Cost and Revenue Report: Costing Systems and Analysis

This report delves into the intricacies of cost and revenue management, providing a comprehensive overview of internal reporting, costing systems, and inventory valuation techniques. It begins by outlining the purpose of internal reporting, emphasizing its role in decision-making and providing accurate information to management. The report then explores the relationship between various costing systems, identifies different responsibility centers, and classifies costs based on their nature and function. A key section contrasts marginal and absorption costing methods, highlighting their differences in inventory valuation and profit measurement. The report further examines the recording and analysis of cost information for materials, labor, and expenses, including the stages of inventory and the application of FIFO and LIFO valuation methods. It also addresses cost behavior, absorption rates, and the allocation of overheads, along with variance analysis and the preparation of management reports. Finally, the report discusses the estimation of future incomes and costs for decision-making and the impact of changing activity levels on unit costs. The report is a useful resource for students looking to understand financial reporting and cost accounting.

COST AND REVENUE

Table of Contents
INTRODUCTION...........................................................................................................................1
1.1 Description on the purpose of internal reporting and provide accurate information to
management................................................................................................................................1
1.2 Define relationship between various costing system within enterprise................................1
1.3 Identification of responsibility centres..................................................................................1
1.4 Characteristics of differed kind of cost classification and their use in costing.....................2
1.5 Difference between marginal and absorption costing. .........................................................3
2.1 Recording of cost information for material, labour and expenses........................................3
2.2 Analyse cost information for material, labour and expenses accordance with organisation
costing procedures. .....................................................................................................................4
2.3 Description on the stage of inventory. .................................................................................5
2.4 Identify the value of inventory using these methods. ..........................................................5
2.5 Describe the behaviour of cost. ............................................................................................8
2.6 Record cost information with use of costing system............................................................8
Working note- ............................................................................................................................9
3.1 Define attribute of cost to production and service cost centres. ........................................10
3.2 Calculate absorption rates with suitable basis of absorption..............................................11
3.3 Make adjustment for under or over recovered overhead with established procedures.......12
3.4 Review method allocation, apportionment and absorption at regular intervals..................13
3.5 communicating on cost related data information................................................................13
4.1 compare budget cost with actual cost..................................................................................13
4.2 Description on variance for management reports. .............................................................13
4.3 Discuss information for budget holder for any significant variance. .................................14
4.4 Prepare management report in appropriate format and present within time scale. ............14
5.1 Prepare estimates of future incomes and cost for decision making....................................16
5.2 Define the impact of changing activity levels on unit cost.................................................16
5.3 Calculate the effect of changing activity levels on cost......................................................16
5.4 Identification of factor affecting short term and long term decision making. ...................16
CONCLUSION..............................................................................................................................17

REFERENCES..............................................................................................................................18

