Design A Costing System For Use Within An Organization Accounting Essay Example For Students

Design A Costing System For Use Within An Organization Accounting Essay A costing system method means the process adopted to determine costs. There are several ways of ascertain costs. Companies choose among the options depending on fortunes in which accounting is required to be made based on the merchandise being industry and the nature of the industry doing the merchandise. Depending on the nature of Dynamic Models PLC, the appropriate costing method will be specific order costing where the activity being accomplished consists of undertakings which are specifically identified at each phase. Specific order costing is applicable where the work consists of separate occupations or batches. The chief sub-division of specific order costing is: Job costing: this is a traditional method for cost accounting where costs incurred are allocated, apportioned and absorbed by the cost unit. The company production is divided into different occupations but the same nature in order to find the net income made on each occupation for future planning. Batch costing: this is a different type of specific order bing where a measure of indistinguishable points is manufactured as a batch. It is like occupation bing method but the chief difference is the unit cost represents the ration of the entire cost of the batch to the figure of units in the batch. Outline1 1.3 Improvements to the costing and pricing system used by an organisation2 2. Use calculating techniques to obtain information for determination devising3 2.1 Apply calculating techniques to do cost and gross determination in an organisation4 Ten5 Yttrium6 Ten7 Yttrium8 X29 Y210 Xy11 1812 6613 6414 76615 21816 2.2 Assess the beginnings of financess available to an organisation for a particular undertaking17 3. Participate in the budgetary procedure of an organisation18 3.1 Choice appropriate budgetary marks for an organisation19 3.2 Create a maestro budget for an organisation20 3.3 Compare existent outgo and income to the maestro budget for an organisation21 Organizational Budget, January December 201122 Plan23 Fact24 Discrepancy25 TOTAL Favorable discrepancy26 600,00027 611.90028 -11.929 3.4 Evaluate budgetary monitoring processes in an organisation30 4. Recommend cost decrease and direction procedures for an organisation31 4.1 Recommend procedures that could pull off co st decrease in an organisation32 4.2 Evaluate the potency for the usage of activity-based costing33 5. Use fiscal assessment techniques to do strategic investing determinations34 5.1 Apply fiscal assessment methods to analyse viing investing undertaking in the public and private sector35 5.2 Make a justified strategic investing determination utilizing relevant fiscal information36 5.3 Report on the rightness of a strategic investing determination utilizing information from a post-audit assessment37 6. Interpret fiscal statements for planning and determination devising38 6.1 Analyze fiscal statements to measure the fiscal viability of an organisation39 6.2 Apply fiscal ratios to better the quality of fiscal information40 %41 %42 6.3 Recommendations on the strategic portfolio of an organisation 1.3 Improvements to the costing and pricing system used by an organisation In order to better the costing and pricing system used by Dynamic Models PLC, of import information is needed. Datas need to be relevant, seasonably and accurate. The chief features of information needed are explained below: Relevance: directors merely need relevant information for determination devising ; Seasonableness: utile information for determination devising demands to be available when needed. Accuracy: cost should be identified accurately for each merchandise, each activity, and each client. In order to aim the brand suitably and do determinations about the volume mix and pricing. 