Active Now is an Irish company, owned and managed by partners Frances and Evelyn O'Connell, which manufactures specialised sporting equipment. Due to an expanding fitness market, Active Now has experienced considerable growth since it was formed less than three years ago. You have recently commenced work as a management accountant at Active Now and have proposed the introduction of variance analysis to improve the company's management control processes. However, Frances and Evelyn are unconvinced of the benefits of your proposal. They believe that Active Now is performing well and have provided you with the following report to demonstrate that the profit achieved in 2020 was higher than budgeted. 2020 Standard Static Actual per unit - € Budget - € Results - € Sales revenue 10.00 6,000,000 7,275,000 Manufacturing costs: Material: 0.10 kg @ €20 per kg Labour X: 0.1 dlh* @ €10 per dlh Labour Y: 0.05 dlh* @ €15 per dlh Variable overhead: 0.15 dlh* @ €12 per dlh Fixed overhead 2.00 1.00 1,200,000 600,000 450,000 1,080,000 1,485,000 1,470,000 1,552,500 783,750 627,000 0.75 1.80 2.45 1,500,000 Gross profit 2.00 1,200,000 1,326,750 * dlh = direct labour hours You examine Active Now's records for 2020 and establish that the actual sales volume was 25% higher than originally budgeted. Due to a change in supplier, the actual price paid for the materials used in production during the year was €23 per kilogram. With regard to both labour types, a lack of staff training resulted in a 10% increase in the actual time taken to produce each unit during the year. As per its policy, Active Now did not have any inventories at the beginning or end of 2020.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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