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Costs and Revenues Assignment Solved

   

Added on  2020-11-12

21 Pages4061 Words378 Views
Costs and Revenues

Table of ContentsTASK 1............................................................................................................................................11. Purpose of internal reporting as well as providing accurate information to management......12. Relationship between different costing system within organisation.......................................13. Determine responsibility centres, cost centres, profit centres and investment centres withincompany......................................................................................................................................24. Characteristics of several types of cost classification as well as their use in costing.............25. Difference between marginal and absorption costing.............................................................3TASK 2............................................................................................................................................31. Recording cost information for labour material and expenses................................................32. Analysing the cost of information for labour, material and expenses according to theprocess of organisation. ..............................................................................................................43. Different Stages of Inventory..................................................................................................44. Inventory Valuation using different methods.........................................................................55. Behaviour of Different cost.....................................................................................................76. Recording cost information by using different costing systems.............................................8TASK 3............................................................................................................................................83.1.Attributing overhead costs ...................................................................................................83.2 Calculating overhead absorption rates according to the suitable bases of absorption..........93.3 Adjustments for under or over recovered overhead costs in accordance with establishedprocedure...................................................................................................................................113.4 Reviewing method of allocation apportionment and absorption at regular intervals,implementing agreed changes to methods................................................................................12TASK 4..........................................................................................................................................134.4 Prepaing management report in an appropriate format.......................................................14TASK 5..........................................................................................................................................145.3 Calculating the effect of changing activity level on unit costs...........................................16REFERENCES..............................................................................................................................17

TASK 11. Purpose of internal reporting as well as providing accurate information to management.Internal reporting system is the system that provides information related to the business atall levels to management (Ghiyasi, 2017). With the help of internal reporting system, it becomeseasy to detect the performance as well as responsibilities of various centres. The main purpose of internal reporting system are as follows-It allows manager to take decision for the businesses. It aids transparency in the work of management. Stakeholders which have higher interest with the company are informed about theperformance of organisation.It also aids in identifying the financial performance of the company with someanalysis tools such as cash flow. It also facilitates in improving the efficiency of senior manager of theorganisation. 2. Relationship between different costing system within organisation.Absorption, marginal, standard and historical are some types of costing system that areusually adopted by the organisation in order to allocate various expenditure overheads. These alltypes of cost are interlinked and as marginal costing and absorption costing are used by theorganisation to check the profitability of the company as profit per unit and cost per unit. Boththese types of costing helps the management of organisation in decision making like in preparingbudget and other expenses or resources. In addition to this, with the help of these costing,management make sure that there should be proper allocation of the cost to several overheads. Itresults in accurate identification cost of each input which is used in the process of production.Moreover, in standard and historical costing are also used by the management in order to makeeffective decisions for the businesses regarding the allocation of cost (Shepherd, 2015).On the other hand, the difference among these two costing (marginal and absorption) isthat marginal costing considers variable cost whereas absorption costing used both variable andfixed cost. 1

3. Determine responsibility centres, cost centres, profit centres and investment centres withincompany.Responsibility centres is the part of the organisation for which manager has responsibilityas well as authority. All the responsibilities and authorities are assigned to all the manager.Departments are the most common responsibility centre within organisation. Cost Centres are is also one of the most important department within organisation as it isconcerned with the allocation of cost but they are not responsible for the revenues or investmentdecision. They are not responsible for the profitability of the company (Nguyen, 2018). Profit Centres are is the part of company with assigned revenues as well as cost andhence ascertainable profitability. Profit and losses of this department are evaluated separately.Manager at profit centres are responsible for managing all the activities of sales which leads tomore revenues than the cost of those activities. This centres is very beneficial for the company asby creating separate profit centres, management can measures the profitability of each activitiesof business. Investment Centre is also one of the essential unit of the business organisation. Themanagers in the investment centres are responsible for measuring the performance of all thedepartments of the organisation (Weisbach, Hemel and Nou, 2018). Cost, capital expenditure,revenue are considered by the investment centre in the form of asserts which are used in theprocess of production. They contribute profitability of the company. 4. Characteristics of several types of cost classification as well as their use in costing.There are several types of costing that company incurs in buying and selling of goods andservices which are as follows- Variable Cost- These are type of cost that changes in proportionate with the level ofoutput. This is the type of cost that varies depending on the number of good a companymanufactures. Fixed Cost- These are the types of cost which do not vary with the respect to changes inoutput and would occur when no output was manufactures. For example- payment of interest,rent, taxes, salary and wages etc.Total Cost- This is total of fixed and variable cost (Yang and Chen, 2018). Semi-variable Cost- Mixture of both variable and fixed cost are called as semi-variablecost as to some extent it remains fixed but after passing the limit it becomes variable cost. 2

5. Difference between marginal and absorption costing.Absorption Costing Marginal Costing It is used in external reporting. It is used in the process of decisionmaking. Stock are valued at cost of totalproduction.Stock are valued at variable cost ofproduction. Under the IAS 2, it is used in thevaluation of inventory. Under the IAS 2, for the valuation ofinventory, marginal costing are notallowed. TASK 21. Recording cost information for labour material and expensesCost Sheet Particulars Total CostCost Per unit (10000)Opening stock of Raw material180001.8+ Purchase Raw material 2000002.0+ Other Purchasing Expenses 300003.0+Raw Material Used150001.5+ Direct Wages100001.0+Bill of Electricity of Factory180001.8+Maintenance and Repairs110001.1-Closing Stock of raw material150001.5Prime Cost 27800027.8+Opening WIP250002.5+Office Expenses 180001.8+Postage & Telegraph130001.3-Closing Stock of FinishedCost70000.7Cost of Production32700032.7+Opening Stock of FinishedGoods170001.73

-Closing Stock of FinishedGoods90000.9Cost of Goods Sold (COGS)33500033.5+Advertising Expenses 120001.2Cost of Sales 34700034.7+Profit Margin of cost of sales30%10410010.41Selling Price 45110045.112. Analysing the cost of information for labour, material and expenses according to the processof organisation.Direct labour, opening stock of raw material, raw material purchase, expenses related topurchase of raw material like carriage expenses are added. Manufacturing Expenses, DirectWages like factory bill, maintenance and repairs are added to identify the Prime Cost. Prime costis the combination of a manufactured product's cost of direct material as well as direct labour. Itis like direct cost of production (Bai, Chen and Xu, 2017). After that, prime cost is become thebase in cost sheet for finding cost of production, Cost of Goods Sold, Cost of Sales and aftercalculating the all these cost, the selling price of the product is ascertained.3. Different Stages of Inventory.Inventory is very important for the organisation as it is the list of all the items such asgoods in stock. There are four stages in inventory which are as follows-Raw Material- This is the first stage of inventory as with the help of raw material, finalproduct is made. Work in Process- This is the second stage where the raw material is pulled in the processto create the final product. All the products are included in the stage of work in process whichare to be finalised (Schmelz and Geraedts, 2018). Finished Goods- At the completion of the process of manufacturing, all the costsassociated with the production that are associated with the manufacturing process that includedraw material, cost of work in process are moved to the next stage of finished goods. In simplewords, goods ready to sale are called as finished goods. 4

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