Task 1
1.1 Explain the relationship of cost accounting to financial and managerial accounting. Context- Relevant to L.0.1.1
Accounting can be defined as 'the process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information.
There is a second side to accounting. This one is generally forward-looking and capable of being used to aid managerial control, forecasting and planning. It consists of following two components:
1. One where costs are recorded, and
2. The other where the data is processed and converted into reports for managers and other decision makers.
In relation to the above context name the two components explained in point 1 and 2 and explain the relation of cost accounting to Financial and Management Accounting and how it helps management in decision making.
Task 2
Management Accounting Costing and Budgeting. Classify different types of cost.
Task 3
1.3 Estimate inventory values using different methods.
Scenario-1
The Breeze Trading Company discloses the following information about the stock for the month of August 2014:
|
Date
|
Issosi.Receipt
|
Units
|
Cost per unit ($)
|
|
Beginning of August
|
Opening Balance
|
600
|
S
|
|
10* august
|
Sale
|
400
|
|
|
11* August
|
Purchases
|
1600
|
6
|
|
15* August
|
Sale
|
1000
|
|
|
18* August
|
Sale
|
400
|
|
|
20* august
|
Purchases
|
600
|
6.50
|
|
24"' August
|
Purchases
|
200
|
7.00
|
|
27* August
|
Sale
|
800
|
|
|
28* August
|
purchases
|
SOO
|
6.75
|
|
30* August
|
Sale
|
300
|
|
|
31* August
|
Sale
|
200
|
|
a) Estimate the Value of Inventory at the end of August using different methods.
b) What will be the difference in the inventory value at the end of August using the methods above and why?
Task 4
1.4 Differentiate between cost, profit, investment and revenue centres.
Scenario-2
Best Ad Ltd has three divisions which are Advertisings, Market Research and Event management. One of its profitable divisions is advertising division. This division is divided into three operating units: TV, Radio and Press, which operate from different offices. The TV unit has three main functions:
1. Concept design and strategy 2. Production house and 3. Media scheduling. Best Ad Ltd company might organize its cost and management system as follows:
Each of the divisions in the Best Ad Ltd, including the advertising division is handled by senior manager. The senior manager has the authority to incur capital expenditure to acquire new assets for the division. The performance of the advertising division might be measured by its annual return on investment (ROI).
Within the advertising division, the TV unit, concept design and strategy unit and production house. The manager of each unit might be responsible for the revenues and costs of the unit, and the performance of each unit would be measured by the profit that it makes.
Within the production house, each of the operating functions (In sight production, Post production, and editing and music composition) might be a cost unit. The manager in charge of each unit is responsible for costs, and the performance of the cost unit might be measured by comparing the actual costs of the cost centre with its budgeted costs.
1. Using the above scenario list all the divisions of Best Ad Ltd.
2. Differentiate them between cost, profit, revenue and investment centres and explain how managers of responsibility centres are responsible for the performance of their part of the organization and its activities.
3. How performance of each of the above division is measured?
Task 5
1.5 - Separate the fixed and variable elements of total costs using a suitable method in a given situation.
The following information concerning sales revenues and website hits of Cool Blue company for the last four years have been as follows:
|
Years
|
sales Revenue($)
|
Website hits (units)
|
|
2011
|
110,000
|
70,000
|
|
2012
|
115,000
|
80,000
|
|
2013
|
111,000
|
77,000
|
|
2014
|
97,000
|
60,000
|
Variable cost per unit and total fixed cost is constant within this range of activity.
1. Using the above identify suitable method to separate the fixed and variable elements of total costs and explain it.
2. Using the identified method calculate the revenue that should be expected in year 2015 when hits is expected to be 75,000 units.
Task 6
1 - Explain and illustrate the difference between standard cost card under marginal and absorption costing.
Scenario-4
Alpha manufacturing company produces a single product, which is known as Sigma. Company plans to produce 10,000 units in the month of October. The product requires a single operation and the standard cost for this operation is presented as follows:
Direct materials:
2kg of A at $10 per kg
1 kg of B at $15 per kg.
Direct labour:
3 hours at $9 per hour.
Variable overhead:
3 hours at $2 per direct labour hour
Fixed production overhead cost is $120,000 and is absorbed according to the labour hour basis.
1. Explain and illustrate the difference between standard cost and standard costing.
2. Using the above data draw up a standard cost card under marginal and absorption costing.
Task 7
3.2 - Compute and interpret price and usage variances for material, labour, and overhead inputs
Scenario
5K Ltd. makes and sells a single product "JAY" standard costs relating to "JAY" have been calculated as follows:
Per unit($)
|
Direct material:
X : 4 Kg at $12 per kg
Direct labour, 5 Hours at $7 per hour
Variable production Overhead, 5 Hours at $2 per hour Fixed production Overhead 5 hours at $10 per hour
|
48.00 35.00 10.00 50.00 143.00
|
|
|
|
Overhead is absorbed into production on the basis of standard hours of production and budaeted volume of production is 20.000 units.
The budgeted selling price of LAN is $150.
For the period under consideration the actual results were :
18,000 units were produced out of which 17,000 were sold for $2,618,000. Relevant details of production are as follows:
Materials 76,000 Kg's costing $ 836,000 Labour 84,000 hours were paid $604,800 Variable production overhead was $172,000 Fixed production overhead was $1,030,000
Using the above data:
Compute and Interpret price and usage variances for material, labour, overhead (fixed and variable) and sales.
Task 8
Reconcile budgeted profit with actual profit under standard absorption costing.