ACCOUNTING ANALYSIS

Accounting Analysis

Accounting Analysis

Task one - Job A

Overhead Analysis Sheet

Factory Overheads

Basis of Apportionment

A

B

C

X

Y

Total

Allocated

2800

1700

1200

800

600

7100

Rent and Rates

Floor area

6000

3600

1200

1200

800

12800

Machine insurance

Machine value

3000

1250

1000

500

250

6000

Telephone charges

Direct labour hours

1706.666667

960

533.3333333

3200

Depreciation

Machine value

9000

3750

3000

1500

750

18000

Supervisor's salary

Direct labour hours

12800

7200

4000

24000

Heating & Lighting

Floor area

3000

1800

600

600

400

6400

TOTAL

38306.66667

20260

11533.33333

4600

2800

77500

Re apportionment

Service dept X

2300

1150

1150

-4600

Service dept Y

560

840

1400

-2800

TOTAL COSTS

41166.66667

22250

14083.33333

0

0

77500

Overhead Absorption rate

41166.67/3200

22250/1800

14083.33/1000

=$12.86/DLH

=$12.36/DLH

=$14.08/DLH

Job B

Job 123

Job 124

Direct materials

154

108

Direct Labour

~A

76

60.8

~B

42

35

~C

34

47.6

Factory overheads

~A

257.2

205.76

~B

148.32

123.6

~C

140.8

197.12

TOTAL COST

852.32

777.88



Job C

Quoted Selling Price

1065.4

972.35



Job D

In order to effectively manage stock, just in time (JIT) stock control should be put into use. It follows Japanese approach to stock management. Inventory should only be ordered when it is needed.

Task Two

FIFO / LIFO / AVCO

Units produced = Opening units + Units purchased - Closing units

420 = 0 + (55+80+120+75+130) - Closing units

Closing units = 40

Stock valuation ( FIFO Basis) = 40 units * $1.9 = $76

Stock valuation (LIFO Basis) = 40 units * $1.45 = $58

Stock valuation (AVCO Basis) = 40 units * $1.739(w1)= $69.56

(w1)

weighted average cost = total cost of goods in stock/number of items in stock

799.75/460 = $1.739



Different types of costs

Direct cost

These costs arise when you produce a product. These costs are directly attributable to a particular product. Classification of direct cost includes direct material, direct labour and direct overheads. As per JOB A, factory overheads includes rent and rates, machine insurance, telephone charges, depreciation, production supervisors' salary and heating and lighting. JOB B calculates full production cost of a product which comprise of direct material, direct labour and direct overheads.

Indirect cost

These are those costs that cannot be allocated or attributed to a particular product. These costs are not directly related to a particular product. Indirect cost can be categorised into indirect material, indirect labour and indirect expenses.

Task two

Which method is likely to give the company the better profit figure in this year?

When FIFO method is used to value closing stock it gives the highest profit figure. Cost of sales is deducted from Revenue to arrive at the profit figure.

Which method is the system most likely to produce the most accurate reflection of the cost of production?

Most accurate reflection of cost of production is given by AVCO basis of valuing stock. This is because it takes account of each and every movement and smoothes the cost of product so that it reflects the weighted average value.

Analysis of routine cost report and identification of improvement

Routine cost reports highlights Overhead Absorption Rates, total costs of Job 123 and Job 124, quoted selling price of the two jobs and stock valuation methods. Improvements can result if proper basis of apportionment is put into place. For instance, telephone expenses are apportioned on the basis of direct labour hours. A proper basis of apportionment would have been number of employees. It would then truly highlight the correct apportionment of telephone expense.

Task three

The Budgeting Process

Purpose

The purpose of the budgeting process is to ensure effective planning. It revolves around determining program and organisational objectives and identifying ways to achieve it. It is all about prioritizing. The budgeting process also has a control function. Control is all about identify variances by considering budgeted results, the results company ...