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To distinguish between the terms as used in management accounting.
(i) Avoidable costs and unavoidable costs:
Avoidable cost is a cost that can be avoided by choosing one alternative over another. It is relevant in decision making.
Unavoidable costs are costs that will be incurred regardless of the alternatives taken. It is not relevant for decision making.
(ii) Cost control and cost reduction:
Cost control
Cost control refers to processes put in place to limit (control) the total costs, such that it matches the budgeted or standard costs. Operating a standard costing system helps in cost control. The system involves:
o Establishing the standards (budgets)
o Measuring actual results
o Comparing actual results with the standards (variance analysis)
o Taking necessary actions
Cost reduction
These are process aimed at reducing (lowering) the cost per unit of a product manufactured or service rendered without changing its quality. This is implemented by using new and improved methods and techniques of production.
The following are the main differences between Cost Control and Cost Reduction:
- Cost Control focuses on decreasing the total cost of production while cost reduction focuses on decreasing per unit cost of a product.
- Cost Control is a temporary process in nature. Cost Reduction is a permanent process.
- The process of cost control will be completed when the specified target is achieved. Conversely, the process of cost reduction is a continuous process. It has no visible end. Its target is to eliminate wasteful expenses.
- Cost Control does not guarantee quality maintenance of products. However, cost reduction assures 100% quality maintenance.
- Cost Control is a preventive function because it ascertains the cost before its occurrence. Cost Reduction is a corrective function.
francis1897 answered the question on November 14, 2022 at 08:48
- RH Ltd. manufactures and sells a single product branded “Zed”. Currently it uses absorption costing to determine profits and inventory values. The budgeted production cost...(Solved)
RH Ltd. manufactures and sells a single product branded “Zed”. Currently it uses absorption costing to determine profits and inventory values. The budgeted production cost per unit is as follows:
sh.
Direct labour 3 hours at sh.6 per hour 18
Direct materials 4 kgs at sh.7 per kg 28
Fixed production overhead 20
66
Additional information:
1. Normal output volume is 16,000 units per year and the volume is used to establish the fixed overhead absorption rate for each year.
2. The costs relating to sales, distribution, and administration are as follows:
Variable 20% of sales value
Fixed Sh.180,000 per year
3. There were no units of finished goods inventory at 1 October 2021. Fixed overhead expenditure is spread evenly throughout the year
4. The selling price per unit is sh.140.
5. For the two six-monthly periods, the number of units to be produced and sold were budgeted as follows:
Six months ending31 March 2022 Six months ending 30 September 2022
Units Units
Production 8,500 7,000
Sales 7,000 8,000
6. RH Ltd. is considering whether to abandon absorption costing and used marginal costing instead for profit reporting and inventory valuation.
Required:
(a) Statement of profit or loss for each of the six-month periods using:
(i) Marginal costing.
(ii) Absorption costing.
(b) A statement reconciling the profits as per the marginal costing and absorption costing in (a) above.
Date posted: November 14, 2022. Answers (1)
- Maridadi Ltd. Produces a product that passes through two distinct processes. The following information was obtained from the accounts of the company for the month...(Solved)
Maridadi Ltd. Produces a product that passes through two distinct processes. The following information was obtained from the accounts of the company for the month of July 2022.
Particulars Process A Process B
Sh. Sh.
Direct materials 78,000 59,400
Direct wages 60,000 90,000
Production overheads 60,000 90,000
At the beginning of the month of July 2022, 3,000 units of sh.30 each were introduced to process A. There were no stock of materials or work-in-progress.
The output of each process passes directly to the next process and finally to the finished goods stock account.
The following additional data was obtained:
Process Output Percentage of normal loss to input Scrap value of normal loss per unit
Sh.
Process A 2,850 5% 20
Process B 2,520 10% 40
Required:
(i) Process A account.
(ii) Process B account.
Date posted: November 14, 2022. Answers (1)
- Outline four limitations of process costing.(Solved)
Outline four limitations of process costing.
Date posted: November 14, 2022. Answers (1)
- Explain the following types of costs:
(i) Product cost.
(ii) Opportunity costs.
(iii) Conversion costs.(Solved)
Explain the following types of costs:
(i) Product cost.
(ii) Opportunity costs.
(iii) Conversion costs.
Date posted: November 14, 2022. Answers (1)
- Zaea Ltd. Produces two products namely; Z and R. The following information relates to the budget for the year ended 30 June 2022:
...(Solved)
Zaea Ltd. Produces two products namely; Z and R. The following information relates to the budget for the year ended 30 June 2022:
Product Z Product R
Sh. Sh.
Selling price per unit 6 12
Variable cost per unit 2 4
Contribution per unit 4 8
Fixed costs apportioned 100,000 200,000
Units sold (kgs) 70,000 30,000
Required:
(i) Calculate the break-even points for each product.
(ii) The break-even point of product Z to achieve a target profit of sh.60,000.
(iii) The margin of safety of product R.
(iv) The product to produce based on the break-even-point calculated in (b) (i) above.
Date posted: November 14, 2022. Answers (1)
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Highlight four causes of labour turnover in an organization.
Date posted: November 14, 2022. Answers (1)
- Jikaze Ltd. is currently operating at full capacity and it manufactures and sells brooms for local market.
Currently, the production volume is 100,000 brooms per annum...(Solved)
Jikaze Ltd. is currently operating at full capacity and it manufactures and sells brooms for local market.
Currently, the production volume is 100,000 brooms per annum with the following cost structure:
Sh. "000" Sh. "000"
Sales 20,000
Marginal costs: Labour 8,000
Material 5,000 (13,000)
Contribution 7,000
Fixed costs (3,000)
Net profit 4,000
Additional information:
1. Each broom is currently sold at sh.200
2. An opportunity has arisen to supply 30,000 brooms per annum at sh.180 each.
3. Acceptance of this special order will incur extra costs of sh.80,000 per annum for the hire of additional machinery.
4. Jikaze Ltd. will pay an overtime premium of 20% for the extra direct labour.
Required:
Advise Jikaze Ltd. on whether the offer should be accepted or rejected.
Date posted: November 14, 2022. Answers (1)
- Unik Ltd., a leading manufacturer of ceramic tiles is preparing its cost estimation for the master budget. A cost accountant has derived the following data...(Solved)
Unik Ltd., a leading manufacturer of ceramic tiles is preparing its cost estimation for the master budget. A cost accountant has derived the following data on a weekly output of standard size tiles from a factory.
Week output Total overheads
Units "000" Sh. "000"
1 20 60
2 2 25
3 4 26
4 23 66
5 18 49
6 14 48
7 10 35
8 8 18
9 13 40
10 8 33
Where:
∑X= 120 ∑Y= 400 ∑X2= 1,866 ∑Y2= 18,200 ∑XY= 5,704
Required:
(i) Using the least squares regression method, formulate a predictor equation in the form of y = a + bx.
(ii) In week II, the factory planned to produce 25,000 standard size tiles. Estimate the total cost of producing thus quantity.
Date posted: November 14, 2022. Answers (1)
- Explain three users of management accounting information(Solved)
Explain three users of management accounting information
Date posted: November 14, 2022. Answers (1)