In the simplest case, all that is required is to change the value of a data cell and the impact of the change will be seen as soon as the worksheet is recalculated. For more powerful `what-if' there are data or `what-if' tables, which allow a series of `what-if' questions to be analysed at one time, producing a tabular report of the possible results.

However, if a link is made at the time of copying the data a dynamic reference has been established and if the original data is changed an option to update the referenced data is provided.

A good way to learn about spreadsheets if you know budgeting, and vice versa.

The costing process

THE CIMA Official Terminology identifies two basic methods of costing: specific order costing applicable to separate contracts, jobs or batches; and continuous operation/process costing where goods or services result from a sequence of continuous or repetitive operations or processes.

Process Costing, by E. Harris, covers this complex area of costing, explaining how the average cost per unit is computed in a step-by-step manner. A sampler:

Abnormal losses and gains are valued at the normal cost per unit in the process account. This might sound a contradiction in terms, but abnormal losses and gains are valued at the same cost per unit as the good output, which enables the effect of these unexpected differences to be properly identified in the management accounts for control purposes.

The accounting treatment ensures that abnormal losses are charged to the period in which they are incurred and cannot be carried forward to a future period in the stock valuation.

If the FIFO method is used, the percentage degree of completion of each element of the opening work in progress (OWIP) must be given.

The cost relating to each element of OWIP is not usually given, but the total quantity and value of the OWIP must be stated. It is assumed in FIFO that the OWIP is completed before further production is carried out.

Joint products are two or more products separated in processing, each having a sufficiently high saleable value to merit recognition as a main product.

A by-product is output of some value produced incidentally in manufacturing something else (main product). It is the relative sales value of the output that will determine whether any product is a joint product or by-product, not the manufacturing process.

Joint costs can be apportioned in a number of different ways, the most common methods being based on the physical measure of output or on a measure of sales value.

This is perfectly acceptable if the resulting data is used for stock valuation for profit determination.

There are three common methods of accounting for by-products: a) net realisable value of the by-product is shown as a deduction from the cost of production of the major products; b) net realisable value of the by-products is shown as a deduction from the cost of sales of the major products; and c) net realisable value of the by-product is shown as `other income' and is credited to the P&L A/c.

Make it a part of your learning process.

Marginal matters

ANOTHER book by E. Harris is Marginal Costing, one of the pillars of any costing paper. Marginal costing emphasises the behaviour of costs by distinguishing between fixed and variable costs.

Contribution is sales revenue less variable costs of sales. When contribution exceeds fixed costs there will be a profit; when fixed costs exceed contribution there will be a loss. Read on:

Similarly, it is assumed that the selling price of the product remains unchanged.

In absorption costing each unit of production has attached to it the proportion of variable and fixed production costs attributable to it. The concept of `contribution' does not exist in absorption costing.

(Books courtesy: Viva Books P Ltd viva@mantraonline.com)

Tailpiece

"We need profit at any cost."

"That may create an accounting problem, you know?"

ReadingRoom@TheHindu.co.in

Article E-Mail :: Comment :: Syndication