Peformance of pizza hut as a company

Peformance of pizza hut as a company Pizza Hut was develop in 1958; there are 5000 restaurants in UK and 20000staff. The number of the staff in the specific organisation is 38 persons, the turnover is very low, 20%, and it is very active in the global market and is one huge organisation. Pizza Hut history starts in Wichita. Kansas in 1958 by two brothers (Frank and Dan Carney) who had the idea of developing a pizza restaurant, a new concept in America and very quickly the dream came true. They borrowed $600 from one of their mothers and they rented a small building on a busy road in Wichita, they also bought some second hand equipment and they became very rich with a big and successful organisation. Pizza Hut franchises were launched in 1958. Although the Pizza Hut chain was able to develop both in the United States and overseas. Today, franchisees and joint venture partnerships account for nearly half of the Pizza Huts total restaurants. (www.everything2.com). Then Pizza Hut started to be international, the first international restaurant was in Canada in 1968. Pizza Hut started branching out quickly in the entire world, in Mexico, Australia, Europe, Africa and the Far East. Also Pizza Hut was cooperate with PepsiCo, actually was acquired by PepsiCo. Pizza Hut was share its position with the products of PepsiCo. PepsiCo in cooperation with Pizza Hut, KFC, and Taco Bell were make the largest restaurant group, the Trion global restaurant, in the world, in October 1997. Background information Theory Pizza Hut is with no doubt one global successfully organisation, which belongs to public sort of organisations. However, for a successful organisation, the culture is a necessity that will eventually lead to a good environment in the organization. Culture is the values and norms of an organisation, which determine its corporate behaviour and the behaviour of people within the organisation. (Thompson, 2001, p 1124). According with Pizza Huts information website (www.pizzahut.com) the staff is very friendly to the customers and that is the reason why, the customers are always coming again and again. For example, if the employees are working into a friendly environment then automatically they are friendlier to customers and as customers love to come to the restaurants because of the friendly environment. The working environment between the employees is very friendly and they all work like one team. Teamwork is a huge and important thing. A working team is obviously important for an organisation, a working team player is a person who can manage the roll of the self to fit the needs of a team. (Belbin, 2000, p 111) The structure of Pizza Hut starts from the restaurant manager, who decides for everything, he takes all the decisions. Then there is the area manager who replaces restaurant managers, after that there is the regional manager, the human resources, the director of operations and finally the chief executive officers. For an organisation, is important to be organised prioritised lists and well-planned schedules disperse the illusion of chaos(Lindenfield, 2003, p 73). In an organisation like Pizza Hut, there should be a functional strategy, strategies like marketing or finance. The strategies for the various functions carried out by an organisation, including marketing, production, financial management, information management, research and development, and human resource management.(Thompson, 2001, p 1125) from the information provided the company do satisfy all the needs of disabled people in the organisation, they use equipment which is friendly and not harmful at all to the environment. Also Pizza Hut food is also healthy and they produce pizzas with fresh ingredients. Additionally, Pizza Hut has recently started recycling. From now and then, the food packages are recycled and are just the first step of the recycling process. Furthermore, Pizza Hut is a flexible organisation which had being advertised by radio and of course television, through all media and through their main website, thus they have new marketing opportunities for captivating m ore customers, and as they considered is a very flexible organisation because they always change things. Management style Management in an organisation is everything because they all end up to this and because the managers can achieve and had the profit they want to if they work corrected. Manager is a person who has all the responsibilities, takes all decisions but also shared some responsibilities such as financial control, planning with directors. Management, is the process by which an organisation establishes its objectives, formulates actions (strategies) designed to meet these objectives in the desired time- scale, implements the actions, and assesses progress and results (Thompson, , 2001, p 1128). The manager must be democratic and his main activities are planning/coordinating, staffing, training/developing, decision making/problem solving, handling paperwork, exchanging routine information, monitoring/controlling performance, monitoring/reinforcing, disciplining/punishing, interacting with the outsiders, managing conflict, socializing/politicking (Wright, 1996, page 18). But beside the manager, leadership plays an important role as well. In a journal is written that there are no universal leadership characteristics. What works for one will not work for another. For all those who aspire to leadership, the challenge is simple-deceptively so. To be a more effective leader, you must be yourself-more- with skills(Goffee, Jones, 2006, p 47) according by Pizza Hut leaders are the main planners of the organisation. Leaders adopting an international perspective have some advantages, however defined, and that the educator is lacking an essential breadth if practice remains bound by the values and approaches which have emerged over time in any one location(Lumby, 2006, p 7). Leader is a generic term used to describe a manager who is responsible for changes in the corporate strategy. (Thompson, 2001, p 1128). In addition to this, leaders are very friendly and they dont behave selfishly, but instead of that, they work like one and they had harmonic relationship with each other. Whats more, they are really good friends. But the personality of a leader should have the charisma to sell ideas and automatically be ready for action. Understanding of leadership in which the focus on, leader is rejected, but asserts that the so-called leadership that relies on leaders is essentially flawed.(Gallagher, 2002, p 24) Any leader should have some personal features by make him a successful leader, like being always on time, being committed and being ready for action. Staying power is one of the most important yet least recognised attributes of successful leaders.(Black, 2003, p 25) Pizza hut manage to achieve that through their website and especially with advertisements in the media and every year they give financial information and they have 70 franchised delivery units, 118 companies owned, and they have weekly sales, food costs and utility costs. The manager of the restaurant is responsible for the employment of staff and what qualifications do they look for. They ask for skills in IT, they ask for the necessary things that a cashier must be aware of and also they look for customers skills. Moreover, they need good communication skills and they want employees with interpersonal abilities. In some cases they do train staff and if they have previous employment they ask for interpersonal abilities. Pizza Hut offered any rewarded or benefits to staff for motivating them. Another constraint upon organisations is wide acceptance of the idea that people want more from the employment relationship than just money: that they want rewards and satisfactions that are often psychological in nature(Elgood, 1988, p 10). External Influences on the organisation and Management of Change External influences are the main influences that an organisation may change, for instance external influences are influences such as competitors or the global market which is closely related to organisations (Elgood, 1988). The competitors of Pizza Hut, there are many such as McDonalds, Subway, but the most important one is Frankie Benny. The company tries to compete that by constantly introduce new products every 3-4 months. Each company has positive and negative aspects so the positive aspects of this organisation was anything new they produced, and the negative was taken away and delivery, also after Christmas time there are not many customers because customers spent their money. Another negative aspect that influences Pizza Hut is the building work around, that make people avoid eating at the organisation. In addition to this, seasonal changes are also a reason that can cause negative influence to Pizza Hut, for instance there are not any clientele in summer time because obvious ly most of them are going for holiday. But success is the ability to go from one failure to another with no loss of enthusiasm (Churchill, 2003, p 20). External Analysis of the Organisations Environment Technological Development: The business already used technology more than before, such as new equipment. Economic Trends: Pizza Hut in UK support a charity, the Starlight Childrens Foundation. That charity is brightening the lives of some very ill children, trying to entertainment them and makes their wishes come true. Environmental Issues: Pizza Hut has recently started to use recycle packages. Legislation: Pizza Hut fill all the laws that government applied, they have all the necessities that a business should have. Ethical Issues: In an organisation such as Pizza Hut, should use food products that are not harmful or causing any environmental problems. Sheet indicating image, marketing The new way of marketing at Pizza Hut is very interesting, they do use the psychology. Many different voices was respond to the question Whos called the Hut?. That is a smart way of advertising Pizza Hut because firstly is a nice, funny view and secondly people are trying to imitate voices. People were imitate and that happened when it sank in. Conclusion Management is a generic term and subject to many interpretations. Our concern is with management within a structured organisational setting and involving the exercise of formal authority over the work of other people. The nature of management is variable. It relates to all activities of the organisation and is undertaken at all levels. Management is essentially an integrating activity which permeates all other aspects of the organisation.(Mullins, 2002, p 195) Culture is based in the behaviour of people in the organisation. For example, the way that staff is behave shows the environment, leading to create the culture. Culture means the values and norms of an organisation, which determine its corporate behaviour and the behaviour of people within the organisation (Thompson, 2001, p 1124). The term organisation means a consciously co-ordinated social unit created by groups in society to achieve specific purposes, common aims and objectives by means of planned and coordinated activities(Mullins, 2002, p 907). Organisation in a business and they have the same goals. Belonging to an organisation means that people were working peacefully and not egoistically. Leader is close related with manager, for example, a leader is responsible for changes in an organisation. But also leadership is influenced the behaviour of other people because of any change. In that case, leader should be democratic and friendly to the staff. According with all the managerial aspects I have analyse above the Pizza Hut as a company considered to be able to achieve all the criteria that the market is asking for development and recognition. Finally Pizza Hut is a well managed company with all prospects for improvement and monopoly.

