Physical Units Approach And Net Realisable Value Approach To Allocate Joint Costs

Job Costing, Operation Costing and Process Costing

There were various data related to the cost of selling the goods, cost of the raw material and computation of the work-in process and the accounts payable computation. While computing the manual solution, all the associated data with various heads were also taken into consideration and appropriate data has been entered for various heads. The data that are entered in the spreadsheet solution are taken from the manual solutions only after completing the manual solution. Therefore, the manual solutions have been created first. 

Computations by physical unit approach

Computations by net realisable value (NRV) method 

When the manufacturing process includes more than one by-product that are different from the final product then the treatment of cost are required for the by-products. If the manufacturing procedure involves any cost even before split-off point, then as per the requirement of IFRS as well as GAAP the cost must be assigned to the individual products.  In the above presented solution the costs are assigned based on the particular product (Whitecotton, Libby & Phillips, 2013).

When the sales value cannot be obtained at the split-off point then the method that can be used for the allocation of the joint cost is the net realizable value (NRV) approach. Under this method the cost of the by-products are assigned based on the value of the final sales less the separable costs. The final sales value is the price tag of the product that is the price paid by the customers. This price is paid after all the manufacturing costs irrespective of whether they are separable cost or joint costs that are incurred after the split-off point. This method also makes a proper evaluation of the benefits received with the costs that are incurred (Corum, Vayvay & Bayraktar, 2014). 

The direct material variance is the difference between the materials that are actually used for the production of the product and the difference between the standard price and actual price of the direct material. The direct material variances are computed to analyse the efficiency of the purchase department for obtaining the direct material at the minimum possible cost. The positive outcome means there is favourable variances and the negative outcome represents unfavourable variance (Kerzner, 2013).

Other areas where the calculation of variances can be of crucial importance are the overhead variances, labour variance and material purchase variance. These variances can be of great assistance and are therefore regarded as compulsory for most of the manufacturing organizations where the manufacturing processes involved usages of labour and material to the greater extent and the process gives rise to various overheads (Xia & Walker, 2015).

The computation for the overhead variance is done for the difference in the cost of the fixed production for the particular period of time. If the variance is favourable that means the actual expense is less as compared to the budgeted expense. On the contrary, if the variance is unfavourable that means the actual expense is more than the budgeted expense. Moreover, the difference between the absorbed overheads and the incurred overheads are known as the under absorption or over absorption. These variances are further known as the overhead variances. The overhead variance enables the users to get a clear idea about the variance among the actual cost and budgeted cost.  The absorption rate enables the user to evaluate the variances from various aspects and the variances under the overheads are called as the overhead variances. The total variances for the overhead cost are differentiated into different elements and further into different elements, if possible. However, the evaluation of the overhead variance does not provide a chance to the users to take any appropriate measures for progressing the variances associated with the overhead cost. Therefore, the cost is analysed again and are segregated into various components for giving a clear idea for the variances in the overhead cost. The costs are forecasted based on the three kinds of costs that are associated with the overhead variance. These costs are the costs that are associated with absorbed overheads, budgeted overheads and the cost of expensed overhead (DRURY, 2013) . 

Computations by Physical Unit Approach

The budget that is prepared by the government are normally shows the plan and programme that takes into consideration the programmes, goals and objectives that are needed for to be obtained during the particular period. It accounts for the incomes and the expenses that are expected to the expensed for the particular period during the future period. While preparing the budget, the government takes into consideration various aspects for instances the fiscal policies, the administrative policies, the social and economic factors are few to be named.  If the budgeting is considered as the non-technical procedure then the different legal forms and the legal documents must be approved and signed by the government authorities and the legislations (Matsumura,  Mattison & Miller-Nobles, 2014).  

Different kinds of disciplines and the perspectives are there that must be taken into consideration while the government prepares the budget plan. Though the views of the government is different, the budget is generally taken as to be influence more by the political factors rather than the technical or accounting factors. Moreover, the technical characteristic involves consideration of various factors like regulations, rules and administrations. This also includes the restructuring of the aspects of the policymakers and the influence of the interested parties to the budget (Braun, Tietz & Harrison, 2013).

While preparing the budget plan, the interested groups, stakeholders, public and the officials have much influence on the preparation of the budget programmes. The decision of the budgets is carried out with the association of the approaches, strategies, programmes and the contacts through intervention and agreement. It must be taken into consideration by the public administrations and the higher management to consider the positive aspects of the budget, so that it can be used in future while preparing the budget. Further, the executives in association with the legislature are required to be attentive for the budget. Therefore, the plan for the budget is considered as more political rather than to be technical (Schmeisser et al., 2014).  

The cartoon characters in the above presented animated image is explaining that one character is telling that he has completed the project with budgeted cost and budgeted allocated time while the other character is saying that next time he will get tight budget to be achieved as compared with the previous budget.   

Reference 

Braun, K. W., Tietz, W. M., & Harrison, W. T. (2013). Managerial accounting. Pearson.

Corum, A., Vayvay, Ö., & Bayraktar, E. (2014). The impact of remanufacturing on total inventory cost and order variance. Journal of Cleaner Production, 85, 442-452.

DRURY, C. M. (2013). Management and cost accounting. Springer.

Kerzner, H. (2013). Project management: a systems approach to planning, scheduling, and controlling. John Wiley & Sons.

Matsumura, E. M., Mattison, B. L., & Miller-Nobles, T. L. (2014). Horngren’s Financial & Managerial Accounting. Pearson Education Limited.

Schmeisser, W., Mohnkopf, H., Hartmann, M., & Metze, G. (2014). Innovation Performance Accounting. Springer.

Whitecotton, S., Libby, R., & Phillips, F. (2013). Managerial accounting. McGraw-Hill Higher Education.

Xia, F., & Walker, G. (2015). How much does owner type matter for firm performance? Manufacturing firms in China 1998–2007. Strategic Management Journal, 36(4), 576-585.