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Q3

References

Absorption costing
The absorption cost method refers to a cost accounting method used to account for all
manufacturing costs . This method is used to absorb costs incurred in production.
Manufacturing cost includes direct cost and general overhead. Direct costs include materials
and labor used in the production of . Indirect costs include rent, administration costs,
insurance, and compliance.

Marginal Costing
Marginal cost refers to the increase or decrease in the cost of producing one unit or providing
services to more than one customer which is also known as incremental cost. Marginal costs
are based on variable or direct manufacturing costs such as labor, materials and equipment.
Fixed costs that will incur regardless of whether you increase production. Fixed costs can
include administrative costs and marketing efforts, and they are the same regardless of the
resulting quantity of different costs.

Activity Based Costing

Activity Based Costing (ABC) allocates overhead costs and indirect costs associated with
products and services . This costing method identifies the relationship between products,

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costs, and overhead. Indirect costs are assigned to products in a more arbitrary manner than
traditional costing methods. In about indirect costs, such as salaries of employees and
administrative staff, are difficult to share.
1.

Advantages of Absorption Costing

Some of the main benefits of cost absorption are that it conforms to Generally Accepted
Accounting Principles (GAAP), can identify all costs involved in manufacturing more
accurately track revenues over an accounting period.

GAAP Compliance
The main benefit of choosing to use absorption costs is that it meets the requirements of
GAAP and must be reported to the Internal Revenue Service (IRS).

Accounting for All Production Costs

The absorption costing method considers all production costs, not just direct costs in the
variable cost method. Absorption costs include fixed operating costs, such as wages, invoices,
and facility leases. A fuller understanding of product line unit costs can help management
evaluate profitability and determine product selling prices.

Tracking Profits
Compared to the variable cost method, the cost-taking method also provides a more accurate
estimate of profitability for the firm, especially if all of its products are not sold in the same
accounting period in which they are produced. The company increased production before an
expected seasonal sales increase.

Disadvantages of Absorption Costing

Absorption costs are that they can distort company profits. It is also not useful for analyzes
designed to improve operational and financial performance or to compare product lines.
Skewed Profit and Loss

Absorption costing will be able to make the profit level of a company appear to be higher
than how it is for a specific accounting period. This is because all the fixed costs are not
deducted from the revenue unless all the products are sold.Distorting the income statement
will potentially mislead both the management of the company and the investors.

No Influence on Operational Efficiency

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Absorption costing will not be able to provide cost and quantitative analysis like how variable
costing does.When fixed costs account for a significant portion of the total cost of production,
it is difficult to determine the variation in costs at different production levels. Thus, making it
more difficult for management to agree and make the best decision for operational efficiency.

Not Suited to Product Line Comparison

When a company wants to compare the potential profitability of different product lines, using
variable costs is more effective than take-up costs. The profit difference can be easily
identified by producing one good with another, by looking at the obesity variable which is
directly related to production.

2.

In recent years, marginal costing has gathered many customers\' huge interest. Still being as a
method of accounting for cost, very few of them have adopted the same.

Key points of criticism are:

Determination of product cost and inventory valuation is not appropriate to ignore fixed
costs.
The use of fixed cost payback based on the pricing of products is overridden by the marginal
cost
method.Therefore,not suitable for long-term business continuity. In the long run, the asset
must
be reclaimed.Excluding fixed costs from the valuation of shares does not confirm accepted
accounting practices.Marginal cost is especially effective for short-term profit planning and
decision making. Customers will be interested in costs for special purposes because of their
widespread importance, not cost fluctuations. However, setting cost fluctuations may not be
as
easy. In real-world situations, fixed costs are almost fully non-fixed, and variable costs are
almost fully non-variable. In addition, marginal costs for inventory valuation are not
recognized
by income tax authorities.

3.

Activity-based costing is a costing method developed to address the perceived pain points of
traditional absorption costing.

Problems with traditional absorption costing

Traditional absorption costing is based on the principle that manufacturing overhead depends
on the production level. This is reflected in the activity level selection in the calculation of
overhead absorption rate (OAR) (generally units, working hours and machine hours).
Production level of all the overhead increases,because in the past, companies have produced
only one simple product, or a few simple and similar products.
However,the following points are crucial:
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The costs are used small with other costs in traditional production, additional production
costs,
such as:

Machine depreciation which will be a small percentage of the total cost.This is due to
additional
generation of work and the direct costs,therefore being much higher than indirect costs and a
preliminary estimate of production costs per unit. Costs that are currently stronger than the
total
cost of modern production has become higher than the machine itself, and hence the
production
cost ratio has increased compared to ratio of the direct costs. Thus, it is crucial to be an
accurate
estimate of the production costs per unit.

4.

