Measurement and Decisions-Making

Added on - 03 Dec 2019

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Measurement andDecisions-Making
Table of ContentsINTRODUCTION..........................................................................................................................3TASK 1: COST BEHAVIOR AND COST CLASSIFICATIONS..................................................3TASK 2: UNDERSTANDING OVERHEADS..............................................................................4a)............................................................................................................................................4b).............................................................................................................................................5c)............................................................................................................................................6d).............................................................................................................................................6TASK 3: HUMAN ASPECTS OF BUDGETING...........................................................................7a)............................................................................................................................................7b).............................................................................................................................................7d).............................................................................................................................................8CONCLUSION...............................................................................................................................8REFERENCES................................................................................................................................9
INTRODUCTIONEvery business organization whether manufacturing or service provider incur differenttypes of cost while carrying out their operations. Cost accounting records all the expendituresincurred by an entity which aims is to determine the total cost. The aim of the present assignmentis to evaluate and discuss different types of costing method available to the entrepreneur for theircost determinations. Moreover, ABC costing will be applied to apportion Cinto Ltd's overheadsto its operational segments and measure profitability. In the end, the report will discuss the roleof human aspect in the budgeting.TASK 1: COST BEHAVIOR AND COST CLASSIFICATIONSThe identification of cost for various activities and products is considered to be anessential element for the organization. The businesses tend to incur wide range of costs in theform of variable and fixed costs. In present case, fixed manufacturing overheads accounts foraround 30% of total manufacturing cost. This cost can be accounted for as different ways infinancial statements and cost sheet. The financial statements majorly satisfies information needsof external stakeholders. However, cost and production reports are suitable to meet therequirements of internal stakeholders. The overhead costs can be accounted to externalstakeholders majorly in two different ways as follows:Absorption Costing:The method of absorption costing emphasizes on recording costssuch as direct material, direct labor, variable & fixed manufacturing overhead as a part ofproduct costs (Fisher and Krumwiede, 2015). On other hand, selling, distribution andadministrative expenses are considered as period cost. The selling, distribution andadministrative cost is further classified into variable and fixed component. As per the absorptioncosting, Jason day should account for manufacturing overhead as a part of product cost(Balakrishnan, Labro and Soderstrom, 2014). The same approach is adopted by NilstromIndustries presently to account for manufacturing overheads. Maria Crane, vice president ofoperations also found the approach to be suitable for reporting overhead cost. This approachdirectly allocates the overheads to product cost which in turn lowers profitability.Variable Costing:As per the variable costing approach, fixed manufacturing overheadforms part of period costs. The approach segregates manufacturing overhead into twocomponents: fixed and variable. Fixed component forms part of period costs and variablecomponent forms part of product costs (Nawaz, 2013). It is through adoption of variable costing