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Assignment
Assessment
Report


Campus:

NOIDA

CAMPUS

Year/semester

2010
-
2012


II Semester

Level:

ACL II

Assignment Type

Assignment A

Module Name:

Costing MIS & Budgetary
Control

Assessor’s Name

Mr. Ashok Kumar Gupta

Student’s Name:

Vivek singh

Reqd
Submission Date


e
-
mail id & Mob No

Singh.vivek726@gmail.com

9289524666

Actual Submission Date

23
/05/2012

Stream

Finance

Submitted to :

Mr. Ashok Kumar Gupta


Certificate by the Student:

Plagiarism is a
serious College offence.

I certify that this is my own work. I have referenced all relevant materials.



Vivek Singh




(
Student’s Name
/Signatures)


Expected Outcomes

Assessment Criteria

Grade

based
on D,M,P,R
system


Feedback

General Parameters

Clarity

C
lear understanding of
the concept



Analytical Thinking
-


A
bility to
analyze

the
problem realistically



Research Done
-


Research carried out to
solve the problem



Formatting &
Presentation
-


C
oncise& clear
thinking along with
present
ation



Subject Specific Parameters

1.

Understand concept of
cost in
relation to
Industry

Conceptual clarity



2.

To be able to
determine the cost

Cost Calculation
accuracy






Assignment Grading Summary (To be filled by the Assessor)

OVERALL ASSESSMENT GRADE:


TUTOR’S COMMENTS ON

ASSIGNMENT:


SUGGESTED MAKE UP PLAN

(applicable in case the student is asked


to re
-
do the assignment)


REVISED ASSESSMENT GRADE


TUTOR’S COMMENT ON REVISED


WORK (IF ANY)


Date:

Assessor’s Name / Signatures:



Grades

Grade Descriptors

Achieved Yes/No (Y / N)

P

A Pass grade is achieved by meeting all the requirements defined.


M

Identify & apply
strategies/techniques to find appropriate solutions


D

Demonstrate convergent, lateral and creative thinking.



Assignment A

Q
-
1

“Costing Accounting is a system of

foresight and not a post
-
mortem examination.
Discuss the statement and explain how cost accounting serves as a tool of control in the
hands of management.” Give suitable illustrations to support your reasoning
.




ANSWER
-
1

cost accounting is that branch

of accounting which establishes budget and
actual cost of operations, processes, department or products and the analysis of
variances, profitably or social use of funds. Managers use cost accounting to support a
company’s decision making to cut down a com
pany’s costs and improve
profitability.
As
a

form of Management accounting, cost accounting need not fallow accounting
standards as
its

primary use is for internal managers rather than outside users.


in

the

modern

business

world,

the

nature

and

functioning

of

business

organizations

have

become

very

complicated.

They

have

to

serve

the

needs

of

variety

of

parties

who

are

interested

in

the

functioning

of

the

business.

These

parties

constitute

the

owners,

creditors,

employees,

government

agencies,

ta
x

authorities,

prospective

investors,

and

last

but

not

the

last

the

management

of

the

business.

The

business

has

to

serve

the

needs

of

this

different

category

of

people

by

way

of

supplying

various

information

from

time

to

time.

In

order

to

satisfy

the

need
s

of

all

these

group

of

people

a

sound

organization

of

accounting

system

is

very

essential.

In

the

ancient

days

the

information

required

by

those

who

were

interested

with

a

business

organization

was

met

by

practicing

a

system

of

accounting

known

as

financial

accounting

system.

Financial

accounting

is

mainly

concerned

with

preparation

of

two

important

statements,

via

.,

income

statement

(or

profit

&

loss

account)

and

positional

statement

(

or

Balance

Sheet).

This

information

served

the

needs

of

all

th
ose

who

are

not

directly

associated

with

management

of

business.

Thus

financial

accounts

are

concerned

with

external

reporting

as

it

provides

information

to

external

authorities.

But

management

of

every

business

organization

is

interested

to

know

much

more

than

the

usual

information

supplied

to

outsiders.

In

order

to

carry

out

its

functions

of

planning,

decision
-
making

and

control,

it

requires

additional

cost

data.