2. Use calculating techniques to obtain information for determination devising 2.1 Apply calculating techniques to do cost and gross determination in an organisation Accountant use many techniques for prediction intents. First, they use correlation coefficient method to mensurate the grade of relationship between two variables. There is a perfect correlativity when R= +1.0 or R=-1.0 and all the point of the diagram do non lie on a consecutive line. There are some instances where all the point of the diagram do non lie on a consecutive line and R would non be 1.0/ Therefore, a perfect correlativity can still be where all the points lie on the line but non a consecutive line. Calendar month End product Cost Ten Yttrium 1 2 9 2 3 11 3 1 7 4 4 13 5 3 11 6 5 15 Ten Yttrium X2 Y2 Xy 2 9 4 81 18 3 11 9 121 33 1 7 1 49 7 4 13 16 169 52 3 11 9 121 33 5 15 25 225 75 18 66 64 766 218 R = 1 it is strong correlativity. Second, arrested development line method is used to happen the values of the invariable a and B in the equation y= a+ bx. This method is besides called the least squared method. The line we obtain is the one which minimizes the amount of squares of the perpendicular divergence of the points from the line. a = Y mean b*x mean = 66/6 5* ( 18/6 ) = 5 Among the other different method of prediction, there are: Quality prediction methods which is based on judgements about future gross aggregation. However this technique is non truly dependable because of the deficiency of strict premises. Judgmental prediction is a technique where people make appraisal of hereafters conditions. Based on old conditions ( economical, historical and other relevant factors ) . This technique can supply good estimations particularly when it is done by experient predictors. Quantitative method is based on numerical informations relevant to the beginning gross. This method is besides practical and makes considerable premise about prediction. The manner this method provides the degree of uncertainness makes it one of the common prediction methods used by companies. The following techniques is Times series attack which is the technique that private sector frequently uses because of the features of informations used by these companies. 2.2 Assess the beginnings of financess available to an organisation for a particular undertaking There are several beginnings of financess available in organisation for a specific undertaking: Issue extra equity: there are frequently used on the 2nd grade market by a quoted Dynamic Model PLC publishing portions or an unquoted Dynamic Model PLC to obtain a citation. When the company needs to spread out and turn, the organisation could trust on difference in order to supply necessary resources ( loaners ) . The sum of money demands to payback with involvements and capital refunds at a peculiar period of clip as fixed by the contract. Shares represent the sum of financess supplied for good to the company for their acquisition. These are provided by an investor and are non-returnable unless in an event of settlement. Investor expects wagess from the company profitableness and do hold ownership of the staying financess of the concern. Bank adoptions, retained net incomes and limited portions are used by little concerns and Private Sector Company. ( The Association of Business Executives, 2011 ) 3. Participate in the budgetary procedure of an organisation 3.1 Choice appropriate budgetary marks for an organisation In order to measure financially the assorted marks of Dynamic Models PLC s direction, the company needs to put up an appropriate budget. Budget is a fiscal tool which includes a prediction net income and loss history, balance sheet, hard currency flow statement analyzed per month of the accounting period in order to ease control. Budget purposes at calculating a long term aims of Dynamic Models PLC direction. It besides aims at comparing existent public presentation to the budget by utilizing discrepancy analysis. An inauspicious discrepancy is a negative result for the company and, reciprocally, favourable discrepancy is positive. Accountants are supposed to reexamine their fabrication scheme and bing method when the company is non executing good in order to take disciplinary action and prosecute the company objectives in a long tally which is profitableness. Most of the clip, budget are used for a period of 12 months merely little companies set up their budget for a period of 6months. 