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Profit & Cost Variance Analysis

   

Added on  2020-01-07

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MANAGEMENTACCOUNTING:COSTING ANDBUDGETING
Profit & Cost Variance Analysis_1

TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1TASK 1............................................................................................................................................11.1 Different types of cost......................................................................................................11.2 Different costing methods................................................................................................11.3 Calculation of costs using appropriate technique.............................................................21.4 Analysis of costs using appropriate technique.................................................................2TASK 2............................................................................................................................................22.1 Routine cost reports..........................................................................................................22.2 Performance indicators to identify potential improvements............................................22.3 Improvements to reduce costs, enhance value and quality..............................................3TASK 3............................................................................................................................................33.1 Purpose and nature of budgeting process.........................................................................33.2 Budgeting methods and its needs.....................................................................................43.3 Budget preparation according to activity based budgeting method.................................43.4 Cash budget......................................................................................................................5TASK 4............................................................................................................................................64.1 Variances..........................................................................................................................64.2 Operating statement reconciling budgeted and actual sales.............................................74.3 Responsibility centres.......................................................................................................7CONCLUSION................................................................................................................................7REFERENCES................................................................................................................................9
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·INTRODUCTIONCost is a sensitive element of a business entity which is incurred by a firm in producinggoods and services. Budgeting is also very important element of the business which helps toestimate the expenses and incomes. In the present report first and second parts rely with costingwhile third and fourth parts rely with budgeting. The report describes about the various costs andcosting methods as well as it present performance indicators which helps to identify potentialimprovements and strategies to reduce cost and improve quality. It describes about the budgetingand responsibility centres. The activity based budgeting and cash budget are also describes.·TASK 1·1.1 Different types of costCost is a sensitive element of every business whether it is manufacturing business orservice based. Cost is that which is incurred in producing goods or services. In the business thereare various types of costs on the basis of specific purpose or as per the nature of cost. Varioustypes of costs on the basis of specific purpose are given as below:·On the basis of expense nature: In the business as per the nature of expenses there are variousexpenses incurred to produce products and services (Kaplan and Atkinson, 2015). Variousexpenses according to the expense nature are such as labour cost, material costs etc.·On the basis of functional costs: In the organisation different functions are there which areincluded in cost of production. Different expenses or costs on the basis of activities of functionalare such as production cost, finance cost, administration cost, research and development cost,selling and distribution cost, advertisement cost etc.·On the basis of behavioural costs: As per the behavioural the costs incurred in business entityare such as direct costs, indirect costs, variable costs, fixed costs, semi-variable costs etc. Thedirect costs are those which directly incurred with the production while indirect costs are notaffects products directly. On the other side the fixed costs are that costs which are constant in thebusiness and variable costs are varied with production level. When production level change thenthe variable costs are also changed. Operating costs are those costs which attached with theproduction process and products and services. These are incurred in total cost of products andservices.1
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·1.2 Different costing methodsIn the organisation various costs are incurred to produce goods and services. For derivethe total cost of a product costing method is used by management (Otley and Emmanuel, 2013).There are various methods of costing by which a firm determine cost of a product. Variouscosting methods are such as follows:·Unit costing: Unit costing is a method of costing where cost is determined of a unit of productsor services. The method is used by management in order to determine cost of a unit produced. Inthis total cost of production is divided with the total number of units produced. It is mostly usedin the manufacturing companies.·Process costing: According to the process costing method the cost is determined as per thevarious processes of manufacturing (Fullerton, Kennedy and Widener, 2013). The method isused my majorly manufacturing entities where goods and services are producing step by step.The cost is calculated step by step of production process. For example in textile industry, carmanufacturing industry etc.·Batch costing: Under the batch costing costs of similar products are determined. In batchcosting similar products are separated and then calculate the costs. The products are separated asper the nature of products or design of the product.·1.3 Calculation of costs using appropriate techniqueCost per unit Under Absorption costing(Stable production 1000 unit) Cost per unit costing Absorption Costing2
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