Multitask Assessment 2: Finance Analysis of Cost Accounting Concepts

This report presents a comprehensive analysis of cost accounting principles, covering three key tasks. Task 1 focuses on identifying and defining prime costs, including direct materials and direct labor, and calculating overhead allocation based on machine hours, detailing the reallocation of overhead costs across manufacturing, finishing, and packaging departments. Task 2 delves into breakeven analysis, calculating the breakeven point in units and sales, the margin of safety, target profit, and contribution margin for trolleys. Task 3 explores capital budgeting techniques, including payback period, accounting rate of return (ARR), and net present value (NPV) calculations to assess the viability of an investment project, offering insights on project decisions and the interpretation of NPV results. The conclusion highlights the importance of valuation in business decisions.

MULTITASK ASSESSMENT 2

Table of Contents
Introduction......................................................................................................................................3
TASK 1............................................................................................................................................3
a. What is Prime Cost? Explain...................................................................................................3
b1. Calculation of heating cost....................................................................................................5
b2. Total overheads after reallocation.........................................................................................5
TASK 2............................................................................................................................................6
a. Trolleys....................................................................................................................................6
b. Margin of safety.......................................................................................................................6
c. Target profit.............................................................................................................................6
d. Contribution.............................................................................................................................6
TASK 3............................................................................................................................................7
a. Payback....................................................................................................................................7
b. Accounting rate of return.........................................................................................................7
c. Net present value......................................................................................................................7
d. Project decision........................................................................................................................8
e. Net present value......................................................................................................................8
Conclusion.......................................................................................................................................9

Introduction
There are three different tasks covered in this assignment. First task is based on identification of
the nature of costs, and allocate it among different production units to calculate overall overhead
of the production. The second task is based on identification of minimum production requirement
by the company in the form of breakeven point calculation. The third task is based on capital
budgeting concept, where criteria required fulfilling by the project to accept it as investment
proposal is discussed.
TASK 1
a. What is Prime Cost? Explain
Prime costs are the costs that are directly identified for the creation of each item. Expenses are
immediate major costs, which mean they include the direct materials and direct labor costs
associated with assembling an item. Organizations use primary costs to value their items.
Despite the fact that the creation of goods and businesses involves different types of costs, the
big cost recipe simply considers those variable costs directly related to the creation of
everything. A higher cost is determined by adding the cost of raw materials to the cost of labor
directly related to the interaction of creation.
Example:
Direct materials
Materials are only one of the main components of key costs and include raw materials and
supplies that are burned directly during the production of the goods.
The raw material is real raw material. Taken together, the raw materials can include metals,
plastics, equipment, textures, and paints. The different types of raw materials are highly
dependent on the sector. For a furniture manufacturer, raw materials can be mistakes, equipment,
paints and stains.

Food industry organizations need to find some sort of harmony between productivity and the
need to prepare special oral dinners with a good environment. In this industry, the commodities
are the variety of food and drink that a consumer uses to compile his menu.
Direct Labor
Direct work only involves paying salaries to employees who directly contribute to sorting,
picking, or producing the item. Direct work would not exclude, for example, payment rates for
production machine controllers or expenses paid to experts or beginners. These representatives
are involved in inventing the idea of the object and the daily operation of the company rather
than being involved in creating what is available for purchase. However, there is a reminder of
the commissions paid to sales reps who go around as intermediaries between the manufacturer
and the buyer due to the high cost situation.
The operational and financial costs used directly in creative interactions are critical to the key
costs. There is also work memory which can be used to support and recommend the creation of
key cost products. Direct work models can include mass construction system workers, welders,
carpenters, glassmakers, painters, and cooks.
Defining Labor
Emerging work is a bit more complicated from time to time because commitments, for some
organizations, are key to creating the end result. However, the meaning of labor cost used in the
high cost recipe includes compensation paid specifically to those manufacturers who are directly
involved in a structure, development or collection of an item for purchase.
The meaning of direct work can depend on the real thing. An article from a garment
manufacturing company, for example, would include the salary paid to the experts who cut, tie
and dye the garment, but not the individual. workers who design them. In a restaurant, remember
chefs, staff, waitresses, and other staff to work on the basis that the end product incorporates the
festival experience just like the prepared dinner.
Any material or work that cannot form a close relationship in a creative interaction should be
excluded from excellent costs. For example, plant costs and authoritative costs are not part of the
main costs.