ActivityBased Costing (ABC) and ActivityBased Management (ABM) are relatively new
cost management tools for the healthcare industry.
ActivityBased Costing is used for strategic decision making how to determine costs for each
client by evaluating the costs associated with certain activities and resources and linking
those costs to specific internal and external clients such as patient service lines and medical
groups in a healthcare company. If so, future costs can be estimated by adjusting this cost
information to account for changes projected in . Meanwhile, Activity Based Management
supports operations by focusing on what causes costs and how to reduce them efficiently.
Costs that directly affect the cost of a product or service evaluate the same people and use
performance measures to evaluate the financial or non-financial benefits the business expects.
By identifying each cost and evaluating the value element adds to the healthcare business,
ABM provides the basis for selecting which successfully reduces cost.

Q2)

Budget Control Goals

The main objectives of budget control are:

1.Goals of company
2. Achievable plan to the defined goal.
3.Coordinate activities in various departments.
4.Operate various departments and cost centres economically and efficiently.
5.Eliminate the waste of 5 and increase profitability.
6.Centralized control system management.
7.Fixed deviation from seat standard.
8.Modify the responsibilities of various individuals in the enterprise.

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Benefits of Budget Management
Budget Management has become a fundamental tool for organizations to manage costs and
maximize revenue. Some of the benefits of budget management include:

1.Define the goals, plans and policies of company. Without a clear purpose, achieving the
goals will be difficult and company\'s efforts in trying to fulfil the goals will be gone to
waste.

2.Budget control changes goals. Each department needs to work efficiently to reach its
goals.Therefore,controlling budget is an effective way to control the activities of the various
departments of the business unit.

3.Ensures well coordination between different departments.

4.Assist executives to find accountability if performance is not up to standards

5.Aids in reducing production costs by eliminating redundant expenses.

6.Raising employee cost awareness will allow budget control to gain efficiency and
economy.

7.Budget control is a decentralized activity that facilitates central control.

8.It is essential for the smooth operation of the enterprise as everyone is provided pre-
planned.

9.Communicate to management where action is needed to resolve issues fast

Disadvantages or Limitations of Budgetary Control

Limitations of budget management

1.It is very troublesome to accurately prepare a budget in an inflationary situation.

2.The budget includes huge expenditure that SMEs cannot afford.

3.The budget is always prepared for future periods of uncertainty, in an event where
budgets become confusing. Hence,uncertainty in the future shrinks the efficacy of the budget
management system.

4.Budget Management complexes management tool. Since it is not a substitute for

management, it cannot be substituted for management in decision making.

5.The success of budget management depends on the support of top management.In a case
of lacking top management support, budget management fails.

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Numerous modern forms of performance budgets are part of the broader managing-for-results
（MFR) approach to public sector reform. In general,like the MFR,the focus of these forms
is to
encourage institutions to perform a cut above, which is different.

Expenditure priority.
It corresponds to the budget model of modern achievement,which includes one of the
following
factors:

－Institution-level performance goals intended to be connected to -level resource

procurement

－Financing official formulas implicitly set through funding, goals of expected results
Institutional level funding incentives.

The higher results of the institutions provide a higher level of funding whereas the lower
results
can likely lead to fiscal sanctions. To realise the full benefits of input control relaxation, it is
also
essential to encourage the engine to perform better. In these modern approaches to
performance
budgets,the fundamental tools for improving the performance of all institutions,are the
explicit
designation of goals, the measurement of performance and lastly the setting of performance
goals
for these goals.

Follow the MFR perspective

However,there is an obstacle. When questioning if the designation of purpose, objectives and
countermeasures affect the performance of the institution in the scope of its performance, it is
crucial to keep in mind that the institution is made up of individuals.Therefore,to further
enhance the performance of the institution, each employee is obligated to make
improvements in
performance by their own. Thus, when questioning about the impact of motivation on
government agencies, the impact of employees being encouraged from the government
agencies
highly matters.The key to encourage employees of the individual public sector more
efficiently
is the personal achievement incentive, and, conversely, the traditional employment consent,
which is the main issue with these performance.

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References:
Cafiero,C.&.W.B.D.,2011.The empirical relevance of the competitive storage model.
Journal of Econometrics,162(1),pp.44-54.
Alex Y.A.,I.K.N.&.G.N.K.S.,2016.Competitor Analysis in Strategic Management: Is it a
Worthwhile ManagerialPractice in Contemporary Times? Journal of Resources
Development and Management.E-Journal,Issue 24,pp.116-127.
J.Ihemejea,J.C.O.G.B.&.O.B.M.,2015.Cost-volume-profit Analysis and Decision
Making in the
Manufacturing Industries of Nigeria..Journal of International Business Research and
Marketing, 1(1).
Lutilsky,D.D.M.,2012.ACTIVITY BASED COSTING AS A MEANS TO FULL
COSTING-
POSSIBILITIES AND CONSTRAINTS FOR EUROPEAN
UNIVERSITIES.Management, 17(1),pp.33-57.

Nawaz,M.,2013.An Insight Into the Two Costing Technique:Absorption Costing and

Marginal Costing.Broad Research in Accounting, Negotiation, and Distribution, 4(1),
pp. 48-61.

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