Comprehensive Analysis of Costs and Revenues in Business Operations

This report provides a comprehensive analysis of costs and revenues within a business context. It begins with an introduction to internal reporting, emphasizing its purpose in providing accurate information to management, and explores the relationships between various costing systems, including job and process costing. The report delves into responsibility centers, cost centers, and investment centers, along with cost classifications, including marginal and absorption costing. It examines cost details for labor, materials, and expenses, analyzing cost information and inventory valuation methods like FIFO. The report covers overhead costs, allocation, apportionment, and absorption methods, as well as the treatment of under- or over-recovered overhead costs. Additionally, it addresses budget variance analysis, management reporting, and the use of future income and costs for decision-making, including break-even analysis and discounted cash flow. The impact of changing activity levels on unit costs and factors affecting short-term and long-term decision-making are also evaluated, culminating in a conclusion that summarizes the key concepts discussed. References are provided to support the analysis.

COSTS AND REVENUES

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 The purpose of internal reporting and providing accurate information to management.......1
1.2 Relationship between the various costing systems with in business.....................................1
1.3 the responsibility centres, cost centres and investment centres with in organisation............2
1.4 The characteristics of various kind of cost classifications and its use in costing..................2
1.5 The difference between marginal and absorption costing.....................................................2
TASK 2............................................................................................................................................3
2.1 Cost details for labour, material and expenses as per the organisation's costing procedure..3
2.2 Analysis of cost information as labour, material and expenses as per the organisation's
costing procedure.........................................................................................................................3
2.3 Various stages of inventory...................................................................................................4
2.4 Valuation of inventories by using inventory valuation methods...........................................4
2.5 Behaviour of cost...................................................................................................................5
2.6 Cost information by using costing system.............................................................................5
TASK 3............................................................................................................................................6
3.1 Overhead costs to production and service cost centres as per allocation and apportionment
......................................................................................................................................................6
3.2 Analysis of rates in accordance with adequate bases of absorption......................................6
3.3 Treatment of under or over recovered overhead costs in accordance with established
procedures....................................................................................................................................6
Over and under absorption: -.......................................................................................................7
3.4 Methods of allocation, apportionment and absorption at regular intervals...........................7
3.5 Execution with staff to resolve the questions in overhead cost data......................................7
TASK 4............................................................................................................................................8
4.1 Comparison of budget with actual budget cost and variances...............................................8
4.2 Analysis of variances for management reports......................................................................8
4.3 Information for budget holders of significant variances making suggestions remedial
actions..........................................................................................................................................8

4.4 Formation of management report in a proper format, presenting timescales........................9
TASK 5............................................................................................................................................9
5.1 Future income and costs for decision making using..............................................................9
5.2 Effect of changing activity levels on unit cost.....................................................................10
5.3 Evaluation of factors affecting short term and long-term decision making.........................10
5.4 Factors affecting short-term and long-term decision making..............................................10
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................12

INTRODUCTION
Cost indicates towards expensed incurred for a particular event, transaction in
organisational context. Revenue is recognised as a consideration of levied expenses in operations
(Amico, Chilingerian and Van Hasselt, 2014). Nature and role of costing system with in
organisational context are defined in this report. Cost records and applications are also analysed
with in organisational context. It contains the appropriation of cost according to organisational
requirements. Cost and revenues with proper organisational requirements are also considered in
this report. Allocation and appropriation cost by applying accounting concepts and observations
are also analysed with practical based examples. Use of information generated form costing
system for decision making also defined in this report.
TASK 1
1.1 The purpose of internal reporting and providing accurate information to management
Motivation behind inner detailing: Internal revealing is directed in all the business
elements to dissect that association is performing great or not. In the event that it isn't great, key
choices can be taken by the supervisors so as to enhance it.
Reason for giving exact data to the board: It is essential to give precise, solid and fitting
data to the administration. Fundamental motivation behind this, is to encourage administrators in
settling on right choices for business and its improvement.
1.2 Relationship between the various costing systems with in business
All the business elements utilize two noteworthy sort of costing framework these are
employment and process costing frameworks. Them two are interrelated with one another. In
employment costing material, work and overheads are recorded for each errand which is
performed by the organization. In second strategy every one of these components are deciphered
for whole creation methodology (Elliott and Santos, 2012).
At the point when chiefs have any issue seeing generation process as brief data is
recorded in it, at that point work costing can be utilized to get proper data for each cost
consequently both are identified with one another.