Cost Object and Prime Costs
Principal costs may vary depending on the subject of possible cost. For example, assuming the
customer is the subject of the cost, all costs associated with a courier service are treated as a
major expense, including transportation, returns, and warranty. Given that the subject of
expenditure is geographically specific, the costs associated with the service of that sector are
critical to the principal costs, including the salaries of Scottish staff. operation and maintenance
of the warehouses designated for that area.
b1. Calculation of heating cost
The base taken for allocating the cost of heating is Machine hours. Thus allocation of heating
cost based on machine hours has been done below:
Manufacturin
g Finishing
Packagin
g Total
Machine
hours 80,000 53,000 22,000 155,000
Proportion 0.52 0.34 0.14 1.00
Allocation 36,129.03 23,935.48 9,935.48 70,000.00
b2. Total overheads after reallocation
Manufact
uring Finishing Packaging
Mainten
ance Stores
Quality
control Total
Overhead
s
£
3,400,000
£
2,500,000
£
1,700,000
£
7,600,000
Maintena
nce
£
320,000
£
200,000
£
200,000
£
-
£
80,000
£
-
£
800,000
Stores
£
195,000
£
195,000
£
130,000
£
-
£
-
£
130,000
£
650,000
Quality
control
£
350,000
£
210,000
£
140,000
£
-
£
-
£
-
£
700,000
£
4,265,000
£
3,105,000
£
2,170,000
£
-
£
80,000
£
130,000
£
9,750,000

TASK 2
a. Trolleys
Breakeven in units = ¿ cost
contribution per unit
Fixed cost = £18,000,000
Contribution per unit = Sales price – variable cost per unit
= £550 - £380 = £170 per unit
Break even in units = £ 18,000,000
£ 170 = 105,882 approximate
Break even in sales = Break even in units * sales price per unit
= 105,882 * £550 = £58,235,294
b. Margin of safety
Margin of safety = 600,000−105,882
600,000 × 100
= 82.35%
c. Target profit
Desired sales = Desired profit+¿ cost
contribution per unit
= £ 70,000,000+£ 18,000,000
£ 170
= 517,647 units approximately
d. Contribution
Contribution is the term associated with earnings per unit. Variable cost and selling price’s
output varies with increase or decrease in number of units. Thus, any increase in sales will
simultaneously increase the variable cost also. In simple term, contribution is the remaining

portion of sales price after deducting all the primary costs spends to manufacture it. Contribution
reflects gross profit of income statement in case of absorption costing method.
TASK 3
a. Payback
Net cash flow Cumulative cash inflows
Year £ £
0
Initial
investment (1,900,000) (1,900,000)
1 Net cash flow 1,400,000 (500,000)
2 Net cash flow 1,350,000 850,000
3 Net cash flow 800,000 1,650,000
4 Net cash flow 170,000 1,820,000
4 Residual value 500,000 2,320,000
Payback period = 2 + 500,000
1,350,000 = 2 + 0.37 = 2.37 years
b. Accounting rate of return
ARR = Average profit
Average investment
= 930,000
1,400,000 ×100
= 66.43%
c. Net present value
Net cash flow
Discounting
factor @15%
Net discounted
cash flow
Year £
0
Initial
investment (1,900,000)

1 Net cash flow 1,400,000 0.869565217 1,217,391.30
2 Net cash flow 1,350,000 0.756143667 1,020,793.95
3 Net cash flow 800,000 0.657516232 526,012.99
4 Net cash flow 170,000 0.571753246 97,198.05
4 Residual value 500,000 0.497176735 248,588.37
Total 3,109,984.66
Less: Initial investment (1,900,000.00)
Net present value 1,209,984.66
d. Project decision
The RLG VOSTECK PLC is getting positive net present value from the investment. Thus,
directors are advised to undertake the project. As there is only one project option, so taking
positive net present value as a base, this project should be accepted.
e. Net present value
The three questions answered by NPV:
1. Whether regular cash inflows are able to give positive cash flows after eliminating required
rate of return?
2. Is there any scope for the company to expand its capacity by taking further loan?
3. Whether the project should be accepted or rejected?

Conclusion
Appraised valuation is an assessment of the value of a property or asset subject to an appraisal at
a particular time. Valuation is performed by an experienced value and is used regularly when an
organization is available for purchase or when an organization is limited to liquidation.
To get an organization's evaluation, an evaluation by an experienced evaluator is required. An
experienced expert reviews an organization's assets and ownership and goes through an
evaluation. The group book estimate is expressed as an accounting number. The estimated value
may be higher than the book value because the book value does not represent the market cost of
some resources that can be exchanged together with some costs incurred relative to the book
value. Consequently, to accept accounting data in such a case, the valuation capital is introduced
as a modal figure to align the book value with the deviation.