3.2 Create a maestro budget for an organisation In order to make a maestro budget for Dynamic Model PLC, comptrollers and all the people involved in the accounting procedure demand to travel through two different subdivisions: the operation budget and the fiscal budget. Current economic conditions helps accountant to get the better of troubles met during the budgeting procedure program, In fact, relevant information demand to be considered to put up accurate marks. During the operation budget, the income statement, gross revenues budget, operating disbursals and cost of goods sold are analyzed. In such instance, Dynamic Model PLC has no got gross revenues gross yet and the operation budget will be made based on budgeted disbursals and back uping agendas. Community Service Reflection EssayBudget can easy be made utilizing the cost of each relevant cost driver ; It helps director to place unprofitable merchandise and reexamine the fabrication Procedure and make up ones mind whether to fabricate the merchandise or supply it. 5. Use fiscal assessment techniques to do strategic investing determinations 5.1 Apply fiscal assessment methods to analyse viing investing undertaking in the public and private sector In order to do viing investing undertaking, the company needs to utilize investing assessment technique which will assist them to look at the possible capital of investing by a house and step its possible value to the house. There are 3 methods of investing assessment which evaluate the possible return on investing: Payback method ; Annual or mean rate of return ; Net present value method. Payback method is simple and clear. It helps directors to find what undertaking among the chosen 1s return the initial cost of investing quicker. For case, the organisation has chosen 2 different undertakings, A and B. By utilizing the payback method, we can place what is the undertaking with a quicker return on investing capital: if undertaking A takes 4years for the company to acquire their investing capital and undertaking B takes 3 old ages, the undertaking that will be chosen will be the undertaking B as the company recover from the capital investing quicker. Annual or mean rate of return is besides simple and clear. However, managerial determinations are made based on one-year or mean rate of every undertaking compared to the old. Therefore the undertaking with a highest rate of return will be the one the company has to take. Then, the last method of assessment technique is Net Present Value. This method seems to be more complex than the old 1s. Managerial determinations are made based on the net hard currency flow adjusted for the effects of altering value of money over clip. The quicker concern have to wait to acquire the money generated from investing, the higher the value is and the most appropriate it is to take that undertaking, Undertaking A Undertaking B Discount rate Investing 52 000 100 000 8 % Year 1 25 000 10 000 0,926 Year 2 20 000 36 000 0,857 Year 3 14 000 40 000 0,794 Year 4 4 000 42 000 0,735 ARR 30 % 32 % PBP 2,50 3,35 NPV ( 8 % ) 2 346 2 742 5.2 Make a justified strategic investing determination utilizing relevant fiscal information Here comes the most of import challenge of directors in the determination devising procedure. In fact, strategic investing determination involves placing the most profitable merchandise among the different capital investing undertakings. Information provided by the investing method used will give a better apprehension to directors on undertaking profitableness. Senior direction demands to hold a closer expression to relevant information in order to do strategic investing determination and find if it is either right or incorrect to put on the undertaking. Undertaking A Undertaking B Discount rate Discount rate Investing 52 000 100 000 8 % 20 % Year 1 25 000 10 000 0,926 0,833 Year 2 20 000 36 000 0,857 0,694 Year 3 14 000 40 000 0,794 0,579 Year 4 4 000 42 000 0,735 0,482 ARR 30 % 32 % PBP 2,50 3,35 NPV ( 8 % ) 2 346 2 742 NPV ( 20 % ) 7 261 23 282 Based on 8 % price reduction rate, director should make up ones mind to travel for undertaking A as the NPV and ARR are more of import. 5.3 Report on the rightness of a strategic investing determination utilizing information from a post-audit assessment Post audit assessment is a fiscal tool aimed at analysing the existent cost and benefit of the undertaking after been implemented. Then comparing with initial outlooks is made in order to place anything that might hold gone incorrect during the execution of the undertaking. In instance outlooks are non what the company has planned disciplinary action demand to be taken. Based on the tabular array above, the payback period of undertaking A is ( 2,5years ) is more suited than the payback period of undertaking B ( 3.35years ) . However, the one-year or mean return of return of the undertaking B ( 32 % ) is more suited than undertaking A ( 30 % ) . Both methods are non truly accurate because they do non see the factor of clip value of money. The net present value is the most accurate and most used fiscal assessment method as it does see the factor of clip value for money. Therefore, if the price reduction rate remains the same ( 8 % ) , both undertakings are suited for the company but the undertaking B is more profitable. However, if the price reduction rate goes up to 20 % both undertaking are non suited for the company objectives because of their negative impact. 