
|18
|4722
|421
Cost and Reveanes InTROUCTION 4 TASK 14lg...
|21
|4172
|171
Cost and Revenues - Assignmentlg...
|19
|4300
|341
Cost and Revenue: Recording, Analysis, and Attribution of Costs in Business Entitieslg...
|17
|4216
|138
Cost and Revenue Assignment - Solvedlg...
|17
|4216
|126