Accounting Essay Example

1. Costing systems are only relevant for manufacturing concerns

Due to the fact that it is easy to measure the level of input and output from manufacturing concerns as opposed to the difficulties experienced in measuring inputs and outputs in the services organizations, it is mostly argued that costing systems are only relevant for manufacturing concerns. Furthermore, this is also associated with the fact that most manufacturing concerns have well established costing systems that they have put in place to ensure that they operate at profitable levels. On the other hand, most organizations that offer services do not have elaborate costing systems that may help the organisation to determine whether they are operating at a profit or not. This has made most people to think that costing systems are only meant for manufacturing concerns but not for service delivery concerns. However, this is not the case. Any business concern whether a manufacturing concern or a service concern has the main motive of making profits. Therefore, it must put in place systems that will enable the organisation to control costs in order to maximize profits. As a result, most business organizations whether service or manufacturing oriented have put in place costing systems in a bid to control costs. Services organizations have also made use of both the traditional costing systems as well as the ABC systems in controlling their costs (Hakan162). For example, the fundamentals of activity based system in the service industry include; collection, allocation and distribution of costs to departments, identification of product driven and consumer driven activity centers within various operations in departments, costing the marketing and sales functions as sets of activities, assessing the final revenue from each service group and allocating marketing and sales function costs to customers, using second stage cost drivers among others. This implies that costing systems are not only relevant for manufacturing concerns but are also relevant for the service industry. Therefore, for any organisation regardless of whether it is a service organisation or a manufacturing concern to function effectively and profitably, it must have in put in place an elaborate costing system.

2. Differences between ABC and traditional costing systems

a) The traditional costing method assumes cost objects use resources while on the other hand ABC assumes that cost objects use activities. In other words, ABC costing method acknowledges that one can not manage costs but can only manage the activities being undertaken in a bid to control costs. The traditional cost accounting method on the other hand assumes that costs can be managed which is almost an impossible task.

b) The traditional cost accounting mostly utilizes volume related allocation bases while ABC uses drivers at various levels. In ABC costing, costs are assigned according to the cost and effect relationship between activities and cost objects which is captured using drivers. On the other hand traditional methods use direct labor as well as other volume related allocation bases for assigning costs.

c) The traditional cost accounting is structure oriented while ABC is process oriented. The traditional costing systems are more concerned about organizational charts than the actual process. Therefore, the systems are structural oriented and completely lacks the process view. On the other hand, ABC is process oriented and collects information from processes and can be used in identifying both what needs to be done and how to allocate resources most productively.

3. Identification of cost drivers for various service organizations

a) The Alfred hospital – the following are the main cost drivers for the hospital;

i) Labor hours

ii) Patient bed days

b) The Westpac bank- the following are the cost drivers for the Westpac bank

i) New accounts transactions

ii) Number of ledger entries

c) Brashes records and CD sales department

i) Number of orders received

ii) Number of enquiries received

d) The TAB

i) Labor hours

ii) Service charges

e) Telstra

i) Number of sales calls

ii) Number of enquiries received

f) Smith family welfare organisation

i) Number of enrollments for education

ii) Labor hours

g) The commonwealth employment service

i) Interview hours

ii) Labor hours

h) The crown casino

i) Number of sales calls

ii) Number of enquiries received

MARTHA’S MORTEL

BUDGETED INCOME STATEMENT

FOR THE MONTHS OF JANUARY TO FEBRYARY 2011

FEBRUARY

BUDGETED INCOME IN $

34100.00

22680.00

22320.00

Double rooms

63240.00

47040.00

46900.00

Single rooms

23895.00

13860.00

10230.00

Total budgeted income before GST

121235.00

83580.00

79450.00

LESS: [email protected] 10%

(12123.50)

(8358.00)

(7945.00)

Budgeted income after GST

109111.50

75222.00

71505.00

Question 5

GREEN AND GREY

CLASSIFIED OPERATING EXPENSES BUDGET

FOR JULY TO SEPTEMBER

September

EXPENSES IN $

BUDGETED SELLING EXPENSES

Salaries

Delivery expenses

Advertising

Bad debts

Depreciation

23940.00

25102.50

26202.50

BUDGETEDADMINI-STRATIVE EXPENSES

Salaries

Depreciation

16000.00

16750.00

12800.00

13587.50

13440.00

14227.50

FINANCE COSTS

Interest

Total budgeted monthly expenses

40815.00

38790.00

40530.00

References:

Hakan, G. A. Activity based costing. London: Routledge, 2001.