The

financial

accounts

to

some

extent

fail

to

provide

required

cost

data

to

management

and

he
nce

a

new

system

of

accounting

which

could

provide

internal

report

to

management

was

conceived

of



OBJECTIVE OF COST ACCOUNTING:
-














To

Overcome

the

Limitations

of

Financial

Accounting


Financial

accounting

records

in

an

overall

manner

the

results

of

the

operations

of

a

business,

using

conventio
nal

double

entry

book
-
keeping

techniques.

It

suffers

from

the

following

limitations


(i)

It

provides

only

past

data:

Financial

accountin
g

provides

out

of

date

information

to

managem
ent.

But

management

is

interested

in

current

data

but

not

past

data

as

it

does

not

serve

any

purpose

to

it.

Therefore

it

has

been

rightly

pointed

out

that

financial

accounting

provide

only

a

post
-
mortem

analysis

of

past

activities.



(II)It

reveals

only

ov
er

all

result

of

the

business:

Financial

accounting

does

not

provide

data

for

each

and

every

product,

process,

department

or

operation

separately.

Instead

it

provides

the

financial

information

in

a

summary

form

for

the

entire

organization

as

a

whole



(iii)It

is

static

in

nature:

Modern

business

is

dynamic

but

not

static.

Financial

accounting

does

not

incorporate

the

changes

that

take

place

within

the

business.(


iv)

It

fails

to

take

into

account

the

impact

of

price

level

change:

In

the

modern

inflationary

conditions

the

price

level

has

significant

impact

over

financial

statement.

Under

financial

accounts,

assets

are

shown

at

the

actual

or

historical

cost.

Consequently

depreciation

is

also

charged

on

actual

or

historical

cost.

This

under

chargin
g

of

depreciation

will

distort

the

profit

figure.


v)

Possibility

of

manipulation

of

financial

accounts:

Very

often

financial

accounts

are

manipulated

at

the

whims

and

fancies

of

management

so

as

to

project

better

image

in

the

minds

of

prospective

investor
s.

The

chief

forms

of

manipulating

the

financial

accounts

assume

the

forms

of

over

or

undervaluation

of

inventory,

excessive

or

inadequate

provision

for

depreciation,

creation

of

secret

reserves,

etc.

(vi)

It

fails

to

exercise

control

over

resources:

Finan
cial

accounting

fails

to

exercise

control

over

materials,

labour

and

other

expenses

incurred

in

a

business

enterprise.

As

results,

avoidable

wastages

and

losses

go

unchecked

under

this

system

of

accounting.


(vii)

It

fails

to

provide

adequate

data

for

pric
e

fixation:

Financial

accounts

fail

to

provide

adequate

cost

data

on

the

basis

of

which

selling

price

is

fixed.

In

the

absence

of

fixation

of

prices

in

advance,

it

is

not

possible

to

supply

quotations

to

the

prospective

customers.

To

that

extent

the

income

from

such

sales

diminishes.


(
viii
)It

fails

to

provide

adequate

data

for

management

in

carrying

out

its

functions:

Management

of

every

organization

relies

heavily

on

adequate

cost

data

for

formulating

policies

and

in

decision
-
making

process.

But

financial

accounting

fails

to

provide

such

useful

cost

data

to

management.


(ix)

It

does

not

provide

a

basis

for

cost

comparison:

Financial

accounting

does

not

help

in

cost

comparison

ove
r

a

period

of

time

or

between

two

jobs

or

two

operations.

Thus

a

basis

for

jud
ging

the

efficiency

of

an

year

with

past

year

or

wrathfulness

of

two

different

jobs

or

operations

cannot

be

appraised.


(x)

It

does

not

make

use

of

control

techniques:

Financial

accounting

fails

to

make

use

of

certain

important

cost

control

techniques

such

as

budgetary

control

and

standard

costing.

Thus

financial

accounts

do

not

facilitate

measuring

the

efficiency

of

the

business

with

the

help

of

control

techniques.



(

xi)

It

fails

to

ascertain

break
-
even

point:

Financial

accou
nting

does

not

help

in

ascertaining

the

break
-
even

point,

I.e.

the

sale

or

output

where

the

revenue

equals

the

cost.

Hence,

the

point

of

no
-
profit
-
no
-
loss

cannot

be

made

out

under

financial

accounts.


To

Ensure

Optimum

Utilization

of

Resources

In

today’s

business

world,

the

resources

available

are

very

scarce.

