4 Appropriation of profit in the financial statements eg Dividend paidproposed

4 appropriation of profit in the financial statements

This preview shows page 422 - 424 out of 439 pages.

4. Appropriation of profit in the financial statements eg. Dividend paid/proposed, transfer to reserves, income tax etc. Differences between financial and cost accounting in the calculation of actual overhead costs incurred e.g. in the computation of depreciation there may be a difference in the depreciation method, expected life of the asset. If there is a temporary closing balance on the under/over absorbed overhead account in the cost account, there will be a difference in the overhead costs for the period between the two accounts which must be included in the reconciliation. Stock at hand at the end of the period. This is due to the stock valuation method differences. For financial accounts the variation may be the lower of the historical or net realizable value while for cost account FIFO, LIFO, Std Cost, weighted average may be applied. QUESTION SEVEN a) Fixed and flexible budget Fixed budget - Where a master budget is prepared where the production and sales were to meet a standard, it’s a fixed budget where a specific target is to be reached. This means:- - The budget is prepared on the basis of an estimated volume of production and sales with no plan for changes. - They are based on one activity level - When actual volume of production and sales are achieved a fixed- budget is not adjusted to reflect the new levels. C OST ACCOUNTING 416
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417 Revision Aid Flexible budget - This is prepared by a process called flexing the budget. For cost control actual costs is compared with budgeted costs for the same level of activity i.e. like must be compared with like. This requires the recognition of costs being classifiable as fixed, variable or semi-mixed costs. Budgeted costs can be adjusted to the level of activity. They are essential because:- 1. Management needs to be informed about performance achieved for its evaluations, a yardstick (budget) must be there. 2. Every business is dynamic and actual volumes of activity can’t conform exactly with the fixed budget. 3. For useful control information, actual results must be compared at the actual level of activity achieved against the results that should be expected at this level of activity (the flexible budget). b) Controllable and uncontrollable costs Controllable cost – is one that is reasonably subject to regulations by the manager with whose responsibility the cost is being classified. All costs are controllable at some level of management e.g. Directors can influence almost all costs in an organization e.g. labour costs by varying wage rates or labour hours etc. A supervisor has control on only a few sets of costs. Most variable costs can be controllable as they can be influenced by the management. Future costs can also be influenced and therefore can be controlled i.e. management may change production to be more efficient and thus influence future production costs.
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