(a) Benefits of Digital Costing System are as follows:
(i) Ascertainment of cost with certainty on a cost object. This helps to
analyse the activities for cost allocation and apportionment.
(ii) Analysis of data on time spent on each activity to study and formulate
incentive plans.
(iii) Helps in material requirement planning and scheduling the material
procurement. Data on resource consumption can be analysed for
resource optimisation and finding the possibilities for zero wastage
and Just-in Time (JIT).
(iv) Helps to identify and eliminate the non-value-added activities.
(v) Data on resource consumption is helpful in setting the standards and
measurement of variances on real time basis.
(vi) Data on current market prices of material and consumables helps to
estimate cost and setting standards on Marked to Market (M2M) basis.
(vii) Extrapolation of data on customer behaviour towards the products to
predict the market demand. It is helpful is preparation of budgets and
planning of production.
(viii) A better analysis of cost behaviour improves the cost benefit analysis
and equipping the management in informed decision making.
(b) (i) Controllable variances: Controllable variances are those which can be
controlled under the normal operating conditions if a responsibility
centre takes preventive measures and acts prudently. Responsibility
centres are answerable for all adverse variances which could have been
controlled.
(ii) Uncontrollable variances: Uncontrollable variances are those which
occurs due to conditions which are beyond the control of a
responsibility centre and cannot be controlled even though all
preventive measures are in place.
(iii) Budget Manual: The budget manual is a booklet specifying the
objectives of an organisation in relation to its strategy. The budget is
made to decide how much an organisation would earn and spend and
in what manner. In the budget, the organisation sets its priorities too.
Budget manual is also defined as, “A document which sets out the
responsibilities of the persons engaged in, the routine of, and the
forms and records required for, budgetary control.”
Effective budgetary planning relies on the provision of adequate
information to the individuals involved in the planning process. Many
of these information needs are contained in the budget manual. A
budget manual is a collection of documents that contains key
information for those involved in the planning process.
(iv) Performance budgeting: Performance budgeting (PB) involves
evaluation of the performance of an organisation in the context of both
specific as well as overall objectives of the organisation.
Performance Budgeting provide a meaningful relationship between
estimated inputs and expected outputs as an integral part of the
budgeting system. A performance budget is one which presents the
purposes and objectives for which funds are required, the costs of the
programmes proposed for achieving those objectives, and quantitative
data measuring the accomplishments and work performed under each
programme. Thus, PB is a technique of presenting budgets for costs
and revenues in terms of functions. Programmes and activities
correlate the physical and financial aspect of the individual items
comprising the budget.
(v) Budget period: The period covered by a budget is known as budget
period. There is no general rule governing the selection of the budget
period. In practice the Budget Committee determines the length of the
budget period suitable for the business. Normally, a calendar year or a
period co-terminus with the financial year is adopted. The budget
period for the calendar or financial year is then divided into shorter
periods; it may be monthly or quarterly or for such periods as coincide
with period of trading activity of the business.
COST AND MANAGEMENT ACCOUNTING
(c) By-product cost can be dealt in cost accounting in the following ways:
(i) When they are of small total value: When the by-products are of
small total value, the amount realised from their sale may be dealt in
any one the following two ways:
1.
The sales value of the by-products may be credited to the Costing
Profit and Loss Account and no credit be given in the Cost
Accounts. The credit to the Costing Profit and Loss Account here
is treated either as miscellaneous income or as additional sales
revenue.
2.
The sale proceeds of the by-product may be treated as deductions
from the total costs. The sale proceeds in fact should be deducted
either from the production cost or from the cost of sales.
(ii) When the by-products are of considerable total value: Where by-
products are of considerable total value, they may be regarded as joint
products rather than as by-products. To determine exact cost of by-
products the costs incurred upto the point of separation, should be
apportioned over by-products and joint products by using a logical
basis. In this case, the joint costs may be divided over joint products
and by-products by using relative market values; physical output
method (at the point of split off) or ultimate selling prices (if sold).
(iii) Where they require further processing: In this case, the net realisable
value of the by-product at the split-off point may be arrived at by
subtracting the further processing cost from the realisable value of by-
products.
If total sales value of by-products at split-off point is small, it may be
treated as per the provisions discussed above under (i).
In the contrary case, the amount realised from the sale of by-products
will be considerable and thus it may be treated as discussed under (ii).
OR
(c) Job Costing is defined as “the category of basic costing methods which is
applicable where the work consists of separate contracts, jobs or batches,
each of which is authorised by specific order or contract.” According to this
method, costs are collected and accumulated according to jobs, contracts,
products or work orders. Each job or unit of production is treated as a
separate entity for the purpose of costing.
Difference between job and batch costing
Sr.
No.
Job Costing
Batch Costing
1.
Method of costing used for
non-
standard
and
non-
repetitive products produced
as per customer specifications
and against specific orders.
Homogeneous products produced
in a continuous production flow in
lots.
2.
Cost determined for each Job Cost determined in aggregate for
the entire Batch and then arrived at
on per unit basis.
3.
Jobs are different from each
other and independent of
each other. Each Job is unique.
Products produced in a batch are
homogeneous
and
lack
of
individuality