Analysis of Cost Accounting Methods for Unilever: A Report

This report provides a comprehensive analysis of Unilever's cost accounting practices, focusing on activity-based costing (ABC) and comparing it with absorption costing. It begins with an introduction to financial management and its importance for firms like Unilever, which operates globally. The main body of the report delves into the interpretation, analysis, and evaluation of cost and management accounting reports, discussing various costing methods such as unit costing, contract costing, batch costing, and operating costing. It also covers traditional costing methods and the impact of fixed, variable, and semi-variable costs on a firm's financial performance. The report highlights the significance of costing systems in allocating overhead and indirect costs. Finally, it compares the strengths and weaknesses of ABC and absorption costing, specifically in the context of Unilever, providing insights into how the company manages its costs to maximize profitability and growth. The report emphasizes the importance of a skilled workforce in analyzing and evaluating costs for effective decision-making and improved efficiency.

Activity based costing of
Unilever

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1. Interpretation, analysis, and evaluation of cost and management accounting reports using
different appropriate costing methods that are relevant with it...................................................1
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Financial management and decision making is an important aspect for each and every
firm as it analysis a path for the organisation so that it would be easier to manage and interpret
things (Alziyadat and Ahmed, 2019). It provides both analytical as well as conceptual framework
for decision making in the firm. Unilever is a firm that has operating in the UK since a pretty
long time and has captured a considerable share of market since then. The firm is operating in
almost each and every corner of the world. This report covers various topics such as cost and
accounting report and its related aspects, various types of costing systems like fixed, variable,
and semi-variable costs. Apart from this traditional costing methods are also discussed. Also
there is detailed evaluation of activity based costing. Further this report also covers a comparison
of activity based costing with absorption costing and their related aspects.
MAIN BODY
1. Interpretation, analysis, and evaluation of cost and management accounting reports using
different appropriate costing methods that are relevant with it
Cost and management accounting report is an essential as well as integral part of every
organisation as it aims at maximising the profits of the firm by using various types of tools so as
to manage the expenses and revenues of the business so that it can result in increased profits for
the firm thus benefiting it in the long run. A specialised and experienced team of experts is
employed by the firms so that every decision can be taken with pin point accuracy which will
further result in improved efficiency and effectiveness of the company. Unilever company is a
firm that is very well operating in the market as it has an excellent team of individuals that helps
the firm to achieve the goals and objectives that are laid down at the starting of the organisation.
The cost and management accountants of the firm are very well trained and experienced and thus
makes a report after analysing and evaluating all the aspects in detail that directly and indirectly
affects the working of the firm (Bozdo, 2020). There are various types of costing methods that
are very important from the firm's point of view and all of them are explained below in detail-
 Unit costing- It is the cost that is incurred by the firm in producing one unit of a
commodity and the cost includes all the aspects like production, storage, and selling cost.
It is very important for a firm to allocate resources that are capable of producing good
output which can further result in reduction of the cost of producing a each and every

single commodity. Unilever company gives most importance to this type of costing and it
has also proved very beneficial for the firm too in increasing its profits by reducing the
per unit cost of each and every commodity that the service produce.
 Contract costing- It is a type of costing that is closely associated with the contract that is
mainly between the firm and its customers. It is very essential for a firm to fulfil the
terms and conditions of the contract well in time so that it can help in building a positive
image of the firm in the eyes of the customers as well as in the market. Unilever company
performs exceptionally well in this aspect as it has employed skilled manpower that
works very hard in meeting and fulfilling all the terms and conditions of the contract on
behalf of the firm so that it can be beneficial in the long run for the firm (Cruciani, 2017).
 Batch costing- It is a costing method that is very helpful when the firm is producing its
goods or services in batches and thus it is very crucial as well as critical in identifying a
particular cost from all other type of costs that are available with the firm. Unilever
company is a firm that provides its goods and services in batches and it helps the firm in
providing the best services to its customers and thus it benefits the overall working of the
firm.
 Operating costing- Operating costs is a type of costing method that include cost of
goods sold and all the operating expenses that is expenses that are incurred in day to day
activities of the business. Unilever company is a firm that has already recruited skilled
and experienced individuals in this aspect as it bridges the gap between expenses and the
profitability of the firm (Delkhosh and Mousavi, 2016).
 Traditional costing- As the name itself suggests it is tried and tested approach that is
used by the organisations since a pretty long time and is very crucial as well as beneficial
too for the firm's that are using it. It is a method of costing that is used to predict the
profits for the firm as it is related with the cause and effect technique and it also includes
the direct and indirect costs of the business as well as its expenses. Unilever company is a
firm that is established since a pretty long time and it uses this type of costing method in
its starting days and it has proved very beneficial for the firm too as it has helped the firm
in increasing its profitability and growth by reducing the expenses of the firm in the long
run as well as improving the market value of the firm.