Robber Barons Essay -- essays research papers

The Robber Barons, as they were called, were the kings of American Industry and American Society during the late 1800's and early 1900's. Rich beyond the average man's wildest dreams, these industrialists were often criticized for their philosophies and their ways of making money. Robber Barons can also be viewed as immoral, greedy, and corrupt, and the evidence to support such a view is not difficult to find. Bribery, illegal business practices, and cruelty to workers were not uncommon in this period, and many of the most respected industrialists were also the most feared and hated. Many people consider Rockefeller a robber of industry because of his forcible ways of gaining his monopolies. Rockefeller was fond of buying out small and large competitors. If the competitors refused to sell they often found Rockefeller cutting the prices of his Standard Oil or in the worst cases, their factories mysteriously blowing up. Rockefeller was obsessed with controlling the oil market and used many of undesirable tactics to flush his competitors out of the market. Rockefeller was also a master of the rebate game. He was one of the most dominant controllers of the railroads. He was so good at the rebate that at some times he skillfully commanded the rail road to pay rebates to his standard oil company on the traffic of other competitors. He was able to do this because his oil traffic was so high that he could make or break a section of a railroad a railroad company by simply not running...

Acca Notes

S T U D Y T E X T PERFORMANCE MANAGEMENT BPP Learning Media is the sole ACCA Platinum Approved Learning Partner – content for the ACCA qualification.In this, the only Paper F5 study text to be reviewed by the examiner: †¢ †¢ †¢ †¢ †¢ †¢ †¢ †¢ We discuss the best strategies for studying for ACCA exams We highlight the most important elements in the syllabus and the key skills you will need We signpost how each chapter links to the syllabus and the study guide We provide lots of exam focus points demonstrating what the examiner will want you to do We emphasise key points in regular fast forward summaries We test your knowledge of what you've studied in quick quizzes We examine your understanding in our exam question bank We reference all the important topics in our full indexBPP's i-Pass product also supports this paper. FOR EXAMS IN 2011 First edition 2007 Fourth edition November 2010 ISBN 9780 7517 8921 8 (Previous ISBN 9870 7517 6367 6) British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Published by BPP Learning Media Ltd BPP House, Aldine Place London W12 8AA www. bpp. com/learningmedia Printed in the United Kingdom We are grateful to the Association of Chartered Certified Accountants for permission to reproduce past examination questions.The suggested solutions in the exam answer bank have been prepared by BPP Learning Media Ltd, except where otherwise stated. All our rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of BPP Learning Media Ltd.Your learning materials, published by BPP Learning Media Ltd, are printed on paper sourced from sustainable, managed forests.  © BPP Learning Media Ltd 2010 ii Contents Page Introduction Helping you to pass – the O NLY F5 Study Text reviewed by the examiner! Studying F5 The exam paper v vii xi 3 21 33 41 49 63 73 95 123 157 173 199 215 233 267 287 319 337 365 387 403 419 463 Part A Specialist cost and management accounting techniques 2a 2b 2c 2d 2e 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Costing Activity based costing Target costing Lifecycle costing Throughput accounting Environmental accounting Cost volume profit (CVP) analysis Limiting factor analysis Pricing decisions Short-term decisions Risk and uncertainty Objectives of budgetary control Budgetary systems Quantitative analysis in budgeting Budgeting and standard costing Variance analysis Behavioural aspects of standard costing Performance measurement Divisional performance measures Further performance management Part B Decision-making techniques Part C BudgetingPart D Standard costing and variances analysis Part E Performance measurement and control Exam question bank Exam answer bank Index Review form and free prize draw Contents iii A note about copyright Dear Customer What does the little  © mean and why does it matter? Your market-leading BPP books, course materials and e-learning materials do not write and update themselves. People write them: on their own behalf or as employees of an organisation that invests in this activity. Copyright law protects their livelihoods. It does so by creating rights over the use of the content.Breach of copyright is a form of theft – as well as being a criminal offence in some jurisdictions, it is potentially a serious breach of professional ethics. With current technology, things might seem a bit hazy but, basically, without the express permission of BPP Learning Media: †¢ †¢ Photocopying our materials is a breach of copyright Scanning, ripcasting or conversion of our digital materials into different file formats, uploading them to facebook or emailing them to your friends is a breach of copyright You can, of course, sell your books, in the form in which you hav e bought them – once you have finished with them. Is this fair to your fellow students? We update for a reason. ) But the e-products are sold on a single user licence basis: we do not supply ‘unlock’ codes to people who have bought them second-hand. And what about outside the UK? BPP Learning Media strives to make our materials available at prices students can afford by local printing arrangements, pricing policies and partnerships which are clearly listed on our website. A tiny minority ignore this and indulge in criminal activity by illegally photocopying our material or supporting organisations that do.If they act illegally and unethically in one area, can you really trust them? iv Helping you to pass – the ONLY F5 Study Text reviewed by the examiner! BPP Learning Media – the sole Platinum Approved Learning Partner – content As ACCA’s sole Platinum Approved Learning Partner – content, BPP Learning Media gives you the unique o pportunity to use examiner-reviewed study materials for the 2011 exams. By incorporating the examiner’s comments and suggestions regarding the depth and breadth of syllabus coverage, the BPP Learning Media Study Text provides excellent, ACCA-approved support for your studies. NEW FEATURE – the PER alert!Before you can qualify as an ACCA member, you do not only have to pass all your exams but also fulfil a three year practical experience requirement (PER). To help you to recognise areas of the syllabus that you might be able to apply in the workplace to achieve different performance objectives, we have introduced the ‘PER alert’ feature. You will find this feature throughout the Study Text to remind you that what you are learning to pass your ACCA exams is equally useful to the fulfilment of the PER requirement. Tackling studying Studying can be a daunting prospect, particularly when you have lots of other commitments.The different features of the text, the purposes of which are explained fully on the Chapter features page, will help you whilst studying and improve your chances of exam success. Developing exam awareness Our Texts are completely focused on helping you pass your exam. Our advice on Studying F5 outlines the content of the paper, the necessary skills the examiner expects you to demonstrate and any brought forward knowledge you are expected to have. Exam focus points are included within the chapters to highlight when and how specific topics were examined, or how they might be examined in the future.Using the Syllabus and Study Guide You can find the syllabus and Study Guide on page xi of this Study Text Testing what you can do Testing yourself helps you develop the skills you need to pass the exam and also confirms that you can recall what you have learnt. We include Questions – lots of them – both within chapters and in the Exam Question Bank, as well as Quick Quizzes at the end of each chapter to test your knowledge of the chapter content. Introduction v Chapter features Each chapter contains a number of helpful features to guide you through each topic.Topic list Topic list Syllabus reference Tells you what you will be studying in this chapter and the relevant section numbers, together the ACCA syllabus references. Puts the chapter content in the context of the syllabus as a whole. Links the chapter content with ACCA guidance. Highlights how examinable the chapter content is likely to be and the ways in which it could be examined. What you are assumed to know from previous studies/exams. Summarises the content of main chapter headings, allowing you to preview and review each section easily. Demonstrate how to apply key knowledge and techniques.Definitions of important concepts that can often earn you easy marks in exams. Tell you when and how specific topics were examined, or how they may be examined in the future. Formulae that are not given in the exam but which have to be learnt. T his is a new feature that gives you a useful indication of syllabus areas that closely relate to performance objectives in your Practical Experience Requirement (PER). Introduction Study Guide Exam Guide Knowledge brought forward from earlier studies FAST FORWARD Examples Key terms Exam focus points Formula to learn Question Case StudyGive you essential practice of techniques covered in the chapter. Provide real world examples of theories and techniques. Chapter Roundup Quick Quiz Exam Question Bank A full list of the Fast Forwards included in the chapter, providing an easy source of review. A quick test of your knowledge of the main topics in the chapter. Found at the back of the Study Text with more comprehensive chapter questions. Cross referenced for easy navigation. vi Introduction Studying F5 The F5 examiner wants candidates to be able to apply management accounting techniques in business environments.The key question you need to be able to answer is ‘what does it all ac tually mean? ‘ Modern technology is capable of producing vast amounts of management accounting information but it has to be used to help managers to make good decisions and manage effectively. The emphasis in this paper is therefore on practical elements and application to the real world. The examiner does not want to trick you and papers will be fair. The F5 examiner The examiner for this paper is Ann Irons, who replaced Geoff Cordwell from the December 2010 sitting onwards.Ann Irons has written several articles in Student Accountant, including one on how to approach the paper (September 2010 issue). Make sure you read these articles to gain further insight into what the examiner is looking for. Syllabus update The F5 syllabus has been updated for the June 2011 sitting onwards. The full syllabus and study guide can be found in this Study Text on pages xi to xviii. The main changes are the omission of backflush accounting and the inclusion of environmental accounting and cost volume profit (CVP) analysis. The syllabus order has also been changed, which has been reflected in this Study Text.A full summary of the changes to the F5 syllabus is given on the next page.. Introduction vii viii Introduction Introduction ix 1 What F5 is about The aim of this syllabus is to develop knowledge and skills in the application of management accounting techniques. It covers modern techniques, decision making, budgeting and standard costing, concluding with how a business should be managed and controlled. F5 is the middle paper in the management accounting section of the qualification structure. F2 concerns just techniques and P5 thinks strategically and considers environmental factors.F5 requires you to be able to apply techniques and think about their impact on the organisation. 