6. Interpret fiscal statements for planning and determination devising 6.1 Analyze fiscal statements to measure the fiscal viability of an organisation For the company to pay its duties one clip as required, Dynamic Model PLC needs to be liquid. Therefore the usage of fiscal ration will assist manages to run into their current liabilities. Current ratio = Current assets/ Current liabilities Quick ratio = Current assets less stock/ Current liabilities Trade Receivable turnover = Trade receivables/ Gross saless gross Stock/ Inventory turnover = Inventory/ Cost of gross revenues Net income Margin = Net income/ Gross saless Asset turnover ratio = Gross saless revenue/ Entire assets Tax return on Capital Employed = Operating Profit/ Gross saless gross Gearing = Preference Share Capital + Long-term liabilities/ Total assets Current liabilities 2010 2011 Current ratio 650/350 = 1,9 490/300 = 1,6 Quick ratio ( 650-330 ) /350 = 0,9 ( 490-230 ) /300 = 0,9 Trade Receivable turnover 220*365/3500 = 22 170*365/2990 = 20 Stock/ Inventory turnover 330*365/2135 = 56 230*365/1823 = 46 Net income Margin 114*100 % /3500 = 3,26 % 76*100 % /2990 = 2,64 % Asset turnover ratio 3500/2300 = 1,5 2990/ 2065 = 1,4 Tax return on Capital Employed 258*100 % /3500 = 7,37 % 193*100 % /2990 = 6,45 % Gearing ( 150+625 ) / ( 2300-350 ) = 39 % ( 150+540 ) / ( 2065-300 ) = 39 % 6.2 Apply fiscal ratios to better the quality of fiscal information Careful reading is required when construing ratio analysis. They give a full apprehension on the company profitableness, liquidness, efficiency and construction of geartrain, beginnings and utilizations of hard currency and their net consequence. However, ratio analysis has some restrictions: Changes in fiscal consequences are explained but they do non demo the ground why ; Deterioration shown non ever indicate the hapless direction issues Good determination can non be made on excessively much significance to single ratio. 2010 2011 Discrepancy % Current ratio 1,9 1,6 -0,3 -16 Quick ratio 0,9 0,9 Trade Receivable turnover 22 20 -2 -9 Stock/ Inventory turnover 56 46 -10 -18 Net income Margin 3,26 % 2,64 % -0,62 % -19 Asset turnover ratio 1,5 1,4 -0,1 -7 Tax return on Capital Employed 7,37 % 6,45 % -0,92 % -12 Gearing 39 % 39 % Harmonizing to the tabular array above, we can see that current ratio lessening by 16 % . However speedy ratio shows that liquidness is available to pay their short term liabilities. Trade receivable turnover and stock/inventory decreased by 2 and 10 yearss severally. Profit Margin lessening by 19 % in 2011 and plus turnover is less than 0.1 times. Return on capital employed lessening by 12 % but pitching remain changeless. 2011 Average Discrepancy % Current ratio 1,6 2,2 0,6 38 Quick ratio 0,9 1,1 0,2 22 Trade Receivable turnover 20 10 -10 -100 Stock/ Inventory turnover 46 7 -39 -85 Net income Margin 2,64 % 25,00 % 22,36 % 847 Asset turnover ratio 1,4 2 0,6 43 Tax return on Capital Employed 6,45 % 50,00 % 43,55 % 675 Gearing 39 % 20 % -0,19 -49 Figures in 2011 comparison to industry mean ration shown that mean current ration and speedy ration are better value and increase by 38 % and 43, 55 % severally. Gearing was decreased by $ ( % and plus turnover 0.6times more than 2011. 6.3 Recommendations on the strategic portfolio of an organisation In order to turn to new capablenesss and new potency markets, directors use a scheme portfolio. It is a fiscal tool which enables organisation to look at the market chance in the long tally. A strategic portfolio needs to be developed in a manner where schemes undertaken are aimed at prosecuting Dynamic Model PLC s mission and aims. It aims at puting places, placing marks and monitoring public presentations. It besides takes into history all the possible alterations that may happen to take disciplinary action. Therefore, Dynamic Models PLC can merely better their current state of affairs and fiscal statement by: Increasing entire current assets such as stock list ; Increasing income for better net income border and return on capital employed ; Increasing gross revenues for better net income border and trade receivable turnover.