Transcript
Page 1: Costing Assingment a Karishma Jani

Assignment Assessment Report

Campus: Mumbai Year/semester 2010-2012 – II Semester

Level: ACL II Assignment Type Assignment A

Module Name: Costing MIS & Budgetary

Control Assessor’s Name

Satish Sir

Student’s Name: Karishma Jani Reqd Submission Date 27/5/12

e-mail id & Mob No [email protected]

9619284286 Actual Submission Date

26/5/12

Stream Business Submitted to : Ewlci.org

Certificate by the Student:

Plagiarism is a serious College offence.

Karishma Jani.

I certify that this is my own work. I have referenced all relevant materials.

(Student’s Name/Signatures)

Expected Outcomes Assessment Criteria Grade based

on D,M,P,R

system

Feedback

General Parameters

Clarity Clear understanding of

the concept

Analytical Thinking- Ability to analyze the

problem realistically

Research Done- Research carried out to

solve the problem

Formatting &

Presentation-

Concise& clear

thinking along with

presentation

Subject Specific Parameters

1. Understand concept of

cost in relation to

Industry

Conceptual clarity

2. To be able to

determine the cost

Cost Calculation

accuracy

Assignment Grading Summary (To be filled by the Assessor)

OVERALL ASSESSMENT GRADE:

TUTOR’S COMMENTS ON

ASSIGNMENT:

SUGGESTED MAKE UP PLAN

(applicable in case the student is asked

to re-do the assignment)

REVISED ASSESSMENT GRADE

TUTOR’S COMMENT ON REVISED

WORK (IF ANY)

Date: Assessor’s Name / Signatures:

Grades Grade Descriptors Achieved Yes/No (Y / N)

P A Pass grade is achieved by meeting all the requirements defined.

M Identify & apply strategies/techniques to find appropriate solutions

D Demonstrate convergent, lateral and creative thinking.

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Assignment A

1. “Costing Accounting is a system of foresight and not a post-mortem

examination. Discuss the statement and explain how cost accounting serves

as a tool of control in the hands of management.” Give suitable illustrations

to support your reasoning.

2. Given below is the list of industries. Give a brief explanation about the

industry and the cost components of the industry. Also give a method of

costing and unit of cost against each industry.

Hotel Industry

Transportation Industry

Banking Industry

Insurance Industry

Airline Industry

Courier Industry

Advertising

Health Care Industry

Real Estate Industry

Hospitals

3. A manufacturing company has shown Rs.32380 as “Establishment Expenses”

which include the following expenses:-

1 Warehouse Wages 3600

2 Office Salaries 2260

3 Office Lighting 140

4 Directors remuneration 2800

5

Rent, Rates and insurance of

warehouse 620

6 Warehouse lighting 540

7 Trade magazine 140

8 Bank charges 200

9 Bad Debts 340

10 Agents Commission 11500

11 Warehouse repair 1020

12 Travelling expenses 1520

13

Rent, Rates and insurance of

office 460

14 Printing & Stationery 3000

15 Donation 300

16 Discount allowed 3940

From the above information, find out the total of (i) selling expenses (ii)

distribution expenses (iii)administrative expenses (iv) expenses which will not

be considered in determining total costs.

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Assignment A

Cost Accounting: Cost Accounting is that branch of accounting which establishes budget and actual cost of operations, processes, departments or products and the analysis of variances, profitably or social use of funds. Managers use cost accounting to support a company’s decision making to cut down a company’s costs and improve profitability. As a form of management accounting, cost accounting need not follow accounting standards as its primary use is for internal managers rather than outside users. Objectives of cost accounting: 1. Determining selling price: The objective of determining cost of products is the main objective of cost accounting. The total cost and the cost per unit of the product is important in deciding the selling price of the product. Cost accounting provides information to make and sell products or services.

2. Controlling cost: Cost accounting helps in achieving aim of controlling cost by using various techniques such as inventory control, standard costing and budgetary control. Each item of cost is budgeted at the beginning of the period and actual expenses incurred are compared with the budget.

