Delivery in day(s): 5
Prime cost is the sum of the direct material cost and direct labour cost
Therefore, Prime Cost
Direct Material cost
Direct labour Cost(Given)
Direct Material Cost
Quantity (in Kgs)
Rate/kg ( in £)
Direct Labour Cost
Number of hours worked
Rate per Hour (In £
Grade IV labour
Grade VIII labour
*Note: Please Refer WN1
Calculation of cost of Material J transferred to Job Code X423
Transfer to production job code X431
Transfer to production job code X423
Transfer to production job code X423
Calculation of prime cost per component
i) Conversion of cost per kilogram to Index number
Cost per kilogram
Base rate ( January 2014)
ii) Calculation of expected cost for December 2014
Index number for Dec-14
Base Cost (January 2014)
iii) Calculation of Percentage increase in the cost per kilogram of Material J from January 2014 to December 2014
Cost per kilogram
The formula for calculating the percentage increase in the cost is as follows
Where A is the starting year a 'B' is the ending year. January 2014 being the starting year and December 2014 is the ending year.
We have ((13.06-9.20)/9.20*100)
Therefore, percentage increase by 42%
We have discussed the different types of costing. now it’s time to apply them to practicality. Let’s know the applications of all the categories of costings.
The main applications can be described as: FIFO and AVCO.
Talking of a conventional approach toward the process of costing, it is believed that the period that a good might sustain staying at a warehouse tags its priority to move out of the warehouse. It is also said that after the process of manufacturing, it must be sent to the end user i.e. customer.
But, why such a restless method is preferred?
It is believed according to FIFO that the manufactured product should not be kept idle at the warehouse as a certain level of depreciation is involved with it and erosion of the product is also possible.
What is AVCO?
Talking about AVCO, it is stated that a product can be weighted as the rough average of the available products that are kept in warehouse. Hence, if a product exceeds or precedes the level of weightage, it is to exit the warehouse prior to others.
What is Activity Costing Process?
As per the activity costing process, the cost that is involved in each stage of the process should form an inclusion in the whole process and in per unit cost. This takes into account the activities that are included in the process of production and management. (Izhar and Hontoir, 2001)
As the 3D Game AA is about to be launch during the peal selling season, the merits and demerits of the gaming program can be analyzed by using the Life Cycle Costing technique in the following way.
The fixed costs and variable costs of product manufacturing are involved in the Life Cycle Costing. It is necessary to have a competitive edge over the rivals to survive in the competitive market. The overall revenue and costs throughout the estimated life of the product needs to be calculated so as to determine the feasibility of the product which depends upon the profitability of the product during the life span of the product. In case of the Life Cycle Costing following techniques can be used:
The characteristics of target costing are summarized as:
To calculate the target costing for the new game LL includes following:
=Target Selling Price per customer x lifetime sales volume
To reach the target BEP, the firm has achieved the target of 1100000. The disadvantages of live dream are as following:
TQM is a management technique that involves all the employees from labor to management of the company to deliver quality products. It is a participative technique that makes the employees to associate themselves with a common project of the company. Kaizen approach is a part of TQM technique that mainly supports the existence of all class of employees in the company. This technique can be used by LIVEDREAM that will lead the company in the following manner:
LIVEDREAM manufacturing process is inclusive of constant development of the product. Few of the methods to reduce the cost are as following:
Sales revenue per trip
Insurance bond cost
Sundry office expense
Coach travel cost
Sundry office cost
Net profit (A-B)
Below summed up is the justification for using overdraft facility of a bank:
What is the necessity of inflow and outflow form of cash?
In a business, it is nothing to say that cash is an important criterion in any of its stage; and here, we will take the concept of inflow and outflow for of cash flows. The inflow form refers to the source whereas, outflow form of cash flow refers to the point of implication. It is utmost importance to the bank manager when he should be keeping records of both the forms of cash flows.
What more should the bank consider when it comes to keeping record of the payment?
The bank should be in a position to understand the parties that are involved in the process of transaction, the amount of the money and also, the exact time when the transaction came into effect. Through this, they can exactly estimate the ratio of customer-organization relationship.
What do you mean by Consistency In Revenue?
This is quite essential in the field of business. This gives the trend of the revenue; for example, if there is an uptrend in the revenues, this implies an increase in the level of revenues that is earned by the business.
What are the importance of Costs or Expenditure?
These are integral elements in the process of a business and are useful components of a income statement. This gives us an estimation of the fixed and the costs that are still recurring and is therefore, examined by the bank.
What is the concept of Determination of Limit?
The bank is able to sum up a certain amount that is to be expended and hence, can determine its utility in the business activities and also consider the need for credit for the overall business. This is determined by the bank itself.
What does the available cash balance study imply?
This refers to the cash that is available when the operating cash and investing cash are incurred on the activities. At a certain moment, this needs to be determined for running the business activities of an organization. (Mahadevan, 2010)
The purpose and nature of budgeting will be described in this section. This will give you a fair idea of how the process is implemented and then, driven for the sake of the business.