2 What skills are required? †¢ †¢ †¢ †¢ †¢ You are expected to have a core of management accounting knowledge from Paper F2 You will be required to carry out calculation s, with clear workings and a logical structure You will be required to interpret data You will be required to explain management accounting techniques and discuss whether they are appropriate for a particular organisation You must be able to apply your skills in a practical context 3 How to improve your chances of passing †¢ †¢ †¢ †¢ †¢ †¢ †¢ There is no choice in this paper, all questions have to be answered. You must therefore study the entire syllabus, there are no short-cuts Practising questions under timed conditions is essential. BPP's Practice and Revision Kit contains 20 mark questions on all areas of the syllabus Questions will be based on simple scenarios and answers must be focused and specific to the organisation Answer plans will help you to focus on the requirements of the question and enable you to manage your time effectively Answer all parts of the question.Even if you cannot do all of the calculation elements, you will still be ab le to gain marks in the discussion parts Make sure your answers focus on practical applications of management accounting, common sense is essential! Keep an eye out for articles as the examiner will use Student Accountant to communicate with students Read journals etc to pick up on ways in which real organisations apply management accounting and think about your own organisation if that is relevant 4 Brought forward knowledge You will need to have a good working knowledge of basic management accounting from Paper F2.Chapter 1 of this Study Text revises costing and brought forward knowledge is identified throughout the text. If you struggle with the examples and questions used to revise this knowledge, you must go back and revisit your previous work. The examiner will assume you know this material and it may form part of an exam question. x Introduction The exam paper Format of the paper The exam is a three-hour paper containing five compulsory 20 mark questions. You also have 15 min utes for reading and planning. There will be a mixture of calculations and discussion and the examiner's aim is to cover as much of the syllabus as possible.Syllabus and Study Guide The F5 syllabus and study guide can be found on the next page. Introduction xi xii Introduction Introduction xiii xiv Introduction Introduction xv xvi Introduction Introduction xvii xviii Introduction Introduction xix Analysis of past papers The table below provides details of when each element of the syllabus has been examined and the question number in which each element appeared. Further details can be found in the Exam Focus Points in the relevant chapters. Covered in Text chapter June 2010 Dec 2009 June 2009 Pilot PaperSPECIALIST COST AND MANAGEMENT ACCOUNTING TECHNIQUES 2a 2b 2c 2d 2e 3 4 5 6 7 8 9 9 10 8 Activity based costing Target costing Life cycle costing Throughput accounting Environmental accounting DECISION-MAKING TECHNIQUES Cost-volume-profit analysis Multi-limiting factors and the use of linear programming and shadow pricing Pricing decisions Make-or-buy and other short-term decisions Dealing with risk and uncertainty in decision-making BUDGETING Objectives Budgetary systems Types of budget Quantitative analysis in budgeting Behavioural aspects of budgeting STANDARD COSTING AND VARIANCE ANALYSIS 11 12 12 13 13 14 15 16 Budgeting and standard costing Basic variances and operating systems Material mix and yield variances Planning and operational variances Behavioural aspects of standard costing PERFORMANCE MEASUREMENT AND CONTROL The scope of performance measurement Divisional performance and transfer pricing Performance analysis in not-for-profit organisations and the public sector 4 4 2 4 2 2 1 1 3 2 2 5 3 5 3 3 1, 4 4 4 1 1 2 1 xx Introduction Exam formulae Set out below are the formulae you will be given in the exam. If you are not sure what the symbols mean, or how the formulae are used, you should refer to the appropriate chapter in this Study Text. Chapter in Study Text Learning curve Y = axb Where Y a x b LR = cumulative average time per unit to produce x units = the time taken for the first unit of output = the cumulative number of units = the index of learning (log LR/log 2) = the learning rate as a decimal 10 Regression analysis y = a + bx b= a= 10 n ? xy ? ? x ? y n ? x 2 ? (? ) 2 ?y b? x ? n n (n? x 2 ? (? x)2 )(n? y 2 ? (? y)2 ) 5 r= n? xy ? ? x ? y Demand curve P b a = a – bQ = change in price change in quantity = price when Q = 0 MR = a – 2bQ Introduction xxi xxii Introduction P A R T A Specialist cost and management accounting techniques 1 2 Costing Topic list 1 Costing 2 The problem of overheads 3 A revision of absorption costing 4 Overhead absorption 5 Marginal costing 6 Absorption costing and marginal costing compared Introduction Part A of this Study Text looks at specialist cost and management accounting techniques. This chapter serves as a revision of concepts you will have covered in your previous studies.I n the following chapter we will be looking at more complex techniques so it is important that you are familiar with the key concepts and terminology in this chapter. If you want to get free study material of CAT, ACCA, CIMA, CFA, CIA visit : freefor911. wordpress. com 3 Exam guide This chapter serves as an introduction to your study of cost and management accounting techniques, as knowledge is assumed from Paper F2 Management Accounting and is still examinable at this level. Questions in this paper will focus on interpretation rather than doing calculations. 1 Costing FAST FORWARD Costing is the process of determining the costs of products, services or activities.Cost accounting is used to determine the cost of products, jobs or services (whatever the organisation happens to be involved in). Such costs have to be built up using a process known as cost accumulation. In your earlier studies you will have learnt how to accumulate the various cost elements which make up total cost. Abso rption costing cost accumulation system 2 The problem of overheads FAST FORWARD Indirect costs, or overheads, are costs incurred in making a product or providing a service, but which cannot be traced directly to the product or service. Absorption costing is a means of incorporating a fair share of these costs into the cost of a unit of product or service provided.If a company manufactures a product, the cost of the product will include the cost of the raw materials and components used in it and cost of the labour effort required to make it. These are direct costs of the product. The company would, however, incur many other costs in making the product, which are not directly attributable to a single product, but which are incurred generally in the process of manufacturing a large number of product units. These are indirect costs or overheads. Such costs include the following. †¢ †¢ Factory rent and rates Machine depreciation †¢ †¢ Supervision costs Heating and lig hting 4 1: Costing ? Part A Specialist cost and management accounting techniques Key termsA direct cost is a cost that can be traced in full to the product, service or department that is being costed. An indirect cost or overhead is a cost that is incurred in the course of making a product, providing a service or running a department, but which cannot be traced directly and in full to the product, service or department. In some companies, the overheads cost might greatly exceed the direct production costs. It might seem unreasonable to ignore indirect costs entirely when accumulating the costs of making a product, and yet there cannot be a completely satisfactory way of sharing out indirect costs between the many different items of production which benefit from them. 2. Using absorption costing to deal with the problem of overheads Traditionally, the view has been that a fair share of overheads should be added to the cost of units produced. This fair share will include a portion of all production overhead expenditure and possibly administration and marketing overheads too. This is the view embodied in the principles of absorption costing. 2. 1. 1 Theoretical justification for using absorption costing All production overheads are incurred in the production of the organisation's output and so each unit of the product receives some benefit from these costs. Each unit of output should therefore be charged with some of the overhead costs. 2. 1. 2 Practical reasons for using absorption costing (a) Inventory valuations Inventory in hand must be valued for two reasons. i) (ii) For the closing inventory figure in the statement of financial position For the cost of sales figure in the income statement The valuation of inventories will affect profitability during a period because of the way in which the cost of sales is calculated. Cost of goods sold = (b) Pricing decisions Many companies attempt to set selling prices by calculating the full cost of production or sales o f each product, and then adding a margin for profit. ‘Full cost plus pricing' can be particularly useful for companies which do jobbing or contract work, where each job or contract is different, so that a standard unit sales price cannot be fixed. Without using absorption costing, a full cost is difficult to ascertain. c) Establishing the profitability of different products This argument in favour of absorption costing states that if a company sells more than one product, it will be difficult to judge how profitable each individual product is, unless overhead costs are shared on a fair basis and charged to the cost of sales of each product. cost of goods produced + the value of opening inventories – the value of closing inventories 2. 2 Using marginal costing to deal with the problem of overheads For many purposes absorption costing is less useful as a costing method than marginal costing. In some situations, absorption costing can be misleading in the information it su pplies.Advocates of marginal costing take the view that only the variable costs of making and selling a product or service should be identified. Fixed costs should be dealt with separately and treated as a cost of the accounting period rather than shared out somehow between units produced. Some overhead costs are, Part A Specialist cost and management accounting techniques ? 1: Costing 5 however, variable costs which increase as the total level of activity rises and so the marginal cost of production and sales should include an amount for variable overheads. 