In: Accounting
Item | Cost | Price | ||||||
Per Unit (RM) | % of Cost to price | Total (RM) | Note | Per Unit (RM) | Total (RM) | |||
Food | 18.72 | 40% | 11,232.00 | 1 | 46.80 | 28,080.00 | 40% of RM 28,080 | |
Beverage | 1.30 | 26% | 780.00 | 2 | 5.00 | 3,000.00 | 26% of RM3,000 | |
Hall Rental | 5.00 | 50% | 3,000.00 | 3 | 10.00 | 6,000.00 | 50% of RM6,000 | |
AV & Equipment | 4.00 | 50% | 2,400.00 | 4 | 8.00 | 4,800.00 | 50% of RM4,800 | |
Carpark | 2.10 | 70% | 1,260.00 | 5 | 3.00 | 1,800.00 | 70% of RM1,800 | |
Decoration | 6.00 | 100% | 3,600.00 | 6 | 6.00 | 3,600.00 | 100% of RM3,600 | |
Salaries | 19.70 | 25% | 11,820.00 | 7 | 25% of RM 47,280 | |||
Operation System | 6.30 | 8% | 3,782.40 | 8 | 8% of RM 47,280 | |||
Utilities | 6.30 | 8% | 3,782.40 | 9 | 8% of RM 47,280 | |||
Total | 69.42 | 41,656.80 | 78.80 | 47,280.00 |
The above data is the cost and price of the event of Annual Dinner . As a cost controller, using the data above briefly explain and analyze how the company can maximize the profit and minimize the cost using the below method?
a. Job Costing
b. Hybrid Costing
c. Process costing
d. Historical costing
e. Operating Costing
A.
Job costing is accounting which tracks the costs and revenues by "job" and enables standardized reporting of profitability by job. For an accounting system to support job costing, it must allow job numbers to be assigned to individual items of expenses and revenues. A job can be defined to be a specific project done for one customer, or a single unit of product manufactured, or a batch of units of the same type that are produced together.
To apply job costing in a manufacturing setting involves tracking which "job" uses various types of direct expenses such as direct labour and direct materials, and then allocating overhead costs (indirect labor, warranty costs, quality control and other overhead costs) to the jobs. A job profitability report is like an overall profit & loss statement for the firm, but is specific to each job number.
Job costing may assess all costs involved in a construction "job" or in the manufacturing of goods done in discrete batches. These costs are recorded in ledger accounts throughout the life of the job or batch and are then summarized in the final trial balance before the preparing of the job cost or batch manufacturing statement.
B.
A hybrid costing system is a cost accountingsystem that includes features of both a job costing and process costing system. A hybrid costing system is useful when a production facility handles groups of products in batches and charges the cost of materials to those batches (as in the case in a job costing environment), while also accumulating labor and overhead costs at the departmental or work center level and allocating these costs at the individual unit level (as is the case in a process costing environment).
Hybrid costing is most commonly used in situations where there is identical processing of a baseline product, as well as individual modifications that are made beyond the baseline level of processing. For example, this situation arises when identical products are manufactured until they reach the painting operation, after which each product receives a different coating, with each coat having a different cost.
As another example, a company produces a variety of refrigerators, all of which require essentially the same processing, but differing amounts of materials. It can use a job costing system to assign varying amounts of materials to each refrigerator, while using the process costing method to allocate the cost of labor and overhead equally across all of the refrigerators produced.
The key issue in choosing to use a hybrid system is whether certain parts of the production process are more easily accounted for under a different system than the one used by the bulk of the manufacturing operation. Many companies do not realize that they are using a hybrid costing system - they have simply adapted their cost accounting systems to the operational requirements of their business models.
A consideration when using a hybrid system is the added cost of using essentially two different cost tracking systems, rather than a single cost tracking concept for all operations. Only use a hybrid system if the resulting information is significantly different from what would have been derived from using just a job costing system or just a process costing system.
C.
Process costing is an accounting methodology that traces and accumulates direct costs, and allocates indirect costs of a manufacturing process. Costs are assigned to products, usually in a large batch, which might include an entire month's production. Eventually, costs have to be allocated to individual units of product. It assigns average costs to each unit, and is the opposite extreme of Job costing which attempts to measure individual costs of production of each unit. Process costing is usually a significant chapter. It is a method of assigning costs to units of production in companies producing large quantities of homogeneous products..
Process costing is a type of operation costing which is used to ascertain the cost of a product at each process or stage of manufacture. CIMA defines process costing as "The costing method applicable where goods or services result from a sequence of continuous or repetitive operations or processes. Costs are averaged over the units produced during the period". Process costing is suitable for industries producing homogeneous products and where production is a continuous flow. A process can be referred to as the sub-unit of an organization specifically defined for cost collection purpose.
D.
In accounting, an economic item's historical cost is the original nominal monetary value of that item.[1] Historical cost accounting involves reporting assets and liabilities at their historical costs, which are not updated for changes in the items' values. Consequently, the amounts reported for these balance sheet items often differ from their current economic or market values.
While use of historical cost measurement is criticised for its lack of timely reporting of value changes, it remains in use in most accounting systems during periods of low and high inflation and deflation. During hyperinflation, International Financial Reporting Standards (IFRS) require financial capital maintenance in units of constant purchasing power in terms of the monthly CPI as set out in IAS 29, Financial Reporting in Hyperinflationary Economies. Various adjustments to historical cost are used, many of which require the use of management judgment and may be difficult to verify. The trend in most accounting standards is towards more timely reflection of the fair or market value of some assets and liabilities, although the historical cost principle remains in use. Many accounting standards require disclosure of current values for certain assets and liabilities in the footnotes to the financial statements instead of reporting them on the balance sheet.
For some types of assets with readily-available market values, standards require that the carrying value of an asset (or liability) be updated to the market price or some other estimate of value that approximates current value (fair value accounting, also called "mark-to-market" accounting). Accounting standards vary as to how the resultant change in value of an asset or liability is recorded; it may be included in income or as a direct change to shareholders' equity.
The capital maintenance in units of constant purchasing power model is an International Accounting Standards Board approved alternative basic accounting model to the traditional historical cost accounting model
E.Operating (Operational) costs are the expenses which are related to the operation of a business, or to the operation of a device, component, piece of equipment or facility. They are the cost of resources used by an organization just to maintain its existence.