Overview of the Assignment
A. Normal View of Cost Accounts
Figure 1: (Table showing Direct Material Account)
Source: (Created by Author)
Formula View of Cost Accounts
B
One of the most iconic structures of building in Rome is Colosseum and it is regarded as the attractive tourist destination. In 72 AD, the construction of this major building was initiated and the construction was finished in 80AD. Some of the purpose for which Colosseum was used involved battling of gladiators, for hunting purpose and using it for any other national events. It was predictable that Colosseum acquired the space of 50000 to 60000 spectators at a time. There was no process of effective estimation of cost and proper costing system when the construction of structure was being done. Moreover, the prediction at that time was about the cost of Colosseum that might have taken the fortune. In today’s world, construction of such building would cost billions of dollars and that amount will also not be enough to cover up the cost. bBetween 1993 and 2000, a program of restoration was conducted on the building of Colosseum and it was ascertained that there was exhaustion of approximately 40 billion Italian fire. This particular fact helps in the development of judgment of how much it would cost to construct the similar monument. In order for recreation of some buildings that is similar to the monuments, it is recommended to apply the contract costing technique. Such recommendation is made because construction of such buildings is similar to the construction of such monuments. The reason for recommending such costing technique is applicable to the fact that under the contract costing technique, the construction is done on degree of completion. Moreover, the technique of contract costing contains certain provisions regarding the maintenance of effective records and cost of some materials overtime that will help in managing such change (Ax & Greve, 2017)
Normal View of Process Costing Accounts
- If a joint cost of amount $ 187500 is allocated to product A, then according to the calculation the selling price of product figure stood at $ 5.85. Figure 9 presented above depicts the allocation of costs for product A. along with the presentation of cost allocation for product A, value of net realization relating to product C is also presented.
- The question requires answering about the decision whether further processing of the product A into product C should be done by business or whether they should sell the product A at split off. Above calculation depicts that business will be incurring considerable amount of loss if they intend to sell the product A at split off. Moreover, the above calculation also presents the fact that business will be earning considerable amount of profits if it is decided by the business that further processing of product A would be done.
4.
A
The above table depicts the computation of actual direct labor rate per hour and the estimated amount has come to $ 33.04. It can be inferred from variance in material price and usage of materials that both the estimates are considered as favorable.
Variance is defined as the difference between the actual results that the business has achieved and the standard that the management of company has set. Any deviation in the actual value from the standard value is regarded as variance. Occurrence of any deviations between the estimated value and actual value is analyzed by the business using the tool of variance and due to this reason it is considered one of the most effective tools for performing such analysis. This particular tool can be used by business for monitoring the expenses that is incurred in day to day operations of business. One of the most important benefits attributable from using the tool of variance is that any fluctuation between the standard and actual budget can be easily identified using the tool of variance (Mårtensson et al., 2016).
Creating Handwritten and Spreadsheet Solutions
Variance is considered by management of company in areas such as usage variances, price of materials, variable overhead variances, efficiency variances and direct labor mix. Variance is indicative of the fact that the deviation is caused by some unfavorable factors and the plan of business is not well aligned with the performance and is not in according with the budget prepared by company. This tool assists business in investing the possible reason that has led to the occurrence of variance between the budgeted and actual value. In addition to the identification of reason behind the occurrence of such variance, businesses are able to develop the measures for controlling the occurrence of any unfavorable variance. From the business viewpoint, some of the variances that are considered to be of utmost importance are material usage variances, material price variances and labor rate variances. The reasons attributable to the importance of such variances are that they have considerable impact on the operations of business and the cost figures are considerably overstated and understated that have been estimated by business (Cleary, 2015).
There are some other departments within organization where the application of variances is considered important such as human resource management and organizational behavior. Variance analysis is regarded as highly useful and effective in measuring the performance of human resource management as the performance of employees are often measured in terms of financial projections. Another advantage using the variance analysis is that it helps in facilitating comparison of the figures between two different reporting period. Such comparison will help in relating the variances and identifying the areas that the company is lacking behind and the areas that have improved. Variances are used along with the technique of standard costing that is conducted along with the actual business performance. Based on such comparison, they are able to deduce that whether the outcomes are favorable or unfavorable (Van der Stede, 2016). Variance occurs when there is mismatch between actual results and budgeted results. There is unfavorable outcome when the actual value is exceeding the budgeted values. Furthermore, business will be able to investigate behind the reason for occurrence of unfavorable outcome and accordingly developing the measures for improving such unfavorable outcome. Such measures are taken so that management can avoid the occurrence of such unfavorable circumstances.
Requirement A
Normal View of the Budget
Formula View of the Budget
A budget is the crucial tool employed by management of organization for forecasting and planning of financial information. It is a quantitative plan that is used by organization to effectively analyze the revenues and cost when they intend to make investment in certain projects. Judgment of management plays a significant role in ability of business to forecast the facts and figures attributable to certain project where investment is made. Such management depends upon the factors such as change in market conditions, future scenarios and results of previous year. The main objective of business is to estimate the revenues and future costs and using the techniques that can be used by management for exercising control over the business performance. Standards that are set by management in the budget are considered basically as the guidelines for preparing the budget. The term budget tends to conjure the mind of many managers regarding the inaccurate estimates or sometime overrunning of required explanations. It can be said that budget is such a tool of management that helps in meeting the managerial objectives. Control and planning are the two primary function of management that helps in deciding on important functions and resolving of issues of formulation (Shields, 2015). Main concern for large organization is about the operational efficiency as it helps in controlling the different aspects of budgeting and some other small business are concerned about the planning aspects of budgeting.
Joint Cost Allocation: Additional Processing Beyond Split-off Point
The primary usage of budget is measurement of actual results as a performance baseline. However, there is possibility that budget can become increasingly accurate over time and this might results in occurrence of large variances. Budgeting helps management in deciding what activities should be undertaken by company and how the resources should be used. Management is required to make some changes when balance sheet and budgeted income statement are coming out of master budget (McLaren et al., 2016). When taking into consideration political scenarios, it is the finance minister who is responsible for preparing the budget. The situation of politics and budget is presented in the picture presented below:
References:
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