3. Providing information for decision making: Cost accounting helps the management in providing information for managerial decisions for formulating operative policies. These policies relate to the following matters:

Determination of cost-volume-profit relationship.

Make or buy a component.

Shut down or continue operation at a loss.

Continue with the existing machinery or replace it with upgraded

an economical machines.

“Costing Accounting is a system of foresight and not a post-mortem examination. Discuss the

statement and explain how cost accounting serves as a tool of control in the hands of

management.” Give suitable illustrations to support your reasoning.

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4. Ascertaining costing profit: Cost accounting helps in ascertaining costing profit or loss of any activity on an objective basis by matching cost with the revenue of the activity.

5. Facilitating preparation of financial and other statements: Cost Accounting helps to produce statements at short intervals as management may require. In order for the business to operate at high efficiency, it is essential for management to have a review of production, sales and operating results. Cost accounting provides daily, weekly or monthly statements of units produced, accumulated cost with analysis. Cost accounting system provides immediate information regarding stock of raw materials; semi-finished goods and finished goods. This helps in the preparation of financial statements.

6. Price determination Cost accounts should provide information, which enables the management to fix remunerative selling prices for various items of products and services in different circumstances.

7. Curtailment of loss during the off-season Cost Accounting can also provide information, which may enable reduction of overheads, by utilizing idle capacity during the off-season.

8. Expansion: Cost Accounts may provide estimates of production of various levels on the basis of which the management may be able to formulate its approach to expansion.

9. Arriving at decisions Most of the decisions in a business undertaking involve correct statements of the likely effect on profits. Cost Accounts are of vital help in this respect. In fact, without proper cost accounting, decisions would be like taking a jump in the dark, such as when production of a product is stopped.

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Difference between Cost Accounting & Financial Accounting:

Basis Cost Accounting Financial Accounting

1.Objective It provides information of ascertainment of cost to control cost and for decision making about the cost.

It provides information about the financial performance as well as the financial position of the business.

2.Nature It classifies records, presents and interprets in a significant manner the material, labor and overheads cost.

It classifies records, presents and interprets transactions in terms of money.

3.Recording of data It records and presents the estimated/budgeted data. It makes use of historical costs and pre determined costs.

It records historical data.

4.Users of information It is used by internal management at different levels.

The users of financial statements are shareholders, creditors, financial analysts and government.

5.Analysis of costs and profits

It provides the details of cost and profit of each product, process, job, contracts.

It shows the profit/loss of the organization.

6.Time period Its reports and statements are prepared as and when required.

Financial statements are prepared for a definite period, usually a year.

7.Presentation of information

There are no set formats for presenting cost information.

A set format is used for presenting financial information.

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Cost accounting serves as a tool of control in the hands of the management

A company having a proper cost accounting system will help the management in the following ways:

1) The analysis of profitability of individual products, services or jobs. 2) The analysis of profitability of different departments or operations. 3) The analysis of cost behavior of various items of expenditure in the organization. 4) A proper costing system locates differences between actual results & expected

results. 5) It will assist in setting the prices so as to cover costs and generate an acceptable

level of profit. 6) Cost records are the base for the Management Information systems. 7) The cost systems generate regular performance statements which management

need for control purposes. 8) The costing records serve to analyze the final accounts of the company. i.e. the

manufacturing, Trading and Profit and Loss accounts, in such a way as to give a detailed explanation of the sources of profit or loss.

9) Cost accounting systems are not only applicable to manufacturing organizations or functions but also extended to service organizations, functions.

10) The cost ascertainment, allocation, distribution can be efficiently made under efficient costing system.

For instance, in a company, if the management intends to know the profitability of the company’s operations on an immediate basis then such information can be easily obtained by preparing the costing reports rather than waiting for the financial statements which will be available on a yearly basis. Thus by analyzing the costing reports the management of the company will be able to decide whether the company is moving towards profitability or is sustaining losses. Thus it will help the management in decision making.