3 A revision of absorption costing FAST FORWARD Absorption costing is a traditional approach to dealing with overheads, involving three stages: allocation, apportionment and absorption.Apportionment has two stages, general overhead apportionment and service department cost apportionment. Key term Absorption costing is a method of product costing which aims to include in the total cost of a product (unit, job and so on) an approp riate share of an organisation's total overhead, which is generally taken to mean an amount which reflects the amount of time and effort that has gone into producing the product. You should have covered absorption costing in your earlier studies. We will therefore summarise the simpler points of the topic but will go into some detail on the more complex areas to refresh your memory. Knowledge brought forward from earlier studiesAbsorption costing †¢ †¢ Product costs are built up using absorption costing by a process of allocation, apportionment and overhead absorption. Allocation is the process by which whole cost items are charged directly to a cost unit or cost centre. Direct costs are allocated directly to cost units. Overheads clearly identifiable with cost centres are allocated to those cost centres but costs which cannot be identified with one particular cost centre are allocated to general overhead cost centres. The cost of a warehouse security guard would therefore be charged to the warehouse cost centre but heating and lighting costs would be charged to a general overhead cost centre.The first stage of overhead apportionment involves sharing out (or apportioning) the overheads within general overhead cost centres between the other cost centres using a fair basis of apportionment (such as floor area occupied by each cost centre for heating and lighting costs). The second stage of overhead apportionment is to apportion the costs of service cost centres (both directly allocated and apportioned costs) to production cost centres. The final stage in absorption costing is the absorption into product costs (using overhead absorption rates) of the overheads which have been allocated and apportioned to the production cost centres. Costs allocated and apportioned to non-production cost centres are usually deducted from the full cost of production to arrive at the cost of sales. †¢ †¢ †¢ †¢ Question Cost apportionmentBriefly discuss the type of factors which could affect the choice of the bases an organisation can use to apportion service department costs. 6 1: Costing ? Part A Specialist cost and management accounting techniques Answer (a) (b) (c) (d) (e) The type of service being provided The amount of overhead expenditure involved The number of departments benefiting from the service The ability to be able to produce realistic estimates of the usage of the service The resulting costs and benefits Question More cost apportionment A company is preparing its production overhead budgets and determining the apportionment of those overheads to products. Cost centre expenses and related information have been budgeted as follows.Total $ 78,560 16,900 16,700 2,400 8,600 3,400 40,200 402,000 100 35,000 25,200 45,000 Machine shop A $ 8,586 6,400 Machine shop B $ 9,190 8,700 Assembly $ 15,674 1,200 Canteen $ 29,650 600 Maintenance $ 15,460 – Indirect wages Consumable materials Rent and rates Buildings insurance P ower Heat and light Depreciation (machinery) Value of machinery Power usage (%) Direct labour (hours) Machine usage (hours) Area (sq ft) Required 201,000 55 8,000 7,200 10,000 179,000 40 6,200 18,000 12,000 22,000 3 20,800 – 15,000 – – – – 6,000 – 2 – – 2,000 Using the direct apportionment to production departments method and bases of apportionment which you consider most appropriate from the information provided, calculate overhead totals for the three production departments. AnswerTotal $ Indirect wages 78,560 Consumable materials 16,900 Rent and rates 16,700 Insurance 2,400 8,600 Power Heat and light 3,400 Depreciation 40,200 166,760 Reallocate – Reallocate – Totals 166,760 A $ 8,586 6,400 3,711 533 4,730 756 20,100 44,816 7,600 4,752 57,168 B $ 9,190 8,700 4,453 640 3,440 907 17,900 45,230 5,890 11,880 63,000 Assembly $ 15,674 1,200 5,567 800 258 1,133 2,200 26,832 19,760 – 46,592 MainCanteen tenance $ $ 29,650 15,460 600 – 2,227 742 320 107 – 172 453 151 – – 33,250 16,632 (33,250) – – (16,632) – – Basis of apportionment Actual Actual Area Area Usage Area Val of mach Direct labour Mach usage Part A Specialist cost and management accounting techniques ? 1: Costing 7 4 Overhead absorption FAST FORWARDAfter apportionment, overheads are absorbed into products using an appropriate absorption rate based on budgeted costs and budgeted activity levels. Having allocated and/or apportioned all overheads, the next stage in absorption costing is to add them to, or absorb them into, the cost of production or sales. 4. 1 Use of a predetermined absorption rate Knowledge brought forward from earlier studies Step 1 Step 2 Step 3 The overhead likely to be incurred during the coming year is estimated. The total hours, units or direct costs on which the overhead absorption rates are based (activity levels) are estimated. Absorption rate = estima ted overhead ? budgeted activity level 4. 2 Choosing the appropriate absorption base Question Absorption basesList as many possible bases of absorption (or ‘overhead recovery rates') as you can think of. Answer (a) (b) (c) (d) (e) (f) (g) (h) A percentage of direct materials cost A percentage of direct labour cost A percentage of prime cost A percentage of factory cost (for administration overhead) A percentage of sales or factory cost (for selling and distribution overhead) A rate per machine hour A rate per direct labour hour A rate per unit The choice of an absorption basis is a matter of judgement and common sense. There are no strict rules or formulae involved. But the basis should realistically reflect the characteristics of a given cost centre, avoid undue anomalies and be ‘fair'.The choice will be significant in determining the cost of individual products, but the total cost of production overheads is the budgeted overhead expenditure, no matter what basis of abs orption is selected. It is the relative share of overhead costs borne by individual products and jobs which is affected. Question Absorption rates Using the information in and the results of the question on page 7, determine budgeted overhead absorption rates for each of the production departments using appropriate bases of absorption. 8 1: Costing ? Part A Specialist cost and management accounting techniques Answer Machine shop A: Machine shop B: Assembly: $57,168/7,200 = $7. 94 per machine hour $63,000/18,000 = $3. 50 per machine hour $46,592/20,800 = $2. 24 per direct labour hour 4. 3 Over and under absorption of overheads FAST FORWARDUnder-/over-absorbed overhead occurs when overheads incurred do not equal overheads absorbed. The rate of overhead absorption is based on estimates (of both numerator and denominator) and it is quite likely that either one or both of the estimates will not agree with what actually occurs. Actual overheads incurred will probably be either greater tha n or less than overheads absorbed into the cost of production, and so it is almost inevitable that at the end of the accounting year there will have been an over absorption or under absorption of the overhead actually incurred. †¢ †¢ Over absorption means that the overheads charged to the cost of sales are greater than the overheads actually incurred.Under absorption means that insufficient overheads have been included in the cost of sales. Suppose that the budgeted overhead in a production department is $80,000 and the budgeted activity is 40,000 direct labour hours, the overhead recovery rate (using a direct labour hour basis) would be $2 per direct labour hour. Actual overheads in the period are, say $84,000 and 45,000 direct labour hours are worked. $ Overhead incurred (actual) 84,000 90,000 Overhead absorbed (45,000 ? $2) Over-absorption of overhead 6,000 In this example, the cost of production has been charged with $6,000 more than was actually spent and so the cost that is recorded will be too high.The over-absorbed overhead will be an adjustment to the profit and loss account at the end of the accounting period to reconcile the overheads charged to the actual overhead. Question Under and over-absorption The total production overhead expenditure of the company in the questions above was $176,533 and its actual activity was as follows. Machine shop A Machine shop B Assembly Direct labour hours 8,200 6,500 21,900 Machine usage hours 7,300 18,700 – Required Using the information in and results of the previous questions, calculate the under- or over-absorption of overheads. Answer $ Actual expenditure Overhead absorbed Machine shop A Machine shop B Assembly $ 176,533 ,300 hrs ? $7. 94 18,700 hrs ? $3. 50 21,900 hrs ? $2. 24 57,962 65,450 49,056 172,468 4,065 Under-absorbed overhead Part A Specialist cost and management accounting techniques ? 1: Costing 9 4. 4 The reasons for under-/over-absorbed overhead The overhead absorption rate is pre determined from budget estimates of overhead cost and activity level. Under or over recovery of overhead will occur in the following circumstances. †¢ †¢ †¢ Actual overhead costs are different from budgeted overheads. The actual activity level is different from the budgeted activity level. Actual overhead costs and actual activity level differ from those budgeted. QuestionOver and under-absorption Elsewhere has a budgeted production overhead of $180,000 and a budgeted activity of 45,000 machine hours. Required Calculate the under-/over-absorbed overhead, and note the reasons for the under-/over-absorption in the following circumstances. (a) (b) (c) Actual overheads cost $170,000 and 45,000 machine hours were worked. Actual overheads cost $180,000 and 40,000 machine hours were worked. Actual overheads cost $170,000 and 40,000 machine hours were worked. Answer The overhead recovery rate is $180,000/45,000 = $4 per machine hour. (a) Actual overhead Absorbed overhead (45, 000 ? $4) Over-absorbed overhead $ 170,000 180,000 10,000Reason: Actual and budgeted machine hours are the same but actual overheads cost less than expected. (b) Actual overhead Absorbed overhead (40,000 ? $4) Under-absorbed overhead $ 180,000 160,000 20,000 Reason: Budgeted and actual overhead costs were the same but fewer machine hours were worked than expected. $ (c) Actual overhead 170,000 160,000 Absorbed overhead (40,000 ? $4) Under-absorbed overhead 10,000 Reason: A combination of the reasons in (a) and (b). 