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1.3 the responsibility centres, cost centres and investment centres with in organisation
Responsibility centre: It is subunit of an organization for which a director has duty and
expert. These are the diverse useful offices inside an association, for example, back, advertising,
human asset, IT and so on.
Cost centre: It is a cost division of a business element in which all the staff individuals
and chiefs are in charge of costs related choices not incomes. It incorporates creation, support
and quality control divisions.
Benefit centre: It is a focal piece of an undertaking which is mindful to make higher
commitment in hierarchical benefits. It incorporates moving division of the organization.
Venture centre: It is an interior division of an association which uses capital and assets
suitably so as to improve generally speaking productivity of the organization. sales and
assembling offices are considered as the piece of this middle (Gillen and Mantin, 2014).
1.4 The characteristics of various kind of cost classifications and its use in costing
There are five kinds of cost characterizations essentially, in connection to cost focus, by
time, for basic leadership and ordinarily of generation process. Attributes of every one of them
are as per the following:
It settles on best choices for the association by isolating expenses in different parts.
 All the arranged costs measures costs that may happen in future and afterwards
supervisors can design ahead of time to tolerate them.
 Budgeted expenses are utilized to decide each cost which has been happened in
assembling process.
 Employments of arrangement of expenses:
 These are additionally used to designate suitable assets to various practical divisions of
the organization as indicated by their necessities by dissecting their expenses.
1.5 The difference between marginal and absorption costing
Marginal costing Absorption costing
This method helps to categorise the cost in
fixed and variable streams in different ways.
This costing method helps in determining the
profit by absorbing fixed manufacturing
expenses in production process.
This costing method is also used in decision This costing method is not considered viable
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making and strategic planning. and formal in order to managing the decisions
and strategic plannig.
TASK 2
2.1 Cost details for labour, material and expenses as per the organisation's costing procedure
Costing technique executed in any association characterizes as a movement of chronicle
costs in fitting records with the goal that real expense can be determined for assembling process
as an individual premise and for entire assembling process (Kimball, 2014). In any association,
there are different sort of costs that are brought about because of business activities. These are
material, work and costs.
Material expense:
Material expense shift as indicated by the yield level yet it stays same per unit of yield. It
incorporates cost of crude materials that are obtained by the association from the market to
deliver yield.
Labour Cost:
Works are the labourers of an element that is occupied with delivering the yield and
substance offers wages to them. These wages are called work cost, this expense is same per unit
of yield yet it changes whenever yield level increments all in all.
Direct Costs:
There are two sorts of costs which is immediate costs and circuitous costs, coordinate
costs caused specifically on a specific item. Then again, roundabout costs are caused on all in all
for the association and it is additionally called as overhead. It tends to be settled overhead and
can be variable overhead.
2.2 Analysis of cost information as labour, material and expenses as per the organisation's
costing procedure
This would rely on total item that are made within the company if it would reduce or
increase then wages paid to work forces that will changes as per the units of production (Kong,
Bayram and Devetsikiotis, 2015). There are certain types of expense that are faced by every
business organization while manufacturing items. Few of them are fixed as well as variables cost
such as rent, depreciation and insurance premium etc.
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2.3 Various stages of inventory
There are various types of cost which are categories during the time of production
process in an organization (Sahoo, Mehdiloozad and Tone, 2014). For instance, material costs
recorded on specific needs of manufacturing or the desired units those are going to be used by an
organization. It is variable expenditure that can modified with total cost which would be plan
made by the investors. Labor cost is recorded as one total worker basis that are associated with
everyday manufacturing process.
