Jill Collis

The Statement of Financial Position

non-current assets derivative financial assets 10 4,831 5,468 2,382 4,831 2,382 other financial assets 12 4,257 15,611 2,123 4,644 2,480 Intangibles 15 4,073 8,815 4,289 4,238 4,606 Investment properties 16 217,617 215,282 220,368 217,617 220,368 Property, plant and equipment 17 5,965,492 5,924,407 5,854,426 5,993,474 5,883,089 Investment in subsidiaries 37 6,509 6,509 6,509 Investment in associates 38 19,468 19,558 19,558 157,748 142,887

Standard Costing — Overhead Variances and Sales Variances

When we examined absorption costing in Chapter 7, we saw that overheads could be charged to production in a variety of ways. The budgeted overhead for the period was divided by the appropriate units of base, a measure of time being the preferred method. One method of measuring output is in the form of standard hours of production. This is the method we will use in this chapter when considering overhead variance analysis.

Cost and Management Accounting in Context

This chapter explains why the techniques and methods of cost and management accounting are important tools in many organisations. In practice, the phrase management accounting is often used to cover both cost and management accounting. Whether the activity is producing game shows for television, manufacturing computers, running a hospital ward or taking tourists on holiday, the organisation’s managers require financial information to help them do their job efficiently and effectively. Cost and management accounting contribute to good management by providing financial information that assists managers in controlling activities, making plans and deciding between alternative courses of action. There are no legal requirements for businesses and other forms of organisation to have a cost and management accounting system, but experience shows that such a system plays a valuable part in the efficient running of any establishment.

By-product Costing and Joint Product Costing

In process costing it is usual to distinguish between the main product of the process and by-products or joint products. By-products are the output of a process that have secondary economic significance to the main product of the process and they may require further processing to make them marketable. Joint products are the output of a process in which there is more than one product and all the products have similar or equal economic importance. They use the same commonly processed materials up to a certain point (the split-off point), although they may require further processing to make them marketable.

Allocation and Apportionment of Overheads

At some point an organisation may wish to know the total cost of a particular product or service. The records kept of direct costs, such as materials and labour, enable these costs to be identified with specific units. However, an organisation also incurs indirect expenses, such as rent and rates, light and heat, insurance and salaries of supervisors. Some method must be found to charge a fair share of these indirect expenses, known as overheads, to individual cost units to find the total cost of each unit.

Absorption Costing and Marginal Costing Compared

Absorption costing, which we discussed in Chapter 7, is a technique which charges fixed costs to products or cost units. The fixed overheads are either allocated or apportioned to cost centres. An overhead absorption rate is then used to charge the production cost centre costs to the cost units passing through them. Although the process is arbitrary, the result is that a cost unit is charged with what is deemed to be a fair share of the fixed overhead.