Budget can be simply defined as the process that is able to allocate the available assets to the departments of a business. In response, the management of an organization is considered to bring them into effect. Now moving to the next step, it is worth considering that proper planning and implementation is required for achieving the set objectives in a business. This eliminates any kind of difference in the organization and establishes a harmonious environment within the company.
Apart from this, Budget is often associated with finance in any organization, Its aim is to allocate the funds of a company to the respective departments of the company and this is performed before the financial year begins. Now, even if any alteration takes place in a team, it’ the sheer duty of the management of the organization to modify and amend changes in the budget plan of the company or that particular department. Before the stage of execution, budget centre is set up which decides its formulation and an in-depth study is conducted regarding the flow of cash within and out of the organization.
There should be proper coordination in every department and the whole company as well. A manager leads the team who needs to step up during crisis moments and might have to hold the responsibility of controlling other teams as well in crucial situations. The allocation of funds is further done on the basis of priority. Moreover, the budget can prove to be extremely helpful in determining the overall capability of different units of departments. The thing that is the most needed is a coordinating approach among the members of the organization. (Wildavsky, 1986)
Original budget -800units
Flexed budget 900units
Actual cost -900units
2kg x£6.60 x 800units
1hr x £8.25 x 800units
Selling and administration overhead variance
800units x £68.5
a.Sales Profit volume Variance
b.Sale Price Variance
c.Direct Material Variances
(Actual price x Actual quantity purchased) – (Standard price x Actual quantity purchased)
£14580– (£6.60 x 1,800kg) = £2700 U
ii. The material usage variance is expressed as;
(Actual quantity x Standard price) – (Standard quantity x Standard price)
£11880– ((2kg x 800) x £6.60) = £1320 Unfavorable
i. The labour rate variance is expressed as;
(Actual wage rate x Actual hours) – (Standard wage rate x Actual hours)
£8550 – (£8.25 x 900hrs) = £1125 Unfavorable
ii. The labour efficiency variance is expressed as;
(Actual hours x Standard wage rate) – (Standard hours x Standard wage rate)
(£8.25 x 900) – ((1hr x 800) x £8.25) = £825 Unfavorable
i. Variable Overhead variances
The Variable spending overhead variance is expressed as:
(Actual hours worked x (Actual Overhead rate-standard overhead rate)
3600(2.05-1.5) = £2000 Unfavorable
ii. The Variable Efficiency overhead variance is expressed as:
Standard Overhead rate (Actual hours-standard hours)
1.5(3600-3200) = £600 Unfavorable
f. Fixed Production overhead variance
i. The fixed overhead expenditure variance is expressed as;
(Budget fixed overhead cost - Actual fixed overhead expenditure in the period).
£12800 - £19400 = £6600 Unfavorable
g. Selling and administrative overhead variance
i. The sales price variance is expressed as;
(Actual selling price x Actual sales volume) – (Standard selling price x Actual sales volume)
£61650 – (£68.50 x 900) = 0
ii. The sales margin volume variance is expressed as;
(Actual sales – Budgeted sales) x standard profit margin
(900 – 800) x £68.50 = £6850Favourable.
Budgeted profit 8,00units x £21.3)
Sales price variance
Sales margin volume variance
Material price variance
Material usage variance
Labour rate variance
Labour Efficiency Variance
Variable Efficiency Overhead Variance
Variable Overhead Spending Variance
Fixed overhead expenditure variance
Selling and administration overhead
The objective is to introspect the reasons that result in variance.
In order to accomplish the mentioned objective, we need to find out the costs that are incurred on each department and unit of production in the organization. This can be best reflected through budget statement. Now, the problem is that there have been slight differences between the estimated and the actual results.
Estimated Result: Profit of 17040
Actual Result: Profit of 8920
Below given is the reason for such a variance:
Sales Manager is responsible for Sales Margin volume variance. Actual sales exceeded estimated sales by 100 units.
Buying Manager is responsible for Material price Variance. Procurement took place at higher rates than it was budgeted.
Production Manager is responsible for Material Usage Variance. An exceeding level of sales were observed.
Labour rate Variance is looked after by HR Manager. It showed negative variance with a higher per hour procurement rate.
Labour efficiency variance witnessed no variance with an increase in actual sales by 100 units.
Variable overhead Efficiency variance is supervised by Operations Manager. Total Overhead showed negative variance.
Fixed overhead expenditure variance is looked over by a number of managers. Overhead was more than estimated.
Selling and distribution overhead variance is overlooked by a Sales Manager. It witnessed better Total Overhead.
Through this, we come to know the factors that resulted into such a variation.
An organization needs to focus on the costing patterns for a relatively smooth working. This can turn out to be a matter of concern if not taken into serious consideration. This can be quite decisive for any organization, if decision making is associated with it. Standard costing methods are used by the organizations to get the actual results and also get to know the reasons behind certain variances in the estimated results.
Dhillon, B.(2013). Life Cycle Costing: Techniques, Models and Applications. Gordon and Breach Science Publishers.
Bragg, S. (2010). Cost reduction analysis. Hoboken, N.J.: John wiley & Sons.
Izhar, Riad and Hontoir, Janet (2001). Accounting, Costing and Management. Oxford University Press.