Further there are some important costs that each and every firm possess and they are also
explained briefly below-
 Fixed cost- It is a cost that remains constant irrespective of the output that the company
is producing as it remains fixed throughout the working of the firm. This cost is not
related with production as it is will incur whether the business is operating or not. It can
be rents for some firms, or lease and tax for others but each and every company has some
amount of fixed costs added in its overall costs (Dumitru-Alexandru, 2016). Unilever
company is operating at a wide scale and it has captured a larger share in the market too
as it is working since a pretty long time though the firm possess fixed cost and it is very
much too but due to the size of the firm it is able to recover all the cost in a very effective
and efficient manner.
 Variable cost- It is a type of cost that changes with the change in output and normally it
increases with the increase in output and decreases with the decrease in output. It can also
be said that the cost incurred in producing an extra unit of output. It is also very essential
for a business to recognise and identify the ways through which these costs can be
reduced as it is directly related with the profitability and growth of the firm as well as
market value in the long run. Unilever company is a firm that is working on a large scale
and thus it does not have a much variable cost as it is providing services to a large
number of people and thus per unit of variable cost comes pretty less for the firm and
thus it is one of the main reasons for the firm's long term growth and profitability in the
competitive market conditions that are prevailing in the industry in which the firm
operates (Emiaso and Egbunike, 2018).
 Semi-variable cost- It is a type of cost that is partially fixed and partially variable in
nature that is a portion of this type of cost is fixed and the remaining portion changes
with the change in output of the firm. It is also known as mixed costs as it is a mixture of
both the costs that is fixed and variable. It is also very essential for a firm to identify and
analyse all the factors that are directly as well as indirectly associated with increased
semi-variable cost as it is very crucial for the firm in the long run. Unilever company is a
firm that has put its main focus on this type of cost as it can change the equations
drastically if it is not used in a correct and precise manner. The firm also appoint different
individuals that possess special ability to analyse and evaluate these type of costs and

give necessary suggestions so that position of the firm can be further improved as
compared to other competitors that are prevailing in the current market situation (Khan,
2017).
The costing system is very essential as well as crucial as it helps different organisations
to allocate their overhead and indirect cost in a correct and that too in a very precise manner.
Unilever firm does a detailed research, analysis, and evaluation of all the aspects and then
allocate its resources according to the costing system.
There are various other aspects also that are very crucial as well as critical from the firm's
point of view and all of those factors, methods, and system of costing are explained below in
detail with context to the firm that is Unilever company-
 Activity based costing- Activity based costing can be defined as a method of costing in
which each and every activity is assigned costs that are according to the needs,
requirements, and demands of that activity. Apart from this it is also very useful and
beneficial at the same time as it is directly as well as very closely related with the
different types of costs and its management is a highly responsible work but at the same
time if it is done correctly and precisely there are high rewards for it too (Kumar, 2017).
Unilever company is a firm that is very well established and have higher rate of profit all
because of this method as it helps in allocating the resources that are available with the
firm in an effective and efficient manner and that helps the firm to increase its
profitability and growth in the long run as well as improving the market value of the firm
too.
 Absorbing costing- It is a method that is very crucial as well as critical for each and
every firm that is operating in the market irrespective of the industry in which they are
operating. In this method different types of costs are accumulated and after that it is
allocated according to the requirements of the production department. It is also
commonly known as full absorption costing as it includes direct and indirect costs that
compromise of direct labour, material, rent, etc. all these different types of costs are
accounted in this type of method (Madura, 2020). Unilever company is a firm that puts
its main focus on reducing its costs and expenses without compromising with the quality
of the products and services that the company is rendering to its customers. The firm has
employed a huge force that are specially dedicated to identify, analyse, and evaluate all

the aspects of this type of costing method so that in case of any error or if there is any
need of rectifications it can be done within a short period of time and that too in an
effective and efficient manner.
There is a comparison done briefly below on the basis of strengths and weaknesses with
context to activity based costing and absorbing costing and it is done taking the company in
mind-
Activity based costing Absorbing costing
It is a type of costing that is related with firstly
identifying the appropriate activity and then
allocating the resources and costs that is
required to perform that task in an efficient as
well as in an effective manner (Morozko and
Didenko, 2018).
It is a type of costing in which various costs
mainly direct and indirect both are
accumulated together in such a manner so as to
improve the production efficiency of the firm
and it is of very importance as it is directly as
well as closely related with the production
department which is an integral part of each
and every organisation.
Activity based costing becomes a strength of
the firm that is Unilever company when it is
used in a precise and correct manner. Some of
the reasons behind it possess as a strength of
the company is that it is highly accurate and it
is very helpful in reduction of costs that are not
adding to the profit to the organisation.
Absorption costing possess as a strength to the
firm that is Unilever company in many ways.
The main strength is that it complies with all
the set rules and regulations as well as policies
and procedures and thus it is beneficial for the
company in the long run.
It has many weaknesses too if the firm that is
Unilever company uses this method. Some of
its weaknesses are that it needs a specialised
team that can operate it otherwise it can go
either way that is on the profitable side or on
the adverse side.
The method of costing that is absorption
costing has possess many weaknesses too for
the firm Unilever company. As this method
takes in account both direct and indirect cost so
there is no specific calculations of individual
costs and thus it can lead to duplication of
works and errors thus directly affecting the