INTRODUCTION
Cost and revenue is the total cost of manufacturing and it helps to deliver the product or
service (Range, Kozlowski and Petersen, 2019). Thus, cost of revenue is information that can be
found in company income statement and it also helps to designed to represent the direct cost and
it is associated with good and services that provides by the firm. The present report will cover the
following things as basis of cost and revenue, purpose of internal reporting, cost information
data, classification of costing etc.
1.1 Description on the purpose of internal reporting and provide accurate information to
management.
The purpose of internal reporting is to aid management in terms to decisions making
process throughout the course of business. It is vital component to run out activities of firm in
appropriate manner (Alwabel, Walters and Wills, 2018). Thus, this reporting will be dine by
management accountant and submitted to differ level of management for the purpose of planning
and control termed out as internal reports. This will be inclusive of information as expense
trends, failure rates, detailed sales data and employee turnover.
1.2 Define relationship between various costing system within enterprise.
The costing system is designed to monitor the cost incurred by business. This is system
that is comprised of set of forms, processes, controls, report and this all are designed to aggregate
and report to management about the cost, profit and profitability (Chen and et.al., 2019 ). It will
be inclusive of customers, departments, facilities, processes and sales regions. Thus, direct
costing can be termed out as variable costing. In this, the value of inventory is sum of direct
labour, material and all kind of variable manufacturing costs. This re not directly relates with
volume of output.
1.3 Identification of responsibility centres.
This defined as responsibility assigned and decision making authority given to individual
managers. There are common four type of responsibility centres are defined in below presented
manner as-
 Cost centre- This is expense centre of enterprise in which managers are held responsible
for cost incurred not for the amount of profit. Thus, responsibilities in this sector is
restricted to cost (Gkiotsalitis, Wu and Cats, 2019). Therefore, cost centres are widely
used forms of responsibility centres.
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 Revenue centre- It is segment that is primarily responsible for generating sales profits.
Under this performance will be measured with help of comparing the actual revenue with
budgeted revenue.
 Profit centres- It is segment of an enterprise in this manager will be responsible for both
revenues and cost. The main aim is to earn profit and managers authority to make
decision that affects the both cost and revenues.
 Investment centres- They work as to incur cost and earn profit but the manager of the
investment centre has all over the control on investment that aids to make profit for
department and division.
1.4 Characteristics of differed kind of cost classification and their use in costing.
The cost can be classified into the different categories in following manner as-
Classification of cost by nature or element-
 a. Direct cost- This is cost that can be conveniently identified with and allocates to the
particular unit of final product (Jradi, Chameeva and Aparicio, 2019 ). Such cost will be
treated as cost of unit being produced. It is inclusive of direct materials, labour and
expenses.
 b. Indirect cost- It is usually for the business as a whole and it cannot be assigned to
particular cost unit. Example of this cost as indirect material, labour and expenses.
Functional classification of cost-
 a. Prime cost- It is consisting of direct material that go into commodity. Thus, cost of
direct labour and direct expenses.
 b. Factory cost- It consists of work expenses, factory on cost or prime cost plus factory.
This can be termed out as work, production and manufacturing cost (Li and et.al., 2019 ).
 c. Cost of production- This is also called as office cost, administration cost, gross cost of
production.
 d. Total cost or cost of sales- It can be termed out as cost of production plus selling and
distribution overheads.
Classification of cost for marginal decision and control-
 a. Controllable cost- This is cost that can be controlled or influenced by particular person
or level of management of an undertaking.
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 b. Normal cost- This is cost that is normally incurred at the give level of out and also its
termed out as normal cost when the given level of output is normally achieved. This
called abnormal cost.
 c. Avoidable and unavoidable cost- Avoidable cost can be escaped and avoided and
unavoidable cost cannot be escaped and eliminated.
 d- Out of pocket cost- This is cost that gives rise to cost expenditure and its do not
involve any kind of expenditure.
 e- Marginal cost- It is based on distinction between variable and foxed cost.
1.5 Difference between marginal and absorption costing.
The alternative approaches in order to valuation of inventory are marginal and absorption
costing. Marginal cost worked as to bifurcating fixed and variable cost. Absorption cost can be
termed out as costing technique and it absorbed by total units produced (Ma, 2019). Thus,
difference has been presented in below contexted manner as-
Basis for comparison Marginal Absorption
Meaning It is for decision making that
ascertain the total cost of
production termed out s
marginal costing.
It determines the total cost of
production called as absorption
costing.
Basis of overheads Fixed and variable Selling & distribution,
production, administration.
Highlights Contribution per unit Net profit per unit
Profitability It measured by profit volume
ratio.
There is inclusion of cost in
which profitability get
affected.
2.1 Recording of cost information for material, labour and expenses.
An example of cost information as-