10 1: Costing ? Part A Specialist cost and management accounting techniques 5 Marginal costing FAST FORWARD In marginal costing, inventories are valued at variable production cost whereas in absorption costing they are valued at their full production cost.Marginal cost is the cost of one unit of a product/service which could be avoided if that unit were not produced/provided. Contribution is the difference between sales revenue and variable (marginal) cost of sales. Margi nal costing is an alternative to absorption costing. Only variable costs (marginal costs) are charged as a cost of sales. Fixed costs are treated as period costs and are charged in full against the profit of the period in which they are incurred. Knowledge brought forward from earlier studies Key terms Marginal costing †¢ In marginal costing, closing inventories are valued at marginal (variable) production cost whereas, in absorption costing, inventories are valued at their full production cost which includes absorbed fixed production overhead.If the opening and closing inventory levels differ, the profit reported for the accounting period under the two methods of cost accumulation will therefore be different. But in the long run, total profit for a company will be the same whichever is used because, in the long run, total costs will be the same by either method of accounting. Different accounting conventions merely affect the profit of individual periods. †¢ †¢ Quest ion Absorption and marginal costing A company makes and sells a single product. At the beginning of period 1, there are no opening inventories of the product, for which the variable production cost is $4 and the sales price $6 per unit.Fixed costs are $2,000 per period, of which $1,500 are fixed production costs. Normal output is 1,500 units per period. In period 1, sales were 1,200 units, production was 1,500 units. In period 2, sales were 1,700 units, production was 1,400 units. Required Prepare profit statements for each period and for the two periods in total using both absorption costing and marginal costing. Answer It is important to notice that although production and sales volumes in each period are different, over the full period, total production equals sales volume. The total cost of sales is the same and therefore the total profit is the same by either method of accounting.Differences in profit in any one period are merely timing differences which cancel out over a longe r period of time. Part A Specialist cost and management accounting techniques ? 1: Costing 11 (a) Absorption costing. The absorption rate for fixed production overhead is $1,500/1,500 units = $1 per unit. The fully absorbed cost per unit = $(4+1) = $5. $ Sales Production costs Variable Fixed Add opening inventory b/f Less closing inventory c/f Production cost of sales Under-absorbed o/hd Total costs Gross profit Other costs Net profit (300? $5) (300? $5) Period 1 $ 7,200 $ Period 2 $ 10,200 Total $ $ 17,400 6,000 1,500 7,500 – 7,500 1,500 6,000 – 6,000 1,200 (500) 700 5,600 1,400 7,000 1,500 8,500 – 8,500 100 8,600 1,600 (500) 1,100 1,600 2,900 14,500 1,500 16,000 1,500 14,500 100 14,600 2,800 (1,000) 1,800 (b) Marginal costing The marginal cost per unit = $4. Sales Variable production cost Add opening inventory b/f Less closing inventory c/f Variable prod. cost of sales Contribution Fixed costs Profit Period 1 $ 7,200 6,000 – 6,000 1,200 4,800 2,400 2,00 0 400 $ Period 2 $ 10,200 5,600 1,200 6,800 – 6,800 3,400 2,000 1,400 $ Total $ 11,600 1,200 12,800 1,200 11,600 5,800 4,000 1,800 $ 17,400 (300? $4) (300? $4) Question Direct labour Direct materials Production overhead Standard production cost per unit 3 hours at $6 per hour 4 kilograms at $7 per kg Variable Fixed Marginal and absorption costing $ 18 28 3 20 69RH makes and sells one product, which has the following standard production cost. Normal output is 16,000 units per annum. Variable selling, distribution and administration costs are 20 per cent of sales value. Fixed selling, distribution and administration costs are $180,000 per annum. There are no units in finished goods inventory at 1 October 20X2. The fixed overhead expenditure is spread evenly throughout the year. The selling price per unit is $140. Production and sales budgets are as follows. Six months ending Six months ending 31 March 20X3 30 September 20X3 Production 8,500 7,000 Sales 7,000 8,000 12 1: Costing ? Part A Specialist cost and management accounting techniquesRequired Prepare profit statements for each of the six-monthly periods, using the following methods of costing. (a) (b) Marginal costing Absorption costing Answer (a) Profit statements for the year ending 30 September 20X3 Marginal costing basis Six months ending 31 March 20X3 $'000 $'000 Sales at $140 per unit 980 Opening inventory – Std. variable prod. cost (at $49 per unit) 416. 5 416. 5 Closing inventory (W1) 73. 5 343 637 Variable selling and so on costs 196 Contribution 441 Fixed costs: production (W2) 160 selling and so on 90 250 Net profit 191 Profit statements for the year ending 30 September 20X3 Absorption costing basis Six months ending 31 March 20X3 $'000 $'000 Sales at $140 per unit 980 Opening inventory – Std. cost of prod. at $69 per unit) Closing inventory (W1) (Over-)/under-absorbed overhead (W3) Gross profit Selling and so on costs Variable Fixed Net profit 586. 5 586. 5 103. 5 483. 0 (10. 0) 473 507 196 90 286 221 224 90 314 234 Six months ending 30 September 20X3 $'000 $'000 1,120 73. 5 343. 0 416. 5 24. 5 392 728 224 504 160 90 250 254 (b) Six months ending 30 September 20X3 $'000 $'000 1,120 103. 5 483. 0 586. 5 34. 5 552. 0 20. 0 572 548 Part A Specialist cost and management accounting techniques ? 1: Costing 13 Workings 1 Opening inventory Production Sales Closing inventory Marginal cost valuation (? $49) Absorption cost valuation (? $69) 2 3 Normal output (16,000 ? 2) Budgeted output Difference ? std. ixed prod. o/hd per unit (Over-)/under-absorbed overhead Six months ending 31 March 20X3 Units – 8,500 8,500 7,000 1,500 $73,500 $103,500 Six months ending 30 September 20X3 Units 1,500 7,000 8,500 8,000 500 $24,500 $34,500 Budgeted fixed production o/hd = 16,000 units ? $20 = $320,000 pa = $160,000 per six months Six months ending 31 March 20X3 8,000 units units 8,500 500 units ? $20 ($10,000) Six months ending 30 September 20X3 8,000 units 7,000 units 1, 000 units ? $20 $20,000 6 Absorption costing and marginal costing compared FAST FORWARD If opening and closing inventory levels differ profit reported under the two methods will be different.In the long run, total profit will be the same whatever method is used. 6. 1 Reconciling the profit figures given by the two methods The difference in profits reported under the two costing systems is due to the different inventory valuation methods used. (a) If inventory levels increase between the beginning and end of a period, absorption costing will report the higher profit because some of the fixed production overhead incurred during the period will be carried forward in closing inventory (which reduces cost of sales) to be set against sales revenue in the following period instead of being written off in full against profit in the period concerned.If inventory levels decrease, absorption costing will report the lower profit because as well as the fixed overhead incurred, fixed production ov erhead which had been carried forward in opening inventory is released and is also included in cost of sales. (b) 6. 2 Example: Reconciling profits The profits reported for period 1 in the question on page 11 would be reconciled as follows. Marginal costing profit Adjust for fixed overhead in inventory (inventory increase of 300 units ? $1 per unit) Absorption costing profit $ 400 300 700 Exam focus point Remember that if opening inventory values are greater than closing inventory values, marginal costing shows the greater profit. 14 1: Costing ?Part A Specialist cost and management accounting techniques 6. 3 Marginal versus absorption costing: reporting to management FAST FORWARD Marginal costing is more useful for decision-making purposes, but absorption costing is needed for financial reporting purposes to comply with accounting standards. We know that the reported profit in any period is likely to differ according to the costing method used, but does one method provide a more re liable guide to management about the organisation's profit position? With marginal costing, contribution varies in direct proportion to the volume of units sold. Profits will increase as sales volume rises, by the amount of extra contribution earned.Since fixed cost expenditure does not alter, marginal costing gives an accurate picture of how a firm's cash flows and profits are affected by changes in sales volumes. With absorption costing, in contrast, there is no clear relationship between profit and sales volume, and as sales volume rises the total profit will rise by the sum of the gross profit per unit plus the amount of overhead absorbed per unit. Arguably this is a confusing and unsatisfactory method of monitoring profitability. If sales volumes are the same from period to period, marginal costing reports the same profit each period (given no change in prices or costs). In contrast, using absorption costing, profits can vary with the volume of production, even when the volume of sales is constant.Using absorption costing there is therefore the possibility of manipulating profit, simply by changing output and inventory levels. 6. 4 Example: Manipulating profits Gloom Co budgeted to make and sell 10,000 units of its product in 20X1. The selling price is $10 per unit and the variable cost $4 per unit. Fixed production costs were budgeted at $50,000 for the year. The company uses absorption costing and budgeted an absorption rate of $5 per unit. During 20X1, it became apparent that sales demand would only be 8,000 units. The management, concerned about the apparent effect of the low volume of sales on profits, decided to increase production for the year to 15,000 units.Actual fixed costs were still expected to be $50,000 in spite of the significant increase in production volume. Required Calculate the profit at an actual sales volume of 8,000 units, using the following methods. (a) (b) Absorption costing Marginal costing Explain the difference in profits cal culated. Solution (a) Absorption costing Sales (8,000 ? $10) Cost of production (15,000 ? $9) Less: over-absorbed overhead (5,000 ? $5) $ 135,000 (25,000) (110,000) (30,000) 63,000 33,000 $ 80,000 Closing inventory (7,000 ? $9) Profit Part A Specialist cost and management accounting techniques ? 1: Costing 15 (b) Marginal costing Sales Cost of sales Cost of production (15,000 ? $4) Closing inventory (7,000 ? $4) Contribution Fixed costs Loss $ $ 80,000 0,000 ((28,000) 32,000 48,000 50,000 (2,000) The difference in profits of $35,000 is explained by the difference in the increase in inventory values (7,000 units ? $5 of fixed overhead per unit). With absorption costing, the expected profit will be higher than the original budget of $10,000 (10,000 units ? ($10 – 9)) simply because $35,000 of fixed overheads will be carried forward in closing inventory values. By producing to absorb overhead rather than to satisfy customers, inventory levels will, of course, increase. Unless th is inventory is sold, however, there may come a point when production has to stop and the inventory has to be sold off at lower prices.Marginal costing would report a contribution of $6 per unit, or $48,000 in total for 8,000 units, which fails to cover the fixed costs of $50,000 by $2,000. The argument above is not conclusive, however, because marginal costing is not so useful when sales fluctuate from month to month because of seasonal variations in sales demand, but production per month is held constant in order to arrange for an even flow of output (and thereby prevent the cost of idle resources in periods of low demand and overtime in periods of high demand). Question Absorption v marginal costing A clothing manufacturer makes a specific brand of jeans which it sells at a standard price of $100 per pair. The manufacturer’s costs are as follows.Standard variable production cost: $16 per pair Total fixed production cost per month: $240,000 (10,000 pairs are planned to be p roduced per month) Total fixed non-production costs: $300,000 per month In Month 1, when the opening inventory is 1,000 pairs, production of 10,000 pairs is planned and sales of 8,000 pairs are expected. In Month 2, sales are planned to be 9,000 pairs and production is still 10,000 pairs. Required (a) What would be the net profit for Months 1 and 2 under (i) (ii) (b) Absorption costing Marginal costing What comments could you make about the performance of this business? 