Hence

every

business

unit

must

strive

hard

to

obtain

maximum

output

with

the

available

input.

In

order

to

ensure

the

optimum

utilization

of

scarce

resources
,

the

value

of

input

is

measured

against

the

value

of

output.

This

implies

matching

cost

per

unit

of

production

against

the

value

of

output

or

selling

price.

But

financial

accounting

does

not

provide

the

information

relating

to

cost

per

unit

of

production.

Hence

the

need

for

cost

accounting

was

f
elt

necessary.




DIFFERENCE BETWEEN COST ACCOUNTING& FINANCE ACCOUNTING
-



BASIS

COST ACCOUNTING

FINANCIAL
ACCOUNTING

1) OBJECTIVE

It

provides information of

Ascertainment about the
cost

It provides information
about the financial


Control cost and
for
decision making about the
cost.

Performance as well as the

Financial position of the
business

2) NATURE

It classifies records presents

And interprets in a
significant manner the
material
labor

and
overheads cost.

It classifies records presents

And in
terprets transactions

In terms of money.

3) RECORDING OF DATA

It records and presents the
estimated/budgeted data. It
make use of historical costs

And predetermined costs.

It records historical data.

4) USERS OF
INFORMATION

It is used by internal
management at different
levels.

The users of financial
statements are shareholders

Creditors, financial,
analysis and government.

5) ANALYSIS OF COSTS
AND PROFIT

It provides the details of
cost &p profit of each
product process, job
contracts
.

It shows th
e profit/loss of
the organization.


6) TIME PERIOD

It reports & statements are

Prepared as and when
required.

Financial statements are
prepared for a definite
period usually a year.

7) PRESENTATION OF
INFORMATION

There are no set formats for
presenting
cost
information.
.






















.
A set format is used for
presenting financial
information








COST ACCORDING SERVES AS A TOOL OF CONTROL IN THE HANDS OF THE
MANGEMENT
-

A company having a proper cost accounting system will help the
management in the fallowing ways


1) The analysis of profitability of individual’s products, services or jobs.


2) The analysis of profitability of different departments or operations.


3)

The analysis of cost behavior of various items of expenditure in the organization.


4) A proper costing system locates differences between actual results and expected
results.


5) It will assist in setting the prices so as to cover costs and generate an a
cceptable levels
of profit.


6) Cost records are the base for the management information systems.


7) The cost system generate regular performance

statements which management need for
control purposes.


8) The costing records serve to analyze the final ac
counts of the company i.e., the
manufacturing. Trading and profit and loss accounts in such a way as to give a detailed
explanation of the source of profit or loss.


9) Cost accounting systems are not only applicable to manufacturing organizations or
funct
ions but also expended to service organization functions.


ILLUSTRATION
-

In a company, if the management intends to know the profitability of
the company’s operations, on an immediate basis then such information can be easily
obtained by preparing the costing

reports rather than waiting for the financial statements,
which wi
ll be available on a yearly basis. Thus by analyzing the costing reports the
management of the company will be able to decide. whether the company is moving
towards, profitability or is sustaining losses, thus it will help th
e management in decision
making
.


Q
-
2
.
Given below is the list of industries. Give a brief explanation about the industry
and the cost components of the industry. Also give a method of costing and unit of
cost against each industry.




Hotel Industry



Transportation Industry



Banking
Industry



Insurance Industry



Airline Industry



Courier Industry



Advertising



Health Care Industry



Real Estate Industry



Hospitals


ANSWER
-
2


HOTEL INDUSTRY
-

The hotel industry consists of broad category of fields with in the
service industry that includes lod
ging, restaurants, event planning, theme parks,
transportation, cruise line and additional fields with in the tourism industry. The
hospitality industry is a several billion dollar
industry that mostly depends on the
availability of leisure time and dispos
able income. A hospitability unit such as a
restaurant, hotel, or disposable income.
A hospitability unit such as a restaurant, hotel or
even an amusement park consists

of multiple groups such as facility maintenance, direct

operations (serves, housekeeper
s, porters, kitchen workers, and bartender’s e.tc.), and
management, marketing and human recourses. The hospitality industry covers a wide
range of organizations offering food service and accommodation. The industry

is divided
in to sectors according to th
e skill sets required for the work involved. Sectors include
accommodation, food and beverage, meeting and events, going, entertainment. And
gaming, entertainment, and recreation, tourism

services and visitor information.


