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Annual Report 2017 - Axiata Group

Conceptual Framework for Financial Reporting

Let's look into the annual report and operate them....

Annual Report 2017 - Axiata Group

I try to get 1MDB but where to find? And Tabung Haji, FELDA, MARA....so many. You may find those interesting!!!

Activity Based Costing - Exercise 2.0

JrCheffeya lagi is in the business of producing cakes for various events. Currently she is making 2 kinds of custom made cakes to her client, birthday cake and wedding cake.

Below are the cost related to the production of both cakes;

	Birthday cake	Wedding cake
DM – Flour	RM6	RM10
DM - Sugar	RM3	RM5
DM - Fruits	RM8	RM12
DL	RM30	RM50
Units produced/mth	450	350
Machine OH cost/mth	RM50,000
Quality control OH cost/mth	RM12,000
Production machine hours	300	400
No of inspection	300	800

Note that the selling price for birthday cake is RM180 and Wedding cake is RM300.

Required:

Calculate cost of production using traditional costing and Activity Based Costing.

Comment whether the pricing decision for the above cakes are appropriate.

This is your exercise 1 and need to be submitted. Make sure you make a copy before hand it in.

Activity Based Costing - Exercise 1.0

JrCheffeya is in the business of producing cakes for various events.  Currently she is making 2 kinds of custom made cakes to her client, birthday cake and wedding cake.

Below are the cost related to the production of both cakes;

	Birthday cake	Wedding cake
Units produced/mth	350	150
Machine OH cost/mth	RM40,000
Quality control OH cost/mth	RM11,000
Production machine hours	200	300
No of inspection	350	450

Required:

Calculate cost of production using traditional coating and Activity Based Costing.

Activity Based Costing - Introduction

Introduction to Activity Based Costing

Activity based costing (ABC) assigns manufacturing overhead costs to products in a more logical manner than the traditional approach of simply allocating costs on the basis of machine hours. Activity based costing first assigns costs to the activities that are the real cause of the overhead. It then assigns the cost of those activities only to the products that are actually demanding the activities.

Simple right?

The method is the same like absorption costing but the costs are absorb logically into relevant activities. Like what the video says, it is not logical to absorb and allocate cost of overheads to all activity at the same rate. Then the unit cost of the product will be different and maybe end up a bit higher. Therefore, it will somehow influence the decision to set the selling price.

Marginal Costing vs Absorption Costing : Exercise

During 2018, Fadhil Works Inc had RM10,000 sales commission, RM2,000 in administrative costs of which RM800 is fixed. They sold 8,500 units and produced 10,000 units. Their selling price per unit was RM45, direct materials was RM10, direct labour RM7 and variable overhead was M3.50. fixed overhead amounted to RM7,500.

Prepare an income statement under Variable costing and Absorption costing.
Show the difference in net profit between the two methods.

Marginal Costing

Marginal Costing

Marginal cost is the variable cost of one unit of product or service. 

Marginal costing is an alternative method of costing to absorption costing. In marginal costing, only variable costs are charged as a cost of sale and a contribution is calculated (sales revenue minus variable cost of sales). Closing inventories of work in progress or finished goods are valued at marginal (variable) production cost. Fixed costs are treated as a period cost, and are charged in full to the profit and loss account of the accounting period in which they are incurred.

The marginal production cost per unit of an item usually consists of the following. 

•Direct materials 

•Direct labour 

•Variable production overheads 

Direct labour costs might be excluded from marginal costs when the work force is a given number of employees on a fixed wage or salary. Even so, it is not uncommon for direct labour to be treated as a variable cost, even when employees are paid a basic wage for a fixed working week. If in doubt, you should treat direct labour as a variable cost unless given clear indications to the contrary. Direct labour is often a step cost, with sufficiently short steps to make labour costs act in a variable fashion. 

The marginal cost of sales usually consists of the marginal cost of production adjusted for inventory movements plus the variable selling costs, which would include items such as sales commission, and possibly some variable distribution costs.

Contribution is an important measure in marginal costing,and it is calculated as the difference between sales value and marginal or variable cost of sales.

Contribution is of fundamental importance in marginal costing, and the term 'contribution' is really short for 'contribution towards covering fixed overheads and making a profit'.

The principles of marginal costing

The principles of marginal costing are as follows. 

a)  Period fixed costs are the same, for any volume of sales and production (provided that the level of activity is within the 'relevant range'). Therefore, by selling an extra item of product or service the following will happen. 

    • Revenue will increase by the sales value of the item sold. 

    • Costs will increase by the variable cost per unit. 

  • Profit will increase by the amount of contribution earned from the extra item. 

b)  Similarly, if the volume of sales falls by one item, the profit will fall by the amount of contribution earned from the item. 

c)  Profit measurement should therefore be based on an analysis of total contribution. Since fixed costs relate to a period of time, and do not change with increases or decreases in sales volume, it is misleading to charge units of sale with a share of fixed costs. Absorption costing is therefore misleading, and it is more appropriate to deduct fixed costs from total contribution for the period to derive a profit figure. 

d)  When a unit of product is made, the extra costs incurred in its manufacture are the variable production costs. Fixed costs are unaffected, and no extra fixed costs are incurred when output is increased. It is therefore argued that the valuation of closing inventories should be at variable production cost (direct materials, direct labour, direct expenses (if any) and variable production overhead) because these are the only costs properly attributable to the product.