2.4 Valuation of inventories by using inventory valuation methods
FIFO method
Date Purchase Sales Balance
Units
Unit
cost Total Units
Unit
cost Total Units
Unit
cost Total
01/03/19 - - - - - - 68 15 1020
05/03/19 140 15.5 2170 - - - 68 15 1020
- - - - - - 140 15.5 2170
09/03/19 - - - 68 15 1020 114 15.5 1767
- - - 26 15.5 403 - - -
11/03/19 40 16 640 - - - 114 15.5 1767
- - - - - - 40 16 640
16/03/19 78 16.5 1287 - - - 114 15.5 1767
- - - - - - 40 16 640
- - - - - - 78 16.5 1287
20/03/19 - - - 114 15.5 1767 38 16 608
- - - 2 16 32 78 16.5 1287
29/03/19 - - - 38 16 608 54 16.5 891
- - - 24 16.5 396 - - -
LIFO method
Date Purchase Sales Balance
Units
Unit
cost Total Units
Unit
cost Total Units
Unit
cost Total
01/03/19 - - - - - - 60 15 900
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05/03/19 140 15.5 2170 - - - 60 15 900
- - - - - - 140 15.5 2170
14/03/19 - - - 140 15.5 2170 10 15 150
- - - 50 15 750 - - -
27/03/19 70 16 1120 - - - 10 15 150
- - - - - - 70 16 1120
29/03/19 - - - 30 16 480 10 15 150
- - - - - - 40 16 640
31/03/19 - - - - - - 10 15 150
- - - - - - 40 16 640
Weighted Average Method
Date Purchase Sales Balance
Units
Unit
cost Total Units
Unit
cost Total Units
Unit
cost Total
01/03/19 - - - - - - 60 15 900
05/03/19 140 15.5 2170 - - - 200 15.35 3070
14/03/19 - - - 190 15.35 2916.50 10 15.35 153.50
27/03/19 70 16 1120 - - - 80 15.92 1273.50
29/03/19 - - - 30 15.92 477.6 50 15.92 796
31/03/19 - - - - - - 50 15.92 796
2.5 Behaviour of cost
There are different types of cost which are indulged while any product is being
manufactured. These different types of costs are different in nature. These are discussed as
below:
Fixed cost:
The fixed costs are those cost which does not vary with changing output. These fixed
costs are always constant whether production is increasing or decreasing. This cost might include
the cost of building a factory. Apart from this if company does not produce anything this cost
have to be bear by company (Shepherd, 2015).
Variable cost:
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Variable costs are those which always keep changing and it totally depend on the output
produced. If company produced more than they have to pay more and similarly if they pay less
than company needs to pay less.
Semi variable cost:
A labour might be a semi variable cost. For example if a company produces car than they
need more workers and that is variable cost (Shoup, 2017). Therefore, even if company does not
produce any car than also they have to need some worker to look after empty factory.
2.6 Cost information by using costing system
Administration: In this costing method costs identified with each administration
rendered by an organization is recorded. It is basically utilized in cordiality industry.
Batch: This strategy is utilized to accept homogeneous items as cost unit for association.
In this costing system a bunch incorporates a specific number of things or articles (Stiglitz and
Rosengard, 2015).
Job: In employment costing strategy expenses of each errand which is performed by the
association is recorded. Administrators may get nitty gritty data of costs that have occurred for
that are looked by the organization.
Process: Costs identified with generation process is recorded in this strategy. It is
fundamentally utilized in those organizations which makes items in substantial amounts.
Unit: In this framework cost that has occurred for assembling a particular unit of item is
recorded. All settled and variable costs identified with one thing is considered in this strategy.
TASK 3
3.1 Overhead costs to production and service cost centres as per allocation and apportionment
Material expenses are recorded based on absolute prerequisite of generation or the ideal
units that will be produced by the organization. It is a variable cost that changes with all out
generation units. Work cost is recorded based on complete labourers who are associated with
assembling process.
3.2 Analysis of rates in accordance with adequate bases of absorption
Machine Hours : -
Overhead absorption rate = Estimated Factory Overheads / Estimated machine hours * 100
= $150000 / 25000 * 100
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= $600
Labour Hours : -
Overhead absorption rate = Estimated Factory Overheads / Estimated labour hours * 100
= $150000 / 30000 * 100
= $500
3.3 Treatment of under or over recovered overhead costs in accordance with established
procedures
Normal working hours = No of machines*No of working hour per week*No of work per week
= 28*42*48
= 56448
Loss of hours on maintenance = No of machines*No of hour loss on maintenance per week*No
of work per week
= 28*5*48
= 6720
Annual effective working hours = Normal working hours - Loss of hours on maintenance
= 56448 - 6720
= 49728
Machine hours = Estimated annual overhead / Estimated working hours
= 124320/49728
= £2.5 per hours.
Over and under absorption: -
Over absorption = Machine hours produce – Overhead incurred
= (4200*2.5) – £10200
= £10500-£10200
= £300
Under absorption = Wages absorption – Wages incurred
= (28*42*4 @ £1.50) - £7400
= £7056 – £7400
= £344
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3.4 Methods of allocation, apportionment and absorption at regular intervals
Square footage: This helps in managing the rent and other expense's allocation.
Machine time: This method helps to determine the cost by evaluating the machine hours.
Direct labour: This method helps to analyse the cost by bifurcating the direct labour and
cost (Sufian and Kamarudin, 2015).
3.5 Execution with staff to resolve the questions in overhead cost data
Communication regarding the budgeted overheads and expenses for staff member for
making strategies and policies. For each director it is vital to determine every one of the inquiries
that are identified with overhead cost information so it tends to be investigated that every one of
them are significant to generation or not. The data can be assembled by directing a formal
gathering or assessing reports that are created by the labourers.