TRANSPORATION INDUSTRY
-

Transp
ort or transportation is
the movement

of
people
and goods

from one location to another
, modes of transport include air, rail, road,
water cable, pipelines and space .The field can be divided in to infrastructure, vehicles
and operations. Transport is impor
tant since it enables trade between peoples, which in
turn establishes civilizations. Transport infrastructure consist of the fixed installations
necessary for transport, and may be roads, railways, canals and pipelines and terminals
such as airports, rail
way stations, bus stations, ware house, trucking terminals, refueling
depots (including fueling docks and fuel passengers and cargo and for maintenance.
Vehicles traveling on
these networks may

include automobiles, bicycles, buses, trains,
trucks, people,
helicopters, and
aircraft. Operations deals with the way. The vehicles are
operated and the procedures set for this purpose, including financing legalities and
policies. In the transport industry, operations and ownership of infrastructure can be
either pu
blic or private, depending on the country and mode.


(3)
BANKING INDUSTRY:
-

A bank
is financial intermediary and appears in several
related basic forms .


1) A central bank issues money on behalf of a government, and regulates the money
supply.

2) A
commercial bank accepts deposits and channels those deposits in to leading
activities, either directly or through capital markets. A bank connects customers with
capital deficits to customers with capital surpluses on the words open finan
cial markets.


3)
A savings bank also known as building society in Britain is only allowed to barrow
and saves from members of a financial co
-
operative.


4
) INSURANCE INDUSTRY
-

In law and economics, insurance is form of risk
management primarily used to hedge against t
he risk of contingent, uncertain loss.
Insurance

is defined as the equitable transfer of the risk of a loss from one entity to
another, in exchange for payment. An insurer is a company selling the insurance, an
insured, or policy. The insurance rate is a f
actor used to determine the amount to be
charged for a certain amount of insurance coverage, called the premium. Risk
management, the practice of appraising and controlling risk, has evolved as a discrete
field of study and practice.

The transactions invo
lves the insured assuming a guaranteed
and know relatively small loss in the form of payment to the insure in exchange for the
insures promise to compensate (indemnify) the insured in the case of a financial
(personal) loss. The insured receives a contract
, called the insurance policy, which details
the conditions and compensated.

Insurance involves pooling funds from the many insured
entities

(known exposures) to pay for the losses that some may incur. The

insured
entities’ are therefore protected from ris
k for fee, with the fee being dependent upon the
frequency and severity of the event occurring. In order to be an insurable, the risk insured
against must meet certain characteristics in order to be an insurable risk.


5)
AIRLINE INDUSTRY
-

The airline i
ndustry

exists in an intensely competitive
market .In recent years, there has been an industry
-
wide shake down, which will have for
reaching effects on the industries trend the airline industry was at least partly government
owned
. This is still true in ma
ny countries, but in the U.S. all major airlines have come to
be privately held. The airline

industry can be separated in to four categories by the U.S
department of transportation.



a
) Internatio
nal
-

130+ seat

planes that have the ability to take passen
gers just, above
anywhere in the world. Companies in the category typically have annual revenue of $ 1
billion or more.


b)
National
-

usually

these airlines seat 100
-
150 people and have revenues between $

1
billion or more.


c)
Regional
-

Companies with rev
enues less than $ 100 million that focus on short haul
fight.


d
)
Cargo
-

These are airlines generally transport goods.


6
)
COURIER INDUSTRY
-

A courier is a person or a company who delivers
messages, packages, and mail. Couriers are distinguished from ordinary mail, services by
features such as speed, security,
tracking,

signature, specializations and
individualization
,

of

services
, and com
mitted delivery times, which are optional for most everyday mail
services .As a premium services couriers are usually more expensive than usual mail
services, and their use is typically restricted to packages, where one or more of these
features are consid
ered important enough to warrant the cost. Many companies who
operate under a just in time or
“JIT”, Inventory method often utilize on board couriers.
On board couriers are individuals who can travel at moment’s notice anywhere in the
world, usually via co
mmercial airlines. While this type of service is the second contiest
general aviation charters are for more expensive
-








Companies analyze the cost of service to
engage an on
-
brand courier versus the ‘’cost’’ the company will realize should the
produc
t not arrive by a specified time (i.e. an assembly line stopping, untimely court
filing, cost sales from product or components missing a delivery

deadlines, organ
transplants).


