Discuss About The Capital Budgeting Decision Edition Economic?
Flexible budget to determine the value of variable cost at different expenditure level. Variable cost is depended on the capacity used and revenue generated. Flexible budgets help to determine the various variable costs that are associated with different level of production. So it can be said that with the help of flexible budgets past performance of the organization can be calculated through evaluating the actual usage and budgeted usage on same level of activity. In evaluating the performance it will provide details of change in variable costs and semi variable costs. There can many reasons that make flexible budget an essential part to evaluate the part performance of the manufacturing business. Flexible budgets are beneficial where costs change frequently with the level of business activity (Pratt, 2003). For example, in the manufacturing business the budgeted overheads are segregated and added as fixed cost and other variable costs are directly linked with the level of revenue. The objective of such performance evaluation will be to evaluate the variances under actual expenses and budgeted expenses. The variances will help to focus on the particular area of expenses and all action will be taken to control the cost (Norton and Porter, 2008).
Cash Budgets are prepared to show how the cash flows within the business. The purpose of cash budget is to check the requirement of cash to fulfill the requirement of working capital within the business operation. Cash budget is typically dependent upon the three other budgets that are prepared before making the cash budgets. Cash budgets firstly needs the cash receipts that directly comes from the sales budgets, secondly cash budget need cash expenses that comes from the purchase budget and lastly any cash expenses (fixed or variable) can be taken from the projected profit and loss account and projected balance sheet.
Mainly cash receipts are received after or in 1 or 2 months of sales have been made. So it impacts the cash budget directly as any variation in prediction of cash receipts will directly change the cash requirements. Similarly in case of cash payments there will be flow of cash to the suppliers depending upon the cash credits they provide. So any change in cash credits it will directly impact the cash budget (Besley and Brigham, 2008).
Operating cycle refers to the average time taken for receipts of cash from the sale of inventory after the acquisition of inventory. Operating cycle is different from the cash cycle as cash cycle is influenced with many other factors while operating cycle in linked with the sale of inventory and cash receipts from inventory. Short operating cycle means business will receive the cash very frequently. On the other hand cash conversion cycle means days required or taken to convert the business resources into cash flows. Cash cycle is very important for any business as it tells time period taken from each dollar value of inventory is put to the production and sales made before any cash is realized (Shim, Siegel and Shim, 2011). Working capital refers to the difference of short term assets and short term liabilities. So the difference of these two these items is working capital which is needed to finance the business operations. Cash cycle means time needed to convert resources back into cash. The difference in value of cash received and cash expenses will help to finance the working capital requirement and also generates the income (Besley and Brigham, 2008).
A Government organization varies from not profit organization to profit sharing basis organizations. Not profit organizations work for the public interest with a motive to earn the profits. Accounting in the non government organization will reveals only the cash received and cash paid at various public benefit transactions. Private companies are required to report the government and the top management about the profitability of the company. In case of government there are no such liabilities, so therefore it is not compulsory to follow each and every step for accounting in government organization (Bierman and Smidt, 2007).
Cost accounting refers to the process of collecting the information about the cost of products, recording them properly, classifying them accordingly, and lastly analyzing and summarizing the various elements of cost to provide the management with best alternative they can adopt for making the policies regarding the cost efficiency and coat capabilities. Under the costing system there are many costing process such as activity based costing system, traditional costing system, and standard costing etc. These systems provide information regarding the cost behavior and cost control (Pratt, 2003).
|
Budget for the year |
|
|
Direct labour costs for the year |
$ 537,600.00 |
|
Manufacturing overheads for the year |
$ 598,080.00 |
|
Administrative overheads for the year |
$ 695,520.00 |
|
Direct labour hours for the year |
14000.00 |
|
Total machine hours for the year |
7000.00 |
Manufacturing overheads are distributed on the basis of machine hours are consumed, therefore manufacturing overhead allocation rate will be calculated as under:
|
Calculation of the Manufacturing overhead allocation rate |
|
|
Manufacturing overheads for the year |
$ 598,080.00 |
|
Total machine hours for the year |
7000.00 |
|
Manufacturing overhead allocation rate |
$ 85.44 |
Administrative overheads are distributed on the basis of direct labour hours are consumed, therefore administrative overhead allocation rate will be calculated as under:
|
Calculation of the administrative overhead allocation rate |
|
|
Administrative overheads for the year |
$ 695,520.00 |
|
Direct labour hours for the year |
14000.00 |
|
Administrative overhead allocation rate |
$ 49.68 |
|
Calculation of the Labour hour rate |
|
|
Direct labour costs for the year |
$ 537,600.00 |
|
Direct labour hours for the year |
14000.00 |
|
Labour Hour Rate |
$ 38.40 |
(Besley and Brigham, 2008)
|
Calculation of price for especially ordered wonderful creation |
|
|
Particulars |
Amount |
|
Direct materials |
$ 19,000.00 |
|
Direct labour |
$ 28,800.00 |
|
Manufacturing overheads |
$ 34,176.00 |
|
Administrative overheads |
$ 37,260.00 |
|
Total Cost |
$ 119,236.00 |
|
Add: Mark up @40% of total cost |
$ 47,694.40 |
|
Price to be quoted to Bushy George |
$ 166,930.40 |
Overhead expenses are not directly identified in the products as it occurs in relation to manufacturing process not with the manufacturing process. Overhead rates such as administrative overhead rate and manufacturing overhead rate are linked with how much labour hours and machine hours has been used in the product. While considering the cost related to job or taking decision regarding the price than there is need to check the overheads that are used indirectly to arrive the total cost (Pratt, 2003). While producing different products there is use various activities and cost related to that activity is needed to include in the total cost. In traditional costing approach all indirect overheads are allocated using one overhead rate like machine hour or labour hour rate. Under this approach, activities that are not even used in the particular product become part of it. Alternative approach for this is activity based costing (Adler, 2013).
Predetermined overhead rate are used to calculate the unit cost of the product due to many reasons. It is easier to calculate the cost of product using the budgeted overhead rate rather than using the actual overhead used in the product. It also simplifies the cost accounting work at the year end. Every product uses some cost of overhead but it is very time consuming process so companies think fit to use the budgeted overhead rate (Besley and Brigham, 2008).
References
Adler, R. 2013. Management Accounting. Routledge.
Besley, S. and Brigham, E. F. 2008. Essentials of Managerial Finance. Cengage Learning.
Bierman, H., and Smidt, S. 2007. The Capital Budgeting Decision, Ninth Edition: Economic Analysis of Investment Projects. Routledge
Norton,C. and Porter, G. 2008. Financial Accounting: The Impact on Decision Makers. Cengage Learning.
Pratt, S. P. 2003. Cost of Capital: Estimation and Applications. John Wiley & Sons.
Shim, J.K., Siegel, J.G. and Shim, A.I. 2011. Budgeting Basics and Beyond. John Wile
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download