profitability of the firm.
There is also a comparison done in detail below of activity based costing with other
costing systems with reference to the company that possess a lot of importance in the current
scenario as it is the base of each and very organisation-
Activity based
costing
Process costing Job costing Direct costing
It is a process or can
be said as a method of
costing in which costs
are allocated on
different types of
activities that are
performed in the
organisation according
to the requirements of
that activity. This
method has proved
very beneficial for the
firm that is Unilever
company as it
increases its profits
many folds and that
too within a short
period of time.
As the name of this
method of costing
suggests it is a method
that is implemented in
various steps or can be
said in different
processes and all these
are done towards one
goal and that is to
achieve the objectives
of the organisation
(Odongo, 2018). As
the firm Unilever
company is a vast
company and thus this
becomes an essential
as well as integral part
of the firm that helps
the company to
achieve its objectives
in the long run.
In this type of costing
firstly all the
information about the
job is assessed and that
too in detail and after
that on the basis of the
information costs is
decided after
rigorously analysis all
the aspects related
with it. The firm that is
Unilever company is a
big company and it is
very useful method as
with the help of it jobs
can be performed
accurately because of
the information that is
assessed in this
method.
As the name of this
type of costing
suggests allocation of
costs in this is done on
a direct basis
according to the needs,
requirements, and
demand for specific
goods and services.
Firm that is Unilever
company uses this
types of costing very
often as the firm is
operating on a large
scale and it is not
possible to analyse and
evaluate every thing
and then allocate costs
so it becomes a
necessity in those
times (Sonnenberg,
2018).
Further it can be seen and understood from all the above aspects that activity based
costing is much more superior than the other methods and systems that are available as it helps

the firm to achieve all its goals and objectives in a very precise manner so that there would be no
scope for any further rectifications in the business.
There is a detailed analysis and evaluation done below of activity based costing that is
closely related with the firm that is Unilever company-
 Resources- There are various resources of activity based costing but the one that is most
important is resources that are related with the costs and its related aspects as it is the
most important feature of this type of costing. Unilever company uses all its resources in
an effective and efficient manner and it has also proved very beneficial for the firm in
increasing its profitability and growth in the long run (Sukheja, 2016).
 Resource drivers- Resource drivers are many in number for activity based costing but
main things that are included in it are namely hours of machine and labour and contacts
of customers. Unilever company also uses all of these as they are very critical and at the
same time beneficial also for the company .
 Activities- In activity based costing there are various types of activities that goes on and
the most important aspect from all of the others is allocation of costs to various activities.
Unilever company performs all the activities of the activity based costing in an accurate
manner so that it can add to the market value of the firm.
 Activity drivers- There are many activity drivers that are included in the activity based
costing and some are maintenance, variable and fixed aspects of the firm. Unilever
company analyse all these aspects in a very careful manner so that it can not become a
burden for the firm in the long run (Surujlal, 2016).
Apart from all this there are various types of advantages as well as disadvantages of using
activity based costing for the firm that is Unilever company and all those aspects are explained in
detail below-
Advantages of using Activity based costing- There are various advantages of using this
type of costing for the firm that is Unilever company and all of them are explained in detail
below-
 As activity based costing is highly accurate and precise in nature it helps the firm that is
Unilever company to plan each and every thing well in advance so that the firm can
perform exceptionally well in the current market situations.

Disadvantages of using Activity based costing- There are many advantages of activity
based costing but there are many disadvantages of it too for the firm Unilever company and they
are explained briefly below-
 Activity based costing requires a skilled and experienced personnel and it becomes
difficult for the firm to recruit those individuals as there are not much persons that are
excellent in handing these kind of tasks and thus it becomes a big disadvantage of using
this kind of method of costing (Fan and Chatterjee, 2018).
CONCLUSION
Financial management and decision making is an important part of all the organisations
that are working irrespective of the industry in which they are operating as in it there is
management of revenue and expenses of the firm so that profits can be increased by minimising
the costs of the business. Unilever company is a multinational firm that is also one of the largest
multinational firm of the world and it provides investment and financial services to its customers
that are spread all over the world. From the above it can be concluded that the cost and
management accounting report is an essential as well as integral part of each and every
organisation and the firm that is Unilever company gives a lot of importance to this factor and it
is one of the main reason behind the success of the firm in the long run. Apart from this it can
also be concluded that there are various types of costing methods and systems that directly as
well as indirectly affects as well as effects the working of the firm and a company has to analyse
and evaluate all the aspects of this in detail so that it can help in adding to the market value of the
firm and also resulting in increased profitability and growth of the business. Further it can also
be concluded that all the costing systems that is job, process, direct, and activity based costing
have various advantages and weaknesses but the firm Unilever company has to chose the best
alternative available according to the needs, requirements, and demands of the business.

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