(
7)ADVERTISING INDUSTRY
-

Advertising is a form of communication used to
per
suade an audience ( viewers, readers, or listeners) to take some action with respect to
products, ideas or services most commonly, the desired result is to drive consumer
behavior with respect to commercial offering , although poli
tical and ideological
adv
ertising is also common. Advertising messages are usually paid for by sponsors and
viewed via various media, including traditional media such as newspaper, magazines,
television, radio, outdoor or direct mail or new media such as websites and text messages
.
Commercial advertisers often seek to generate increased consumption of their products or
services trough”branding”which involves
the repetition of an effort to associate certain
qualities with brand in the minds of consumers. Non
-
commerical advertisers w
ho spend
money to advertise icon other than a consumer product or service include political
parties, interest groups, religious. Organizations and governmental agencies non
-
profit
organizations may rely on free modes of
persuasion, such as a public service

announcement. Internationally, the largest (big four) advertising conglomerates are inter
-

-
public ,
Omnicom
,
public’s

and WPP.


(8)
HEALTHCARE INDUSTRY
-

The healthcare industry, or

health profession treats
patients who are injured, sick disabled or o
therwise physically or mentally infirm and
maintains general health in population and communities through the promotion of healthy
behavior

a
nd prevention of
diseasing

.The delivery of modern healthcare depends on an
expanding interdisciplinary team of tra
ined professionals. For purposes of finance and
management, the health care industry is typi
cally divided in to several groups and sectors.
The global industry classification standard and the industry classification benchmark
divided in the industry in to
two main groups.

1) Health care equipments and services.

2) Pharmaceuticals, biotechnology and related life science.






Healthcare equipments

and services comprise companies
and entities

that provide medical equipments, medical supplies and healthcare,
such as
hospitals, home health care providers and nursing homes. The second industry
group
comprises

sectors companies that produce, biotechnology, pharmaceuticals and

miscellaneous scientific services.


(9)
REALESTATE INDUSTRY
-

Real
-
estate in the modern

terms

for the land
anything
that is permanently affixed to it. Fixtures include building, fences and any things
attached to buildings, such as plumbing heating and light fixtures. Property that is not
affixed is regarded as personal property. For exampl
e, furniture and draperies are items of
personal property
. With the development of private property, ownership, real estate.
Purchasing real estate requires a significant investment, and each parcel of land has
unique characteristics, so the real estate in
dustry has evolved in to several distinct fields
specialists are often called on to valuate real estate and facilitate transactions. Some kinds
of real estate business include.


a
) APPRAISAL
-

Professional valuation service.


b
) BROKERAGES
-

A mediator who changes a fee to facilitate a real transaction
between two parties.


c
) DEVELOPMENT
-

Improving land for use by adding or replacing buildings.


d) NET LEASING


e)
PROPERTY MANAGEMENT
-

Managing

a property for its owners.


f)
REAL ESTATE MA
RKETING
-

Managing the sales side of the property business.


g
) REAL ESTATE INVESTING
-

Managing the investment of real estate.


h
) RELOCATIONS SERVICES
-



Relocating people or business to a
different.


I
) CORPORATE REAL ESTATE
-


Managing the real estate h
eld by a corporation to
support its core business unlike managing the real estate held by an investor’s generate
income. With each field, a business may specialize in a particular type of real estate, Such
as residential, commercial, or industrial property
. In addition almost all construction
business effectively has a connection to real estate.


10)
HOSPITAL
-

A hospital, in the modern sense, is an institution for health care
providing patient treatment by specialized staff and equipment and often, but not
always
providing for long term patient says . Today hospitals are usually funded by
the public
sector, by health. Organizations (for profit or non profit), health insurance companies or
charities including by direct charitable donations. Historically, howe
ver hospitals were
often founded and funded by religious orders or charitable individuals and individuals
and leaders
. Conversely, modern
-
day hospitals, where as in history this work was usually
performed by the founding religious orders or by volunteers.
There are over 17,000
hospitals in the world.