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1) Hotel industry:

The hospitality industry consists of broad category of fields within the service industry that includes lodging, restaurants, event planning, theme parks, transportation, cruise line, and additional fields within the tourism industry. The hospitality industry is a several billion dollar industry that mostly depends on the availability of leisure time and disposable income. A hospitality unit such as a restaurant, hotel, or even an amusement park consists of multiple groups such as facility maintenance, direct operations (servers, housekeepers, porters, kitchen workers, bartenders, etc.), management, marketing, and human resources. The hospitality industry covers a wide range of organizations offering food service and accommodation. The industry is divided into sectors according to the skill-sets required for the work involved. Sectors include accommodation, food and beverage, meeting and events, gaming, entertainment and recreation, tourism services, and visitor information.

2) Transportation industry:

Transport or transportation is the movement of people and goods from one location to another. Modes of transport include air, rail, road, water, cable, pipeline, and space. The field can be divided into infrastructure, vehicles, and operations. Transport is important since it enables trade between peoples, which in turn establishes civilizations. Transport infrastructure consists of the fixed installations necessary for transport, and may be roads, railways, airways, waterways, canals and pipelines, and terminals such as airports, railway stations, bus stations, warehouses, trucking terminals, refueling depots (including fueling docks and fuel stations), and seaports. Vehicles traveling on these networks may include automobiles, bicycles, buses, trains, trucks, people, helicopters, and aircraft. Terminals may be used both for interchange of passengers and cargo and for maintenance. Operations deal with the way the

Give a brief explanation about the industry and the cost components of the industry. Also give a method of costing and unit of cost against each industry.

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vehicles are operated, and the procedures set for this purpose including financing, legalities and policies. In the transport industry, operations and ownership of infrastructure can be either public or private, depending on the country and mode.

3) Banking industry: A bank is a financial intermediary and

appears in several related basic forms:

a. A central bank issues money on behalf of a

government, and regulates the money supply.

b. A commercial bank accepts deposits and channels

those deposits into lending activities, either

directly or through capital markets. A bank

connects customers with capital deficits to

customers with capital surpluses on the world's

open financial markets.

c. A savings bank, also known as a building

society in Britain is only allowed to borrow and

save from members of a financial cooperative.

4) Insurance industry:

In law and economics, insurance is a form

of risk management primarily used

to hedge against the risk of a

contingent, uncertain loss. Insurance is defined

as the equitable transfer of the risk of a loss,

from one entity to another, in exchange for

payment. An insurer is a company selling the

insurance; an insured, or policyholder, is the

person or entity buying the insurance policy.

The insurance rate is a factor used to determine

the amount to be charged for a certain amount

of insurance coverage, called the premium. Risk

management, the practice of appraising and controlling risk, has evolved as a

discrete field of study and practice.The transaction involves the insured assuming a

guaranteed and known relatively small loss in the form of payment to the insurer in

exchange for the insurer's promise to compensate (indemnify) the insured in the

case of a financial (personal) loss. The insured receives a contract, called

the insurance policy, which details the conditions and circumstances under which

the insured will be financially compensated.Insurance involves pooling funds

from many insured entities (known as exposures) to pay for the losses that some

may incur. The insured entities are therefore protected from risk for a fee, with the

fee being dependent upon the frequency and severity of the event occurring. In

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order to be insurable, the risk insured against must meet certain characteristics in

order to be an insurable risk.

5) Airline industry:

The airline industry exists in an intensely

competitive market. In recent years, there has

been an industry-wide shakedown, which will

have far-reaching effects on the industry's trend

towards expanding domestic and international

services. In the past, the airline industry was at

least partly government owned. This is still true

in many countries, but in the U.S. all major

airlines have come to be privately held.

The airline industry can be separated into four

categories by the U.S. Department of

Transportation (DOT):

a) International - 130+ seat planes that have the ability to take passengers just about anywhere in the world. Companies in this category typically have annual revenue of $1 billion or more.

b) National - Usually these airlines seat 100-150 people and have revenues between $100 million and $1 billion.

c) Regional - Companies with revenues less than $100 million that focus on short-haul flights.

d) Cargo - These are airlines generally transport goods.

6) Courier industry:

A courier is a person or a company who

delivers messages, packages, and mail.