16 1: Costing ? Part A Specialist cost and management accounting techniques Answer (a) Absorption standard cost per unit = $16 + 240,000/10,000 = $40 Absorption costing Month 1 Month 2 $’000 $’000 $’000 $’000 800 900 Marginal costing Month 1 Month 2 $’000 $’000 $’000 $’000 800 900Sales 8,000 @$100 Cost of sales Opening inventory (1,000 @ $40) Production (10,000 @ $40) Less: closing inventory* (3,000 @ $40) Gross profit Contribution Less other costs Fixed product ion Fixed non-production 40 400 (120) (320) 480 120 400 (160) (360) 540 1,000 @ $16 10,000 @ $16 3,000 @ $16 16 160 (48) (128) 672 (240) (300) 48 160 (64) (144) 756 (240) (300) (300) 180 (300) 240 (540) 132 (540) 216 * Closing inventory = 1,000 + 10,000 – 8,000 (b) The absorption costing net profit is higher than the marginal costing net profit in both months because inventories are rising. Under absorption costing, where inventories are increasing, a greater amount of the fixed production cost is carried forward n the closing inventory valuation than was brought forward in the opening inventory valuation. This means that the impact of these costs on profit is delayed under absorption costing. Under marginal costing, the full impact of the fixed production costs on profit is immediate. The business is profitable and sales have increased. However, a build up of inventories in the clothing manufacturing industry is unwise as demand is subject to tastes and fashion. The business needs to respond rapidly to changes in demand or it will become rapidly uncompetitive. Part A Specialist cost and management accounting techniques ? 1: Costing 17 Chapter Roundup †¢ †¢ Costing is the process of determining the costs of products, services or activities.Indirect costs, or overheads, are costs incurred in making a product or providing a service, but which cannot be traced directly to the product or service. Absorption costing is a means of incorporating a fair share of these costs into the cost of a unit of product or service provided. Absorption costing is a traditional approach to dealing with overheads, involving three stages: allocation, apportionment and absorption. Apportionment has two stages, general overhead apportionment and service department cost apportionment. After apportionment, overheads are absorbed into products using an appropriate absorption rate based on budgeted costs and budgeted activity levels. Under-/over-absorbed overhead occurs wh en overheads incurred do not equal overheads absorbed.In marginal costing, inventories are valued at variable production cost whereas in absorption costing they are valued at their full production cost. If opening and closing inventory levels differ profit reported under the two methods will be different. In the long run, total profit will be the same whatever method is used. †¢ Marginal costing is more useful for decision-making purposes, but absorption costing is needed for financial reporting purposes to comply with accounting standards. †¢ †¢ †¢ †¢ †¢ †¢ 18 1: Costing ? Part A Specialist cost and management accounting techniques Quick Quiz 1 Here are some terms you should have encountered in your earlier studies. Match the term to the definition.Terms Direct cost Prime cost Overhead Classification by function Fixed cost Variable cost Product cost Avoidable cost Controllable cost Relevant cost Cost centre Cost unit (b) (c) (d) (e) (f) (g) (h) (i ) (j) (k) (l) 2 3 Definitions (a) Specific costs of, say, an activity, which would not be incurred if the activity did not exist Total of direct costs Future cash flow which will be changed as the result of a decision Product produced by an organisation Dividing costs into production, administration, selling and distribution, research and development and financing costs Cost that can be traced in full to whatever is being costed Organisation's departments A cost that varies with the level of output A cost that is incurred in the course of making a product but which cannot be traced directly and in full to the product Cost that is incurred for a particular period of time and which, within certain activity levels, is unaffected by changes in the level of activity Cost identified with goods produced or purchased for resale and initially included in the value of inventory Cost which can be influenced by management decisions and actions †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢ € ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ is the process of determining the costs of products, activities or services. How is an overhead absorption rate calculated? A B C D Estimated overhead ? actual activity level Estimated overhead ? budgeted activity level Actual overhead ? actual activity level Actual overhead ? budgeted activity level 4 Over absorption means that the overheads charged to the cost of sales are greater than the overheads actually incurred. True False 5Fill in the blanks in the statements about marginal costing and absorption costing below. (a) (b) If inventory levels †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ between the beginning and end of a period, absorption costing will report the higher profit. If inventory levels decrease, †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ costing will report the lower profit. 6 Fill in the following blanks with either ‘marginal' or ‘absorption'. (a) (b) (c) (d) (e) Using †¦Ã¢â‚ ¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ costing, profits can be manipulated simply by changing output and inventory levels. Fixed costs are charged in full against the profit of the period in which they are incurred when †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ costing is used. †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ costing fails to recognise the importance of working to full capacity. †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ costing could be argued to be preferable to †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ costing in management accounting in order to be consistent with the requirements of accounting standards. †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ costing should not be used when decision-making information is required. Part A Specialist cost and management accounting techniques ? 1: Costing 19 Answers to Quick Quiz 1 Direct cost Prime cost Overhead Classification by function Fixed co st Variable cost Product cost Avoidable cost Controllable cost Relevant cost Cost centre Cost unit Costing B True (a) (b) (a) (b) (c) (d) (e) Increase Absorption absorption marginal marginal absorption, marginal absorption (f) (b) (i) (e) (j) (h) (k) (a) (l) (c) (g) (d) 2 3 4 5 6 Now try the questions below from the Exam Question Bank Number Q1Level Introductory Marks 10 Time 18 mins 20 1: Costing ? Part A Specialist cost and management accounting techniques Activity based costing Topic list 1 Activity based costing 2 Absorption costing versus ABC 3 Merits and criticisms of ABC Syllabus reference A1 (a), (b) A1 (c) A1 (c) Introduction Chapter 2 covers Part A of the syllabus, specialist cost and management accounting techniques. It has been divided into five sub-chapters to reflect the examiner's emphasis that all five techniques are equally important and equally examinable. In this chapter we will be looking at the first alternative method of cost accumulation, activity based costin g (ABC).ABC is a modern alternative to absorption costing which attempts to overcome the problems of costing in a modern manufacturing environment. If you want to get free study material of CAT, ACCA, CIMA, CFA, CIA visit : freefor911. wordpress. com 21 Study guide Intellectual level A1 (a) (b) (c) Activity based costing Identify appropriate cost drivers under ABC Calculate costs per driver and per unit using ABC Compare ABC and traditional methods of overhead absorption based on production units, labour hours or machine hours 1 2 2 Exam guide There was a question on ABC in the Pilot Paper for F5. It was also examined in June 2008 and June 2010 and is therefore a crucial topic to understand. 1 Activity based costing FAST FORWARD /08, 6/10 An alternative to absorption costing is activity based costing (ABC). ABC involves the identification of the factors (cost drivers) which cause the costs of an organisation's major activities. Support overheads are charged to products on the basis of their usage of an activity. †¢ †¢ For costs that vary with production level in the short term, the cost driver will be volume related (labour or machine hours). Overheads that vary with some other activity (and not volume of production) should be traced to products using transaction-based cost drivers such as production runs or number of orders received. 1. 1 Reasons for the development of ABCThe traditional cost accumulation system of absorption costing was developed in a time when most organisations produced only a narrow range of products (so that products underwent similar operations and consumed similar proportions of overheads). And overhead costs were only a very small fraction of total costs, direct labour and direct material costs accounting for the largest proportion of the costs. The benefits of more accurate systems for overhead allocation would probably have been relatively small. In addition, information processing costs were high. In recent years, however , there has been a dramatic fall in the costs of processing information.And, with the advent of advanced manufacturing technology (AMT), overheads are likely to be far more important and in fact direct labour may account for as little as 5% of a product's cost. It therefore now appears difficult to justify the use of direct labour or direct material as the basis for absorbing overheads or to believe that errors made in attributing overheads will not be significant. Many resources are used in non-volume related support activities, (which have increased due to AMT) such as setting-up, production scheduling, inspection and data processing. These support activities assist the efficient manufacture of a wide range of products and are not, in general, affected by changes in production volume.They tend to vary in the long term according to the range and complexity of the products manufactured rather than the volume of output. The wider the range and the more complex the products, the more support services will be required. Consider, for example, factory X which produces 10,000 units of one product, the Alpha, and factory Y which produces 1,000 units each of ten slightly different versions of the Alpha. Support activity costs in the factory Y are likely to be a lot higher than in factory X but the factories produce an identical number of units. For example, factory X will only need to set-up once whereas Factory Y will have to set-up the 22 2a: Activity based costing ?Part A Specialist cost and management accounting techniques production run at least ten times for the ten different products. Factory Y will therefore incur more set-up costs for the same volume of production. Traditional costing systems, which assume that all products consume all resources in proportion to their production volumes, tend to allocate too great a proportion of overheads to high volume products (which cause relatively little diversity and hence use fewer support services) and too small a pr oportion of overheads to low volume products (which cause greater diversity and therefore use more support services). Activity based costing (ABC) attempts to overcome this problem. 