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TASK 13 1.1 Cost classification 3 1.2 Cost calculation 4 1.4 Cost calculation 4 1.4 Cost calculation 4 1.4 Cost calculation 4 1.4 Cost calculation 4 1.4 Cost calculation 4 1.4 Cost calculation 4 1.4 C

   

Added on  2020-01-28

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Managementaccounting 1

Table of ContentsINTRODUCTION................................................................................................................................3TASK 1.................................................................................................................................................31.1 Cost classification......................................................................................................................31.2 Costing method..........................................................................................................................41.3 Cost calculation..........................................................................................................................41.4 Analyse cost by using appropriate technique.............................................................................5TASK 2.................................................................................................................................................52.1 Cost reports................................................................................................................................52.2 Performance indicators to determine potential improvements..................................................62.3 Suggestions to reduce cost, enhance value and quality.............................................................6TASK 3.................................................................................................................................................73.1 Stating the nature and process of budgeting process ................................................................73.2 Selecting appropriate budgeting method by stating its need ....................................................73.3 Preparing budgets by taking account the chosen method .........................................................83.4 Preparing a cash budget ............................................................................................................9TASK 4.................................................................................................................................................94.1 Calculating possible variances and giving recommendation for the improvement by assessingthe causes ........................................................................................................................................94.2 Preparing operating statement reconciling budget ..................................................................104.3 Reporting findings to the management according to the responsibility centre .......................10CONCLUSION...................................................................................................................................11References..........................................................................................................................................122

INTRODUCTIONManagers plays a crucial role in the organization as they construct policies, rules and takedecisions to enhance business performance. The process of analysing organization's financialperformance, cost report etc. in order to take decisions to control cost and increase profitability iscalled management accounting. Sparky Ltd, is an organization who provide electricity servicesthrough its electricians. Present report will demonstrate cost classification, techniques as well asmethods to determine the cost of a product or services. Moreover, budgeting technique andvariances analysis will be done to eliminate negative variances by employing remedial actions sothat Sparky Ltd, can achieve its business targets.TASK 11.1 Cost classificationSum of expenditures incurred for the production of goods and service is called cost. Thereare two types of cost, direct or indirect cost, described below:Direct cost: Expenses which directly can be connected to a specific cost object, is calleddirect cost. For instance, material which is used for the production of goods is called directmaterial. While, worker's wages which is directly involved in the manufacturing process iscalled direct labour (Wilson and et.al., 2016). While, other expenses which can be allocateddirectly towards production is called direct overhead. Indirect cost: Expenses which are not directly related to the production process, is known asindirect cost. For instance, indirect material, indirect labour, administrative expenses,supervision, insurance, depreciation etc.On the basis of above discussion, Sparky Ltd, cost has been determined here as under:1.Wages of electrician: It is a direct cost because electricians are directly involved in theprocess of rendering electricity services to their clients. Therefore, it is a direct labour cost.2.Tools depreciation: It is an indirect cost which can not be directly traced to a specific costelement.3.Accountant salary: It is an indirect cost because it is related to the office expenses instead ofmanufacturing process (Tosun and Bağdadioğlu, 2016).4.Cost of cable and material: This is a direct cost because material and cable are using on thejob.5.Premises rent: It is an indirect cost because it is an expense to store business inventory notthe production process.3

1.2 Costing methodJob costing: This method helps to determine cost of each job by taking into account all thedirect and indirect cost incurred. It is useful for the organizations who produce goods and serviceson the basis of customer order. Batch costing: This costing techniques provide assistance to determine the cost of a batch inwhich every batch refers to a number of small orders. It take into account all the fixed as well asvariable cost to determine total cost of a batch (Ahrens and Ferry, 2015). It is mainly used bymanufacturer of spare parts and components. Process costing: In factories, where production is being carried out in various stages thenthey can use process costing to determine cost of each operations and in the end, total cost ofproduction can be identified. Textile, chemical industries etc. use this costing method to calculatetheir product cost.Contract costing: This method is used by builders, contractors etc. to identify the cost ofeach contract. This method helps to determine the cost of work finished by taking into account allthe direct or indirect expenses and in end, total contract cost can be calculated (Lodha, 2012). Service costing: Service based organization like hospitals, hotels and power supply firms usethis method to identify the cost of service rendered to the customers. 1.3 Cost calculationFirst in, First out: Under this method, older inventory purchased will be sale first to thecustomers. Therefore, the ending stock will be the part of latest goods purchased by Bike Ltd. Last in, First out: This technique reflects that recently acquired goods by Bike Ltd will besale initially to the customers. Hence, the closing inventory will be the part of unsold goodsavailable in the older inventory purchased (Amans, Mazars-Chapelon and Villesèque-Dubus, 2015).Average costing: This costing method use average of all the prices at which goods has beenpurchased by Bike Ltd. Moreover, the closing stock will be valued at the average prices of thebikes. LIFOFIFOAVCOInventory sold January, 052 Bike* $50 = $1002 Bike* $50 = $1002 Bike* $50 = $100January, 101 Bike*$50 = $501 Bike*$50 = $501 Bike*$50 = $50January, 253 Bikes *$70 = $2102 Bikes *$50 = $1001 Bike *$70 = $703 Bike *$60 = $180Closing stock 2 Bikes * $50 = $1004 Bikes *$70 = $2804 Bikes *$604

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