Couriers are distinguished from

ordinary mail services by features such as

speed, security, tracking, signature,

specialization and individualization of

services, and committed delivery times,

which are optional for most everyday mail

services. As a premium service, couriers

are usually more expensive than usual

mail services, and their use is typically restricted to packages where one or more

of these features are considered important enough to warrant the cost.

Many companies who operate under a Just-In-Time or "JIT" inventory method

often utilise on-board couriers. On-board couriers are individuals who can travel

at a moment's notice anywhere in the world, usually via commercial airlines.

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While this type of service is the second costliest—general aviation charters are

far more expensive—companies analyze the cost of service to engage an on-

board courier versus the "cost" the company will realise should the product not

arrive by a specified time (i.e. an assembly line stopping, untimely court filing,

lost sales from product or components missing a delivery deadline, organ

transplants).

7) Advertising industry: Advertising is a form of communication used to persuade an audience (viewers, readers or listeners) to take some action with respect to products, ideas, or services. Most commonly, the desired result is to drive consumer behavior with respect to a commercial offering, although political and ideological advertising is also common. Advertising messages are usually paid for by sponsors and viewed via various media; including traditional media such as

newspapers, magazines, television, radio, outdoor or direct mail; or new media such as websites and text messages.

Commercial advertisers often seek to generate increased consumption of their products or services through "branding," which involves the repetition of an image or product name in an effort to associate certain qualities with the brand in the minds of consumers. Non-commercial advertisers who spend money to advertise items other than a consumer product or service include political parties, interest groups, religious organizations and governmental agencies. Nonprofit organizations may rely on free modes of persuasion, such as a public service announcement. Internationally, the largest ("big four") advertising conglomerates are Interpublic, Omnicom, Publicis, and WPP.

8) Healthcare industry: The health care industry, or health profession, treats patients who are injured, sick, disabled, or otherwise physically or mentally infirm, and maintains general health in populations and communities through the promotion of healthy behaviour and prevention of disease. The delivery of modern health care depends on an expanding interdisciplinary team of trained professionals. For purposes of finance and management, the healthcare industry is typically divided into several groups and sectors. The Global Industry Classification Standard and the Industry Classification Benchmark divide the industry

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into two main groups:

(1) health care equipment & services; and (2) Pharmaceuticals, biotechnology & related life sciences.

Health care equipment and services comprise companies and entities that provide medical equipment, medical supplies, and health care, such as hospitals, home health care providers, and nursing homes. The second industry group comprises sectors companies that produce biotechnology, pharmaceuticals, and miscellaneous scientific

services.

9) Real Estate industry: Real estate is the modern term for land and anything that is permanently affixed to it. Fixtures include buildings, fences, and things attached to buildings, such as plumbing, heating, and light fixtures. Property that is not affixed is regarded as Personal Property. For example, furniture and draperies are items of personal property.

With the development of private property ownership, real estate has become a major area of business, commonly referred to as commercial real estate. Purchasing real estate requires a significant investment, and each parcel of land has unique characteristics, so the real estate industry has evolved into several distinct fields. Specialists are often called on to valuate real estate and facilitate transactions. Some kinds of real estate businesses include:

a) Appraisal: Professional valuation services

b) Brokerages: A mediator who charges a fee to facilitate a real estate transaction between the two parties.

c) Development: Improving land for use by adding or replacing buildings

d) Net leasing

e) Property management: Managing a property for its owners

f) Real estate marketing: Managing the sales side of the property business

g) Real estate investing: Managing the investment of real estate

h) Relocation services: Relocating people or business to a

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different country

i) Corporate Real Estate: Managing the real estate held by a corporation to support its core business—unlike managing the real estate held by an investor to generate income

Within each field, a business may specialize in a particular type of real estate, such as residential, commercial, or industrial property. In addition, almost all construction business effectively has a connection to real estate.

10) Hospitals: A hospital, in the

modern sense, is an institution for

health care providing patient

treatment by specialized staff and

equipment, and often, but not always

providing for longer-term patient

stays.

Today, hospitals are usually

funded by the public sector, by

health organizations (for profit or

nonprofit), health insurance

companies or charities, including

by direct charitable donations.