INDUSTRY

COST
COMPONENT

UNIT OF COST

METHOD OF
COSTING

HOTEL

Building (
owned
-

component, lease
rent), salary paid to
staff and waiters,
electricity charges
,
salary to drivers.

Per room/day

Service
operational
costing

INDUTRY
TRANSPORT

Office charges,
vehicles, salary to
drivers,
maintenance cost,
and cost of fuel,
printing and
stationary.

Per
passengers/kilometer

S
ervice
/ operational
costing

BANKING

Office (owned
depreciation/lease
rent)
electricity
charges, salary to
staff and clerks
printing and
stationery,
conveyance
allowance

Per
transactions/client

Service/ operational
costing

INSURANCE

Office (owned
depreciation/ least
rent) ,

electricity
charges, salary paid
to staff and clerks
pri
nting and
stationary
conveyance
allowance.

Per policy/client

Service/ operational
costing.

AIRLINES

Aircraft(owned
depreciation/ lease
rent) , repairs and
maintenance, salary
paid to ground staff,
air hostess pilots
service cost

Per
passenger

Service/
operational
costing





COURIER

Office
(owned
-
depreciation/ lease
rent)

, transport cost,
salary paid to staff,
electricity charges,
packaging cost,
printing and
stationery

Per
weight/package..

Volume based
costing

ADVERTISING

Office (owned
-
depreciation/

lease
rent) electricity
charges, newspaper
advertisement, cost
of publishing,
television
advertisement
-
cost
of screening salary
paid to office staff.

Per
second

(television) per
sq.cm. , (newspaper)
per job.

Job costing

HEALTH CARE

Building (owned
deprec
iation/ lease
rent) , salary paid to
staff repairs and
maintenance,
equipment cost,
electricity charges.

Per bill/person

Service/ operational
costing

REALESTATE

Office
(owned
/
depreciation/ lease
rent
),

electricity

and
water charges,
transport charges,
payment to labor
staff.

Price per sq.foot
(construction)

Contract costing

HOSPITALS

Building (owned
depreciation/lease
rent).electricity
charges, equipment
charges, salary paid
to doctors, nurses,
ward boys
,
maintena
nce
charges of facility.

Per bed/person.

Service/ operational
costing

ANS
-
3

A manufacturing company has shown Rs.32380 as “Establishment
Expenses” which include the following expenses:
-


1

Warehouse Wages

3600

2

Office Salaries

2260

3

Office Lighting

140

4

Directors remuneration

2800

5

Rent, Rates and insurance of
warehouse

620

6

Warehouse lighting

540

7

Trade magazine

140

8

Bank charges

200

9

Bad Debts

340

10

Agents Commission

11500

11

Warehouse repair

1020

12

Travelling expenses

1520

13

Rent, Rates and insurance of
office

460

14

Printing & Stationery

3000

15

Donation

300

16

Discount allowed

3940


From the above information, find out the total of (i) selling expenses (ii)
distribution expenses (iii)administrative expenses (iv)
expenses which will not
be considered in determining total costs.


1
) SELLING EXPENSES
-
\


PARTICULARS

AMOUNT (RS.)

1) BAD DEBTS

340

2) AGENT COMMISSION

11500

3) TRAVELLING EXPENSES

1520

TOTAL

13360











DISTBUTION EXPENSES
-



PARTICULARS

AMOUNT

(RS.)

WAREHOUSE WAGES

3600

RENT, RATE, &INSURANCE OF
WAREHOUSE

620

WAREHOUSE LIGHTING

540

WAREHOUSE REPAIR

1020

TOTAL

5780


ADMINISTRATIVE EXPENSES
-


PARTICULARS

AMOUNT (RS).

ESTABLISHMENT EXPENSES

32380

OFFICE SALARIES

2260

OFFICE LIGHTING

140

DIRECTORS REMMUNERATION

2800

BANK CHARGES

200

RENT, RATE, INSURANCE, OFFICE

460

PRINTING& STATIONARY

3000

TOTAL




41240


ITEMS WHICH WILL NOT BE CONSIDERED IN DETERMINING TOTAL COST
-


PARTICULARS

AMOUNT (RS.)

TRADE MAGAZINE

140

DONATION

300

DISCOUNT ALLOWED

3940

TOTAL

4380