accounting

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What is absorption costing and the indirect costs

It a law that fixed cost and variable cost are assigned to cost unit and full amount of the overhead are absorbed according to activates.

The fixed production overhead is not appropriate under variable and fixed. Variable is only helpful for managers to mark decision. Absorption useful when income tax and financial reporting.

Steps in absorption cost

Document the cost

Separate the cost

Direct cost is straightforwardly connect to output

Apportion ate the indirect costs to the service sector.

Reapportion costs to service support dep and production dep .

Add an overhead retrieval proportion

Then absorb the direct and indirect into single output.

What are the limitations when making decision?

A C costing is more stressed on total cost so it is not that useful to the managers when making decision, planning or controlling.

A manager main concern is on volume profit, which is not showing therefore the managers have to make their own inspiration to the decision.

The information is not accurate. In fixed overhead depend on the values that are estimate so it can be over or under absorption of the same.

Two techniques that can be used from the organisation to find out the cost of a product

01) Marginal costing:

It is express the behavioural than the operational. Features of the cost main intention is to divide the Fixed and variable elements. This can be useful for short term muilty product organisation.

The main rules are:

If we sale one item extra what will happened is that,

Receipts will rise by the sales price of what we sold

Cost will rise by VC per unit

Profit will rise depend on the amount of the contribution that given.

Also if the sale falls the profit also falls according to the contribution.

Eg: TC produce say 1000 units is £5000. If we produce say 1001 units the TC will £5002,cost of the next unit is £2. MC is £2

Advantages of MC

In cost of the product the fixed overhead is not charged therefore the variable cost per unit is not taken.

This also helps short term planning profit by using break even profitable system.

Question B

Cortina

Noddy

Zodiac

Aston

Labour cost

£30

£45

£40

£35

Rate per hour

£15

£15

£15

£15

Labour hours per unit

2

3

2.666667

2.333333

available hours

45000

In demand per unit

5000

6000

3000

4000

total labour hours

10000

18000

8000

9333.333

45333.33

shortage of labour

-333.333

closest

-333

machine cost

£60

£90

£120

£150

rate per hour

£50

£50

£50

£50

machine hours per unit

1.2

1.8

2.4

3

hours available

45000

demand per unit

5000

6000

3000

4000

total machine hours

6000

10800

7200

12000

-36000

machine hours over capacity

9000

input to the product is direct machine hours and direct labour hours

as above it shows that shortage of labour hours therefore it is effective

Question C

Cortina £

Noddy £

Zodiac £

Aston £

Total £

Sales

250

250

235

278

less variable cost

direct material

50

30

50

45

direct labour

30

45

40

35

variable overhead

60

90

120

150

total variable cost

140

165

210

230

contribution per unit

110

85

25

48

units to produce W2.W1

5000

6000

2876.4

4000

total contribution

550000

510000

71910

192000

1323910

less fixed cost

factory over head

-864000

administration overhead

-180000

profit

279910

W1

contribution per unit

110

85

25

48

labours hours

2

3

2.67

2.33

contribution labour hours

55

28.33333

9.363296

20.60086

ranking

1

2

4

3

W2

Cortina is more profit product as u can see above it is 1st rank. Therefore accordingly ranked.

produce units based on the ranking

* lab unit

labour balance

total hours available

45000

product according to the ranking

Cortina

5000

2

-10000

35000

Noddy

6000

3

-18000

17000

Aston

4000

2.33

-9320

7680

Zodiac

3000

2.67

 

 

 

2876.404

2.67

7680

balance figured

0

we cannot produce all Zodiac due to less labour

then we 7680/2.67 = 2876.404494 this will be the units that will

produce

Question D

since there is shortage of labour hours this will affect the Zodiac production by 3000 - 2876 = 126 units

loss of profit = 126 * 9.36

=£1179.36

To: Jane

From: Advise Consultant

Introduction

KOOLSHOP is a private company that managed by Jane .As it is rapidly growing she has decided to employee mangers to control each section as tactical information and strategic information. She is new to the system. As a consultant she request an appropriate managing system that help her to get information quick and practical way. Therefore I have explained how annual budgeting system can help her, also I have explained the worth of fixed budget, flexible budget, rolling budget.

This report will explain above:

What is annual budgeting system?

A budget is a prediction for the future income and expenses and also it can estimate if the company can carry on or should change in plan.

It shows the business plan for next year, for 3 years or for 5 years. Budget shows the right track to develop your business.

How does budgeting helps in a business:

Budget help in a business in less spending than earning.

Budget help to success the financial goals and organise a future planning and also it divide the money into income, saving, expenses.

Short term it helps to get rid of credit issues and help in financial emergencies. It controls money by preparing structure plan.

Here are some steps that should follow in order of successful enforce budget

Positioning financial goals: it is like when starting project managers and directors should discuss what we want to accomplish this month or year it depends, what new product that we should do and can offer long team or short team.

Categorizing:

Categorizing fixed expense in the company like rent, insurance, tax, Gross profit, expense, debt.

Maintain financial records:

Make sure that everything is up to date and relevant information.

Balancing and adjusting the records:


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