1. Definition of ABC Key term Activity based costing (ABC) involves the identification of the factors which cause the costs of an organisation's major activities. Support overheads are charged to products on the basis of their usage of the factor causing the overheads. The major ideas behind activity based costing are as follows. (a) (b) (c) Activities cause costs. Activities include ordering, materials handling, machining, assembly, production scheduling and despatching. Producing products creates demand for the activities. Costs are assigned to a product on the basis of the product's consumption of the activities. 1. 3 Outline of an ABC systemAn ABC system operates as follows. Step 1 Step 2 Key term Identify an organisation's major activities. Identify the factors which determine the size of the costs of an activity/cause the costs of an activity. These are known as cost drivers. A cost driver is a factor which causes a change in the cost of an activity. Look at the following examples. Costs Ordering costs Materials handling costs Production scheduling costs Despatching costs Possible cost driver Number of orders Number of production runs Number of production runs Number of despatches Step 3 Step 4 Collect the costs associated with each cost driver into what are known as cost pools.Charge costs to products on the basis of their usage of the activity. A product's usage of an activity is measured by the number of the activity's cost driver it generates. Question Which of the following definitions best describes a cost driver? A B C D Any activity which causes an increase in costs A collection of costs associated with a particular activity A cost that varies with production levels Any factor which causes a change in the cost of an activity Cost driver Part A Specialist cost and mana gement accounting techniques ? 2a: Activity based costing 23 Answer D Any factor which causes a change in the cost of an activity. Exam focus pointABC is a popular exam topic. Questions on activity based costing often require a comparison with more traditional methods. The implications for the business of each approach is often required. 2 Absorption costing versus ABC 6/08, 6/10 The following example illustrates the point that traditional cost accounting techniques result in a misleading and inequitable division of costs between low-volume and high-volume products, and that ABC can provide a more meaningful allocation of costs. 2. 1 Example: Activity based costing Suppose that Cooplan manufactures four products, W, X, Y and Z. Output and cost data for the period just ended are as follows.Number of production runs in the Material cost Direct labour Machine Output units period per unit hours per unit hours per unit $ W 10 2 20 1 1 X 10 2 80 3 3 Y 100 5 20 1 1 80 3 3 Z 100 5 14 Direct labour cost per hour $5 Overhead costs Short run variable costs Set-up costs Expediting and scheduling costs Materials handling costs Required Prepare unit costs for each product using conventional costing and ABC. $ 3,080 10,920 9,100 7,700 30,800 Solution Using a conventional absorption costing approach and an absorption rate for overheads based on either direct labour hours or machine hours, the product costs would be as follows. W $ 200 50 700 950 10 $95 X $ 800 150 2,100 3,050 10 $305 Y $ 2,000 500 7,000 9,500 100 $95 Z $ 8,000 1,500 21,000 30,500 100 $305 Total $ Direct material Direct labour Overheads * Units produced Cost per unit 4,000 * $30,800 ? 440 hours = $70 per direct labour or machine hour. 24 2a: Activity based costing ? Part A Specialist cost and management accounting techniques Using activity based costing and assuming that the number of production runs is the cost driver for setup costs, expediting and scheduling costs and materials handling costs and that machi ne hours are the cost driver for short-run variable costs, unit costs would be as follows. W $ 200 50 70 1,560 1,300 1,100 4,280 10 $428 X $ 800 150 210 1,560 1,300 1,100 5,120 10 $512 Y $ 2,000 500 700 3,900 3,250 2,750 13,100 100 $131 Z $ 8,000 1,500 2,100 3,900 3,250 2,750 21,500 100 $215 Total $Direct material Direct labour Short-run variable overheads (W1) Set-up costs (W2) Expediting, scheduling costs (W3) Materials handling costs (W4) Units produced Cost per unit Workings 1 2 3 4 $3,080 ? 440 machine hours = $10,920 ? 14 production runs = $9,100 ? 14 production runs = $7,700 ? 14 production runs = Conventional costing unit cost $ 95 305 95 305 44,000 $7 per machine hour $780 per run $650 per run $550 per run ABC unit cost $ 428 512 131 215 Difference per unit $ + 333 + 207 + 36 – 90 Difference in total $ +3,330 +2,070 +3,600 –9,000 Summary Product W X Y Z (a) (b) The figures suggest that the traditional volume-based absorption costing system is flawed.It underal locates overhead costs to low-volume products (here, W and X) and over-allocates overheads to higher-volume products (here Z in particular). It underallocates overhead costs to smaller-sized products (here W and Y with just one hour of work needed per unit) and over allocates overheads to larger products (here X and particularly Z). 2. 2 ABC versus traditional costing methods Both traditional absorption costing and ABC systems adopt the two stage allocation process. 2. 2. 1 Allocation of overheads ABC establishes separate cost pools for support activities such as despatching. As the costs of these activities are assigned directly to products through cost driver rates, reapportionment of service department costs is avoided. 2. 2. Absorption of overheads The principal difference between the two systems is the way in which overheads are absorbed into products. (a) (b) Absorption costing most commonly uses two absorption bases (labour hours and/or machine hours) to charge overheads to p roducts. ABC uses many cost drivers as absorption bases (eg number of orders or despatches). Absorption rates under ABC should therefore be more closely linked to the causes of overhead costs. Part A Specialist cost and management accounting techniques ? 2a: Activity based costing 25 2. 3 Cost drivers The principal idea of ABC is to focus attention on what causes costs to increase, ie the cost drivers. a) The costs that vary with production volume, such as power costs, should be traced to products using production volume-related cost drivers, such as direct labour hours or direct machine hours. Overheads which do not vary with output but with some other activity should be traced to products using transaction-based cost drivers, such as number of production runs and number of orders received. (b) Traditional costing

Free Essays on Integration Of Web And TV

Contents EXECUTIVE SUMMARY 4 1.0 INTRODUCTION 5 2.0 TECHNOLOGY OVERVIEW 5 3.0 TECHNOLOGY APPLICATIONS 12 4.0 TECHNOLOGY IMPLEMENTATION ERROR! BOOKMARK NOT DEFINED. 5.0 TECHNOLOGY EVALUATION 15 6.0 TECHNOLOGY PROJECTIONS 18 APPENDIX A - SUBJECT INDEX 22 BIBLIOGRAPHY 24 Executive Summary Purpose Methods Results Conclusions Evaluation – how feasible is the iTV, potential usage (all the possible applications), impact on business organizations. 1.0 INTRODUCTION The integration of web and television technologies is a complex issue - not necessarily for technical reasons but more so, because its evolution hinges greatly on a plethora of contributing technologies, companies, governments, and standards bodies on a global scale. For the purposes of this business report, we refer to the integration of web and television technologies as the evolution of Interactive Television (iTV). By definition, iTV attempts to bring the interactivity and personalisation of the web to the world of broadcast news and entertainment in television (Radha et al: 1998, p1). 2.0 STATUS OF ITV IN AUSTRALIA As with the rest of the world, Australia too is in the verge of developing interactive television (iTV). Australia’s major developers and providers of iTV are iTV|world, ICE Interactive (ICE) and Cable and Wireless Optus (CWO). iTV|world as of currently leads in developing and providing integrated technical and creative services, tools and products for the deployment of iTV (itvworld.com/press/press260401.html). As of October last year, Australia’s five main networks, ABC, SBS, Seven, Nine and Ten had agreed to adopt the European interactive platform, MHP (Multi Home Platform) which is based on Sun’s Java API (Application Program Interface) as the standard for iTV (http://australia.internet.com/r/article/jsp/sid/10059). Results from CWO reveal that main applications of iTV in Australia would be games, trivia and spo... Free Essays on Integration Of Web And TV Free Essays on Integration Of Web And TV Contents EXECUTIVE SUMMARY 4 1.0 INTRODUCTION 5 2.0 TECHNOLOGY OVERVIEW 5 3.0 TECHNOLOGY APPLICATIONS 12 4.0 TECHNOLOGY IMPLEMENTATION ERROR! BOOKMARK NOT DEFINED. 5.0 TECHNOLOGY EVALUATION 15 6.0 TECHNOLOGY PROJECTIONS 18 APPENDIX A - SUBJECT INDEX 22 BIBLIOGRAPHY 24 Executive Summary Purpose Methods Results Conclusions Evaluation – how feasible is the iTV, potential usage (all the possible applications), impact on business organizations. 1.0 INTRODUCTION The integration of web and television technologies is a complex issue - not necessarily for technical reasons but more so, because its evolution hinges greatly on a plethora of contributing technologies, companies, governments, and standards bodies on a global scale. For the purposes of this business report, we refer to the integration of web and television technologies as the evolution of Interactive Television (iTV). By definition, iTV attempts to bring the interactivity and personalisation of the web to the world of broadcast news and entertainment in television (Radha et al: 1998, p1). 2.0 STATUS OF ITV IN AUSTRALIA As with the rest of the world, Australia too is in the verge of developing interactive television (iTV). Australia’s major developers and providers of iTV are iTV|world, ICE Interactive (ICE) and Cable and Wireless Optus (CWO). iTV|world as of currently leads in developing and providing integrated technical and creative services, tools and products for the deployment of iTV (itvworld.com/press/press260401.html). As of October last year, Australia’s five main networks, ABC, SBS, Seven, Nine and Ten had agreed to adopt the European interactive platform, MHP (Multi Home Platform) which is based on Sun’s Java API (Application Program Interface) as the standard for iTV (http://australia.internet.com/r/article/jsp/sid/10059). Results from CWO reveal that main applications of iTV in Australia would be games, trivia and spo...