iculars Total cost Cost per unit(10000 units)
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opening stock of raw materials 15000 1.5
Add: raw material purchased 200000 20
Add: other purchasing expenses 30000 3
Add: Raw materials used 50000 5
Add: Direct wages 30000 3
Add: factory's electricity bill 20000 2
Add:repairs and maintenance 20000 2
Less: closing stock of raw
materials 10000 1
Prime cost 375000 37.5
Add: opening WIP 30000 3
Add: office expenses 20000 2
add: postage & telegraph 15000 1.5
Less: closing stock of WIP 10000 1
Cost of production 475000 45
Add: Opening stock of finished
goods 15000 1.5
less: closing stock of finished
goods 10000 1
Cost of goods sold (COGS) 500000 47.5
Add: advertising expenses 50000 5
Cost of sales 550000 52.5
Add: profit margin of 20% 100000 1
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2.2 Analyse cost information for material, labour and expenses accordance with organisation
costing procedures.
Analysis- Cost information is process of recording, classifying, analysing, summarizing
all cost that associated with a process and it develops the various course of action to control cost.
From the above calculation, it has been interpreted that the prime cost will determine with help
of adding the all cost as direct material, labour and expenses and this all amount will be add with
opening cost. By calculating this, the prime cost will be achieved (Range, Kozlowski and
Petersen, 2019).
2.3 Description on the stage of inventory.
The inventory in manufacturing company will be termed along with following stages and
it defined as-
 Raw materials- It is first stage of inventory. These material will make the final product
and also will be consisting of basic goods as wood, metal and water.
 Work in progress- At time , when raw material are pushed in process of creating the
final product then they enter into stage of inventory. This process called as work in
progress.
 Finished goods- After process of manufacturing, the all cost associated with production
will be inclusive of raw materials and work in process cost. This will transferred to next
stage of inventory ( Snyder, 2019..).
 Cost of good sold- The completion of all above three stage, this will become the part of
balance shit and valued under assets of firm. After commodity being sold, it will be
moved from balance sheet to income statement and included in cost of good sold account.
2.4 Identify the value of inventory using these methods.
 First in first out (FIFO)
 Last in first out (LIFO)
Date Particulars Amount
01/03/01 Opening stock 68 units @ $15.00 per unit
01/03/05 Purchases 140 units @ $15.50 per unit
01/03/09 sales 94 units @ $19.00 per unit
01/03/11 Purchases 40 units @ $16.00 per unit
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01/03/16 purchase 78 units @ $16.50 per unit
01/03/20 sales 116 units @ $19.50 per unit
01/03/20 sales 62 units @ $21.00 per unit
Solution-
FIFO periodic-
Units available for selling purpose value Units sold value
68 94
140 116
40 62
78
Total value 326 272
The closing stock is- 326-272= 54
COST OF GOOD SOLD
Particulars Amount in $ value in $
Units 68
Units in cost 15
Sales From Mar 1 Inventory 1020
Units 140
Unit in cost 15
sales from march 5 purchase 2170
Units 40
Unit in cost 16
Sales From Mar 11 Purchase 640
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Units 24
Unit in cost 16.5
Sales From Mar 16 Purchase 396
4226
FIFO PERPETUAL
Month Purchases Sales Balance
Quantity
Price
($)
Value
($)
Quanti
ty
Price
($)
value(
$)
Quanti
ty
Price
($)
Value
($)
01/03/01 68 15 1020 68 15 1020
01/03/05 140 15 2170 140 15 2170
01/03/09 94 19 1786 114 15 1767
01/03/11 40 16 640 114 15 1767
40 16 640
01/03/16 78 16.5 1287 78 16.5 1287
01/03/20 116 19.5 2262 38 16 608
78 16.5 1287
01/03/29 62 21 1302 54 16.5 891
Calculation with use of LIF0 method-
Date Particulars Amount
01/03/01 Opening stock 60 units @ $15.00
01/03/05 Purchases 140 units @ $15.50 per unit
01/03/14 sales 190 units @ $19.00
01/03/27 Purchases 70 units @ $19.00
01/03/29 sales 30 units @ $19.50
LIFO periodic
Units available for selling purpose value Units sold value
60 190
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140 30
70
Total value 270 220
COST OF GOOD SOLD
Particulars Amount in $ value in $
Units 70
Units in cost 15
Sales From Mar 27 Inventory 1120
Units 140
Unit in cost 15
sales from march 5 purchase 2170
Units 10
Unit in cost 15
Sales From Mar 1 Purchase 150
3440
LIFO Perpetual
Month Purchases Sales Balance
Quantity Price ($)
Value
($)
Quant
ity
Price
($)
value(
$)
Quant
ity
Price
($)
Value
($)
01/03/01 60 15 900 60 15 900
01/03/05 140 15 2170 140 15 2170
01/03/14 190 19 3610 10 15 150
01/03/27 70 16 1120 10 15 150
70 16 1120
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01/03/29 30 19.5 585 40 15 640
10 15 150
40 15 640
2.5 Describe the behaviour of cost.
The behaviour of cost is associated with the learning tat how cost change at the time of
variation in organizations level of activity. Under this, expenses are impacted by the changes in
business activity.
Classification of cost on the basis of behaviour-
 Variable cost- The direct proportion to the volume of production can be termed out as
variable cost.
 Fixed cost- The cost which do not vary with level of production can be termed out as
fixed cost. It will remain constant irrespective of the level of output.
 Semi variable cost- The cost that are partly fixed or variable termed out as semi-variable
cost. It vary with the level of production. For example- maintenance of equipment,
administrative cost and depreciation of machinery.
2.6 Record cost information with use of costing system.
Job costing example-
Material used- 14000
Manual and machine labor wages directly chargeable- 12000
Work overhead expenditure- 2000
Establishment and general expenses- 1200
Materials used 14000
Direct wages 12000
PRIME COST 26000
Add: Work overhead expenditure 2000 (26000+2000) 28000
Add: Establishment and general expenses 1200
Total 29200
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