Historically, however, hospitals

were often founded and funded

by religious orders or charitable

individuals and leaders. Conversely, modern-day hospitals are largely staffed by

professional physicians, surgeons, and nurses, whereas in history, this work was usually

performed by the founding religious orders or by volunteers.

There are over 17,000 hospitals in the world.

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Industry Cost component Unit of cost Method of costing

Hotel Building-(owned-

depreciation, lease-

rent),salary paid to staff

and waiters, electricity

charges, transport

charges ,salary to drivers

Per room /day Service/Operational

Costing

Transport Office charges, Vehicles,

salary to drivers,

maintenance cost, cost of

fuel, printing and

stationery

Per passenger/

kilometer

Service/Operational

Costing

Banking Office (owned-

depreciation/lease-

rent),electricity charges,

salary to staff and clerks,

conveyance allowance to

sales executives, printing

and stationery

Per transaction/

client

Service/Operational

Costing

Insurance Office (owned-

depreciation/lease-

rent),electricity charges,

salary paid to staff and

clerks, printing and

stationery, conveyance

allowance

Per policy/ client Service/Operational

Costing

Airline Aircraft (owned-

depreciation/lease-

rent),repairs and

maintenance, salary paid

to ground staff, air

hostess, pilots, service

cost

Per passenger Service/Operational

Costing

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Courier Office( owned-

depreciation/lease-rent),

Transport cost, salary paid

to staff, electricity

charges, packaging cost,

printing and stationery

Per weight/package Volume based

costing

Advertising Office(owned-

depreciation/lease-

rent),electricity charges,

Newspaper

advertisement-cost of

publishing, Television

advertisement-cost of

screening, salary paid to

office staff

Per second

(Television)

Per sq.cm

(Newspaper)

Per job

Job costing

Healthcare Building (owned-

depreciation/lease-

rent),salary paid to staff,

repairs and maintenance,

equipment cost,

electricity charges

Per bill/person Service/Operational

Costing

Real Estate Office(owned-

depreciation/lease-

rent),electricity & water

charges, transport

charges, payment to

labour, staff

Price per sq. foot

(Construction)

Contract costing

Hospitals Building (owned-

depreciation/lease-

rent),electricity charges,

equipment charges, salary

paid to doctors, nurses,

wardboys, maintenance

charges of facility

Per bed/person Service/Operational

Costing

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1 Warehouse Wages 3600

2 Office Salaries 2260

3 Office Lighting 140

4 Directors remuneration 2800

5 Rent, Rates and insurance of

warehouse

620

6 Warehouse lighting 540

7 Trade magazine 140

8 Bank charges 200

9 Bad Debts 340

10 Agents Commission 11500

11 Warehouse repair 1020

12 Travelling expenses 1520

13 Rent, Rates and insurance of

office

460

14 Printing & Stationery 3000

15 Donation 300

16 Discount allowed 3940

A manufacturing company has shown Rs.32380 as “Establishment Expenses” which include the

following expenses:-

Determine (i) selling expenses (ii) distribution expenses (iii) administrative expenses (iv) expenses

which will not be considered in determining total costs.

Establishment expenses = 32380

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From the above information the following have been calculated:

Selling Expenses:-

Particulars Amount

Rs.

1 Bad Debts 340

2 Agents Commission 11500

3 Travelling Expenses 1520

Total 13360

Distribution Expenses:-

Particulars Amount

Rs.

1 Warehouse wages 3600

2 Rent, Rates & insurance of warehouse

620

3 Warehouse lighting 540

4 Warehouse repair 1020

Total 5780

Administrative Expenses:-

Particulars Amount

Rs.

1 Office Salaries 2260

2 Office lighting 140

2 Directors Remuneration 2800

4 Bank charges 200

5 Rent, Rates & insurance of office

460

6 Printing & stationery 3000

Total 8860

Items which will not be considered in determining total costs:-

Particulars Amount

Rs.

1 Trade magazine 140

2 Donation 300

3 Discount Allowed 3940

Total 4380

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