possible causes of the existing conditions possible causes of the existing condi

ID: 413398 • Letter: P

Question

possible causes of the existing conditions possible causes of the existing conditions possible causes of the existing conditions possible causes of the existing conditions TEM: B. IMPROVING A COST INFORMATION AND ACCUMULATION 5% he GPixel Printing Company reveals An examination of costing methods and procedures in t the following: 1. Costing formulas and ratios prepared a long time ago are still being used by estimators even though prices for materials have increased, overhead is higher, and new im achinery has been installed. 2. An estimator in the production department and a cost clerk in the cost department prepare estimates independently from one another, resulting in widely divergent cost figures. 3. A profit per individual job or order can never be determined. Each job or order is sold with a definite markup. Yet, instead of a profit of RM100,000 as the president hopped for, the chief accountant prepared an income statement showing only a RM48,000 profit. 4. 5. Determining departmental efficiency and control over expenses is not possible. Required: A statement outlining: a. Possible causes of the existing conditions b. Possible steps to remedy the situation.

Explanation / Answer

Identification Of Issues & Problem of Cost Accounting

Financial accounting is the major causes of the existing Conditions. It records in an overall manner the results of the operations of a business, using conventional double entry book-keeping techniques. It suffers from Following Limitation are given below:-

It Only Provide Past Data : As per given in the report they have recorded past data. They are giving information on that basis. Management is interested only on Present data and not on the Past Data.

Reveals only overall results of the business: - It does not provide data for each and every product, process, department or operation separately as per report. It provides the financial information in a summary form for entire organization as a whole.

Static In Nature:- It does not incorporate the changes that take place within the business. Modern business is dynamic but not static .

Fails to exercise control over resources:- It fails to exercise control over materials, labour and other expenses incurred in a business enterprises.

Fails to Provide adequate data for price fixation :- It fails to provide adequate cost data on the basis of which selling price is fixed.

Fails to Provide a basis for Cost Comparison:- It does not help in cost comparison over a period of time or between two jobs or two operations.

Fails to ascertain break-even point:- it does not help in ascertaining the break-even point i.e. the scale or output where the revenue equal the cost. Hence the point of no profit no loss cannot be made under financial account.

From the stated above mentioned the causes of the existing condition. The company is working on the Financial accounting .This is the only major causes to not get proper value about the business on current situation. It does not help management to take the decision making about the price and the business in the dynamic situation .

In today business world , the resources available are very scare. Hence we have to strive hard to obtain maximum output with the available input. In order to ensure the optimum utilization of scare resources , the value of input is measured against the value of the output. It implies the matching cost per unit of the production against the value of output or selling price.

In order to get suitable remedy we have to get the answers of following questions such as

For this problem Introduction of Cost Accounting is introduced. It works on below given stages.

1. It Concerned or take three prime cost element i.e. Direct material Cost, direct labour cost and direct expenses.

2. Overhead cost is also taken and it is devised under the stages.

3. The techniques of actual cost and standard cost is taken by comparing with the actual cost ,the differences are noted, analyzed and disposed of accordingly.

A cost accounting system requires five parts that include:

1. An input measurement basis,

2.An inventory valuation method

3.A cost accumulation method

4.A cost flow assumption

5.A capability of recording inventory cost flows at certain intervals An input measurement basis,

PURPOSES OR OBJECTS OF COST ACCOUNTS

Costing serves number of purposes among which the following are considered to be most important.

Factors to be considered before installing a Cost Accounting System

Product range:- The range of products manufactured and sold also determine the method of costing to be selected. Accordingly range of products must be analysed in terms of size, models, fashions, area of market, competitors and whether the products are made to customers’ specification or for stocking and selling.

Technical consideration: - Technical considerations that influence the installation of cost accounts are as follows : (a) Size and layout of the factory (b) The existence of production and service departments (c) Flow of production (d) Capacity of machines and degree of mechanization (e) Existence of laboratories (f) Internal transport and material handling equipment’s (g) Production control techniques (h) Inspection and testing of materials and finished goods.

Organizational factors: - The problem of installing cost accounting is somewhat difficult in case of an existing business when compared to new business. However, the existing set up of the organization should be least disturbed should the need arise. In order to fix up responsibility to the executives it may be necessary to group the departments. The organizational factors to be considered are (a) size and the type of organization such as line, line and staff, functional and committee organization, (b) the levels of management, viz., top level, middle level and bottom level management, (c) extent of delegation and responsibility, (d) extent of centralization and decentralization, (e) extent of depart mentation, (f) availability of modern office equipment, and (g) number of managerial and supervisory staff

Selling and distribution method:- The chief factors to be considered with regard to distribution process are the warehousing facilities, external transport, market research and other promotional measures, terms of sale and procurement of orders from customers.

Accounting aspects:- The factors to be considered in respect of accounting are : (a) number of financial records, (b) existing forms, (c) registers used, and (d) number of copies required

Area of control to be exercised: - The areas where cost control is to be exercised is to be identified so that each manager may take action relevant to his activities. If material control occupies significant area of control, it must be given topmost priority for exercising control over materials.

Use of electronic data processing: - In modern days it has become a common practice to use electronic data processing equipment and computers. In this situation it is essential to ensure that the equipment meets the needs of the system but not the other way round.

Uniformity:- The practice of adopting uniform costing facilitates inter-firm comparison among various firms belonging to the same industry. Further it also has the benefit of adopting common costing practice if a holding company has number of subsidiaries.

Practical considerations: - The cost accounting system to be installed must be flexible in operation and must be capable of adaptation to changing conditions. The system must be periodically scrutinized so as to make necessary changes owing to development in business.A.) Possible Causes of the Existing Conditions.