TASK 4
4.1 Comparison of budget with actual budget cost and variances
Budget costing is a money related arrangement which incorporates budgetary and non-
monetary information. The primary component of Budget costing is to pre-decide income and
costs. It is important to plan Budget plan so we can make a decision in which division what
measure of cash ought to be spend as abundance Budget lead towards negative effect on
association (Wang and et. al., 2015). Where as genuine costing can be characterized as cost
bookkeeping framework which utilizes exact information, real characteristics utilized in
assembling procedure to discover the expense of explicit items. In real cost, costs are sure and
determined by required material.
4.2 Analysis of variances for management reports
Material cost variance= Total budgeted cost- total actual cost
=21750-20720
=1030(F)
Material price variance= SP-AP*(AQ)
For A: 60-60*180= 0
For B: 65-62*160= 480(F)
MPV= 480(F)
Material usage variance= SQ-AQ*(SP)
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For A: 200-180*60= 1200(F)
For B: 150-160*65= 650(A)
MPV= 550(F)
4.3 Information for budget holders of significant variances making suggestions remedial actions
There are three primary sorts of differences these are material cost, cost and utilization
fluctuations. Every one of them are vital for spending holders since it might control them to
dissect that their estimations have met the genuine outcomes (Yang and Chen, 2018). On the off
chance that there is any fluctuations, they can influence changes in their methodologies with the
goal that suitable anticipating to can be made for future period. It will be extremely advantageous
for them as it can assist them with allotting right assets to useful branches of the organization
4.4 Formation of management report in a proper format, presenting timescales
A time scale for acquiring elements of variances is as follows:
Activity Time
Budgeted
Material 6 Days
Labour 10 Days
Actual
Material 5 Days
Labour 10 Days
TASK 5
5.1 Future income and costs for decision making using
Break even analysis: It refers to the methodology which can be utilising for estimating
the stages where all relevant costs may be recovering and business entity may reach to the level
where no earned are purchased and no losses are incurred.
Discounted cash flow: It is an approximation method which is required to assume
possible returns on a particular investment.
Limiting factors: Shortfall of labour, machine hours and materials etc. are constrictive
factors of organization.
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Margin of safety: it refers to the methodology is utilise for measuring sounding of entity
to exceed BEP sales.
Payback: It refers to the method adapted by entity to analysis the era in which all the
investments is going to recover.
Profit volume analysis: In this analysis a specific percentage is analysed which is profit
volume.
Relevant costs: It can be termed as more benefited for organisation for estimating future
incomes and cost due to managers for determining all of them by making analysis present year's
figures.
Target profit: It refers to the expected value of profits that are determined by the
managers as a target or objective and they had planned for acquiring the goal effectively.
5.2 Effect of changing activity levels on unit cost
When a slight or a huge change is made by a business entity in its activities then it will
affect overall cost for the company because variable cost will get increased (Yang and Chen,
2018). In this procedure two different level of units are produced and their changes are
determined to analyse cost of units. Fixed cost always remain same for whole manufacturing
process it does not vary with the production units. When costs changes then overall production of
a business entity will also get changed. It is very important for all the companies to gather
information of such factors that may leave negative or positive impact on the performance of the
company. Cost of the organisation will be determined by dividing changes in units from cost of
production.
5.3 Evaluation of factors affecting short term and long-term decision making
If top executives are not having such information then it is not possible for them to deal
with market conditions. While formulating strategic judgements the managers are required to
assess such elements that may leave unfavourable impact on their decisions. Bargaining power of
customers and suppliers are the main two components that may leave negative impact. If demand
of consumers get increased then it will result positively for the company as sales will also get
enhanced with it.
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5.4 Factors affecting short-term and long-term decision making
In all the business entities different types of decisions are made by managers these are
short or long term. Various components are there that may affect decisions making process.
These factors are changes in demand, taste, preference, needs etc. it also includes supply
conditions, marketing strategies of competitors, production units, bargaining power of customers
and suppliers. It is essential for the managers to analyse all of them so that effective decisions
can be made for future period.
CONCLUSION
The above report summarise the conceot of casc Cost is aggregate of all costs that are
looked by the business substances in assembling procedure and incomes are the receipts that are
gained from offers of items. There are two noteworthy sorts of costing procedures that are
assimilation and negligible. Them two can be utilized by the associations to isolate distinctive
costs, for example, settled, variable and so forth.
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REFERENCES
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