ACC732 COST ACCOUNTING

ASSIGNMENT ONE

15%

DUE DATE 20 NOVEMBER 2020, 4:30pm

Name: Miller Bakeoliu

ID: 700028446

Lecturer: Mr Watson Buare

 1. Discuss the steps that Solomon Islands Government used to prepare its annual budget
(4MKS).
Steps for Solomon Islands Government Annual Budget Process

1. Budget Development
The first step of the budget preparation process is identifying budget objectives and
operating budget requests. These budget requests are submitted to the budget office for
review. The chief executive reviews the budget requests with the finance director. Meetings
are held with the department directors and budget staff to go over requests. Once the chief
executive drafts a proposed budget, it goes to the legislative body (e.g. city council, or the
county board) for approval. This process can take up to six months.

2. Budget Approval, Adoption & Implementation

When the proposed budget goes to the legislative body for review, each member of the
legislative body reviews the budget in detail (during what are known as work sessions) and
hosts a public budget hearing and information session for public input. After community
input and review, the local legislative will adopt the budget.
After the budget is implemented, the budget office’s duties include monitoring
expenditures and ensuring that funds are spent as intended. At the end of the fiscal year,
the legislative body will approve a final budget reconciliation, among other year-end
accounting modifications to the budget. An independent auditor will review the
Comprehensive Annual Financial Report (CAFR) and determine its compliance.

3. Citizen Engagement
It is important that community members provide input throughout the budget planning
process. Soliciting their input in the local government’s choices further strengthens trust
and support. Ways to engage residents in the process include:
• Open houses
• Citizen academies
• Focused discussion sessions
The annual budget directly affects where citizens live and work, and should be influenced by
their needs and concerns.

4. Communicating the Budget

After administrative preparation, legislative approval, and financial implementation, the
annual budget is ready to be communicated to the public. Examples of communications
methods include:
• Formal budget books
• Press releases
• Public presentations
• Summary sheets
• Social media

The annual budget process begins six months into the fiscal year. It usually takes public
sector organizations between six and nine months from initial planning to final approval.
 2. Discuss the Limitations of Standard costing with examples of companies using the method in
Solomon islands (3marks)
Limitation of standard costing
 Setting of the standards is a very difficult task. It requires a lot of scientific studies such as
time-study, fatigue study, motion-study, etc. and therefore it is very costly. Small firms may
find it very difficult to operate such system.

 The standards are fixed in estimates and once set, are not changed for a considerable amount
of time. This makes the standards highly unrealistic in certain industries, which face
fluctuations in prices of products due to frequent changes in material and labour costs.
Revision of standards is also not easy; in case of revision, cost would be high.

 It is not suitable for industries producing non-standardized products. It is of little value in job
or contract costing. Also its difficult to apply this system when production takes more than
one accounting period

 Normally the system is strongly opposed by managers and others as they see it as a threat to
their freedom of action. Standards may sometimes create adverse psychological effects
(emotional distress) on managers and workers, who are operating the system.

Some examples of companies using the standard costing method in Solomon Islands include; Sol-
Tuna and Sol-Brew

3. Expected sales volume: 3,000 units in the first quarter with 500-unit increments for each
following quarter.
Sales price: $60 per unit.
Requirement
Prepare sales budget

Sales budget
Quarter (3 months) Quantity (units) Price ($) Amount ($)
1st 3,000 60 180,000
2nd 3,500 60 210,000
3rd 4,000 60 240,000
4th 4,500 60 270,000

Total 15,000 900,000

4. The production of a certain unit is assumed to require 80 kgs. of material costing Rs. 1.50 per
kg. On completion of the production of a unit it was found that 75 kgs. of material costing Rs.
1.75 per kg. has been consumed.
Calculate the variances. (5MARKS)
I. Material cost variance
II. Material Price variance
 III. Material usuage variance

Calculations
Key
Standard quantity (SQ) 80kg of materials
Standard price (SP) $1.50 per Kg
Actual quantity (AQ) 75Kg of materials
Actual price (AP) 1.75 per Kg

Material cost variance=( SQ × SP )− ( AQ × AP )

¿ ( 80 ×1.50 ) −(75 ×1.75)

¿ ( 120 )−(131.25)

¿ $−11.25∨($ 11.25) (Unfavourable)

Material price variance=( SP− AP )× AQ

¿(1.50−1.75)× 75

¿ $−18.75∨( $ 18.75 ) (Unfavourable)

Material usage variance=( SQ− AQ)× SP

¿( 80−75)×1.50

¿ $ 7.5
Bibliography

What is the local government annual budget process? (n.d.). Retrieved from
https://opengov.com/faq/local-government-budget-process

Pranav Kumar. (n.d.). Standard costing: utility, advantages and limitations. Retrieved from
https://www.yourarticlelibrary.com/accounting/standard-costing/standard-costing-utility-
advantages-and-limitations/62346

Singh Rana. (n.d.). Variance analysis. Retrieved from

https://www.slideshare.net/mobile/ranasingh0820/variance-analysis-13350489