Goodman Brown’s Battle with Good and Evil Essay Essays

Goodman Brown’s Battle with Good and Evil Essay Essays Goodman Brown’s Battle with Good and Evil Essay Essay Goodman Brown’s Battle with Good and Evil Essay Essay In â€Å"Young Goodman Brown. † the scene plays an of import function. It provides symbolism to certain events and provokes emotions amongst the characters. particularly those of Goodman Brown. The cardinal thought of the narrative is the struggle in Goodman Brown between fall ining the Satan and staying â€Å"good. † It is a really hard journey for Brown. as he travels through the forests. all the while thought of the â€Å"good† things he would be go forthing behind. like his married woman Faith. This internal struggle finally destroys Young Goodman Brown and creates a new adult male. At the beginning of the narrative. Goodman Brown sets out on his journey at sundown. typifying darkness and immorality. Before Brown foliages. he kisses his married woman. Faith. adieu. The name Faith is deliberately used to typify the religion in God that they both portion and besides what Brown leaves behind to travel on his journey. Faith wears pink threads in her hair. which give the feeling that she is an guiltless godly adult female. Before Brown leaves on his journey. Faith says. â€Å"pr’y thee. set off your journey until dawn. † This is demoing that dawn is a more pleasant and peaceable clip to travel on a journey instead than at dark when it is considered unsafe to roll approximately. This sets the temper for Brown’s escapade and foreshadows that something atrocious is about to go on to him. As Brown starts on his escapade. he remembers that his married woman had dreams of this peculiar escapade. dreams that warned him non to travel. : This feeling of uncertainness sparks a feeling of anxiousness in Brown as he continues walking through the wood and on with his journey. Soon after. the scenery around him begins to alter and the route becomes â€Å"darkened by all the gloomiest trees of the wood. which hardly stood aside to allow the narrow way weirdo through. and closed instantly behind. † This quotation mark describes the dark and glooming milieus that Brown walks through on his journey and creates the temper of fright and hesitancy as he continues on his manner. As Brown walks along. he comes to meet a adult male dressed in grave and nice garb. The adult male states. â€Å"You are late. Goodman Brown. † and Brown answers by stating. â€Å"Faith kept me back awhile. † In actual footings. he speaks of his married woman. but metaphorically he could be talking of his religion in God and how it about kept him from shiping on his journey. Subsequently on in Brown’s journey. he meets a adult male with a cane that resembles a serpent. typifying immorality. Brown so protests against the Satan stating. â€Å"With heaven above. and Faith below. I will yet stand house against the Satan! † He lifts his custodies to pray. and a immense black cloud hides the stars to which he prays upon. This black cloud symbolizes evil destructing Brown’s religion. Throughout Brown’s journey dark and visible radiation. white and black. all play a portion in making the scene for Brown’s milieus. When Brown returns place. it is daylight ; this symbolizes artlessness and freedom from the journey he merely experienced. Throughout the narrative. Brown goes from being a inactive character to a dynamic 1. The ground for this transmutation is because of his struggle with â€Å"the devil† which is external. and by the struggle within himself which internal. The struggle Brown portions with the Satan is caused by the Satan alluring Brown to fall in the dark side. The manner in which the Satan lures Brown is by converting him that his relations and town’s people have already crossed over to the dark side and denied their religion. The battle that Brown now faces is whether to follow his relations and town’s people. or to follow his religion in God and deny the Satan. which is Brown’s internal struggle. These internal and external struggles turned Brown into a dynamic character by the terminal of the narrative. Alternatively of believing and swearing that his relations and friends are godly. he now knows that they have all been tempted by the Satan and many have crossed over to the dark side ; he went from being swearing to disbelieving of his friends and his religion.

Technology adoption in modern enterprises Assignment

Technology adoption in modern enterprises - Assignment Example In essence, such adoption covers all department, from communication, supplies management, staffing, and marketing to others. Holistic adoption is detrimental to eventual enterprises success. Furthermore, there is a dire need for the firms to ensure that their intrinsic information is available for those with developing interest to invest in their products. For this reason, static, explicit, temporal data must be available on demand. Technological tools must be available to facilitate such storage. Staffs rich in such knowledge and skills even facilitate further the technology adoption in a business. Any enterprise has to go along with the radical changes that have occurred. Modern advertising methods have to be at the inclusive end. Technology has permeated most organizations and brought changes not experienced before. Firms are encouraging the art of innovation through mentorship programs, exchange programs, and ushering in motivational rewards for the creative employees. Technology adoption has positive implications for such enterprises. First, it improves communication processes, through internet, emails, and other multiple channels hence saving time. The staffing process works at ease, promoting the efficiency of screening, recruitment, selection, and hiring of the most proficient aspiring workers. Eventually, there is a quick flow of all activities and mobility. Such adoption comes along with hindrances. High maintenance cost is the major challenge, and the firm must be proactive prior to technology adoption.

Integrated Marketing Communications Strategy Assignment

Integrated Marketing Communications Strategy - Assignment Example We target males and females ageing between 13 to 21 in eastern Canada. In order to create awareness and drive sales for our product, we need to create an integrated marketing communication strategy. Body Integrated marketing communication strategy refers to coordinating and integrating various communication channels of the company in order to deliver a consistent, clear, compelling message about the company and its products. It refers to recognize all such touch points where the customer can encounter the company and its brands. Each contact with the brand will give a message, good, bad or indifferent. The company will want to deliver a positive and consistent message with each of the contacts. It will lead to total marketing communication strategy which will aim at building stronger relationships with customer by showing how the customers can get help to solve their problems from the company and its products. The integrated marketing communication strategy will make a tie of the com pany’s images and messages. A blended mix of the promotion tools can be used for promoting our company’s products. It can be advertising, personal selling, public relations, direct marketing and sales promotion. Now a day, customers get bombarded with the messages of company from all directions. The company’s print advertisement and television will have the same look, message; feel similar to its personal selling communication and email. The material of its public relation will project the same image like its social network presence and website. Under the plan of overall marketing communication unique roles played by different media must be coordinated carefully by the company in order to attract, inform and persuade consumers. It must coordinate all the touch points of customers for ensuring clear brand messages. Provided with a marketing budget of $1million for 6 month period, different kind of promotion tool can be used according to the following allocation: Advertising $0.40 million, personal selling $0.20 million, public relation $ 0.18 million, direct marketing $0.10 million, sales promotion $0.12 million. More spending should be made towards advertising as advertising is a very good form of informing and persuading customers about a company’s products. It is a paid form of non personal promotion and presentation of goods, services and ideas by an identified sponsor. Advertising can be informative, persuasive and reminder. Creating an advertising strategy needs two major elements. It consists of creating advertising messages and selecting a media for advertisement. Public relation is another promotion tool which aims at building good relations with various publics of company by building up a good corporate image, obtaining publicity, handling off unfavorable stories, rumors and events. Several tools can be used for public relation like news, speeches, special events, written materials, audiovisual materials, corporate identity materials, public service activities, marketing campaigns and social networking processes. Personal selling is an interpersonal arm of promotional mix. Through the process of personal selling, the sales people of a company communicate and create customer value through personal interaction with the customers. It is a form of personal presentation by the sales force of firm for the purpose of boosting up sales and to build relationship with