Cost Accounting Assignment: Analyzing Production and Variances

This assignment solution addresses key concepts in cost accounting, focusing on production and service cost centers, budgetary control, and break-even analysis. It defines and differentiates production and service cost centers, explaining cost apportionment methods. The benefits of a budgetary control system are outlined, along with assumptions related to break-even analysis. The solution further explores variance analysis, presenting different variance headings (material, labor, and overhead) and explaining the reasons behind their occurrence. It also examines the relationships between various types of variances and discusses the advantages and disadvantages of calculating material price variance at the time of purchase versus usage. The document includes references to relevant academic sources.

Question 2 and 3

TABLE OF CONTENTS
QUESTION 2..................................................................................................................................3
a. Defining production as well as service cost centre and presenting the manner in which
apportionment of cost is done......................................................................................................3
b. Stating the benefits of budgetary control system.....................................................................3
c. Presenting four assumptions related to break –even analysis..................................................3
QUESTION 3..................................................................................................................................4
a....................................................................................................................................................4
1. Presenting variances under different headings........................................................................4
2. Stating reasons behind the occurrence of variances................................................................4
3. Relationship between different kind of variances...................................................................5
b. Advantages and disadvantages of extracting material price variance at the time of purchase
in opposed to the usage................................................................................................................5
REFERENCES................................................................................................................................6

QUESTION 2
a. Defining production as well as service cost centre and presenting the manner in which
apportionment of cost is done
Production cost centre: It implies for the centre or area where production related work is
carried out.
Service cost centre: This refers to the one which is engaged in rendering services to the
production cost centre.
From assessment, it has identified that service department cost in a factory need to be re-
apportioned over production cost centre. The rationale behind this, service cost centre exist for
providing services to other cost centres in an organization (Mueller, 2018). Moreover, service
cost centre do not work directly for producing the final product.
Ways or methods of cost reapportionment
 Direct method
 Step-down method
b. Stating the benefits of budgetary control system
Advantages or benefits of budgetary control system
 Facilitates centralized control
 Helps management team in finding up and setting responsibility
 Ensures better co-ordination among the various departments of an organization (Mack
and Goretzki, 2017)
 Offers opportunity in relation to taking strategic actions or measures on time for
performance enhancement
c. Presenting four assumptions related to break –even analysis
BEP analysis helps in assessing the number of units that need to be sold for attaining the
position of no profit no loss. Such analysis or evaluation is based on some specific assumptions
such as:

 Cost can be distinguished into fixed and variable
 Fixed cost will remain same at each output level
 Selling price per unit will be constant (Arfiana, 2017)
 Variable cost will fluctuate in accordance with the output
QUESTION 3
a.
1. Presenting variances under different headings
Variances as per value
Particulars Variance
Material Material price variance
Labour Labour rate variance
Overhead Variance overhead expenses variance
Overhead Fixed overhead expenses variance
Efficiency
Particulars Variance
Material Material usage variance
Labour Labour efficiency variance
Overhead Variance overhead efficiency variance
2. Stating reasons behind the occurrence of variances
Variances Reasons behind unfavourable results
Material price variance High material price incurred as compared to the
budgeted figures (Yanan, Erhan and Cheng, 2017)
Material usage variance Use of more material in production over standards
Labour rate variance High labour rate paid per hour in against to the
planned level
Labour efficiency variance Less production by labours over predetermined

output due to unskilled personnel.
Overhead variance More overhead expenses incurred over standards
3. Relationship between different kind of variances
Variances Relationship
Labour In this, negative labour rate variances lead positive
efficiency results.
Favourable labour rate variances lead unfavourable
efficiency results.
b. Advantages and disadvantages of extracting material price variance at the time of purchase in
opposed to the usage
For getting favourable results business units need to make focus on assessing price
variance at time of purchase rather than usage. Moreover, when company’s actual raw material
purchase value is higher as compared to the budgeted figure then it may result into high material
variance. The reason behind this, in the case of favourable material price variance, unfavourable
usage level affects overall variance but not to the higher level. On the other side, high price and
usage level as compared to the budgeted level negatively impacts overall performance. Hence,
exerting control on material price variance firm can reduce deficiency level.

REFERENCES
Books and Journals
Arfiana, D., 2017. Analisis Pendapatan Untuk Mencapai Laba Operasi Dengan Metode Break
Even Point (BEP). Jurnal Akuntansi dan Ekonomi Bisnis. 6(1). pp.40-50.
Mack, S. and Goretzki, L., 2017. How management accountants exert influence on managers–a
micro-level analysis of management accountants’ influence tactics in budgetary control
meetings. Qualitative Research in Accounting & Management. 14(3). pp.328-362.
Mueller, D., 2018. The Usability and Suitability of Allocation Schemes for Corporate Cost
Accounting. In Game Theory in Management Accounting (pp. 401-427). Springer, Cham.
Yanan, M., Erhan, D. and Cheng, C., 2017. Wavelet packet variance analysis methods for multi-
period signal. Microcomputer & Its Applications. 3. p.023.