Evaluating Costs and Revenues
Unit summary
This unit is concerned with how organisations record, analyse and report current and future costs and revenue data for use within the organisation. You will need to know that organisations build up costs and revenues in different ways. The ways costs are recorded vary with the type of industry as well as the measurement rules chosen by the organisation. You have to understand the meaning and consequence of these different ways of recording costs and revenues and be able to apply them in relevant circumstances. The first learning outcome focuses on direct costs and revenues, the second on overheads. You will need to apply both types of cost to the reporting of the organisation's expenses. In addition, you will need to apply both types of costing to the recording and analysing of unit and departmental costs. The third learning outcome is concerned with using cost and revenue information to help organisations make decisions. You will need to know about cost behaviour and apply it appropriately to managerial decisions for both short- and long-term planning purposes
Unit details
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15 Business, Administration and Law
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15.1
Accounting and Finance
Assessment Methodology: Independent assessment of at least 3 hours duration is mandatory for this unit, OR, if NVQ, work-based evidence
You must have knowledge and understanding of: 1. The nature and purpose of internal reporting; 2. Management information requirements; 3. Maintaining an appropriate cost accounting system; 4. Recording of cost and revenue data in the accounting records; 5. Methods of stock control and valuation including First In First Out, Last In First Out and Weighted Average Cost; 6. Methods for and calculation of payments for labour; 7. Procedures and documentation relating to expenses; 8. Bases of allocating and apportioning indirect costs to responsibility centres: direct and step down methods; 9. Marginal versus absorption costing for costing and reporting purposes; 10. The arbitrary nature of overhead apportionments; 11. Bases of absorption; 12. Calculation of product and service cost; 13. Analysis of the effect of changing activity levels on unit costs; 14. Methods of presenting information in written reports; 15. The identification of fixed, variable and semi-variable costs and their use in cost recording, cost reporting and cost analysis; 16. Cost-volume-profit analysis; 17. The identification of limiting factors; 18. Methods of project appraisal: payback and discounted cash flow methods (NPV and IRR); 19. Relationship between the materials costing system and the stock control system; 20. Relationship between the labour costing system and the payroll accounting system; 21. Relationship between the accounting system and the expenses costing system; 22. Marginal costing; 23. Absorption costing; 24. Cost behaviour; 25. The principles of discounted cash flow; 26. Costing systems appropriate to the organisation: job, batch, unit and process costing systems; 27. The sources of information for revenue and costing data.
Based on AOSG Level 3 in Accounting Unit 6
FSSC has had sight of draft materials and provided helpful comment on these. A formal request for support from FSSC has been made.
| Learning Outcome |
Assessment Criteria |
| 1. Record and analyse information relating to direct costs and revenues |
6.1.A Identify material costs in accordance with the organisation's costing procedures
6.1.B Identify direct labour costs in accordance with the organisation's costing procedures
6.1.C Accurately record and analyse information relating to direct costs
6.1.D Correctly calculate direct costs in accordance with the organisation's policies and procedures
6.1.E Check cost information for raw materials against usage and stock control practices
6.1.F Check cost information for part-finished goods against usage and stock control practices
6.1.G Check cost information for finished goods against usage and stock control practices
6.1.H Resolve or refer queries to the appropriate person |
| 2. Record and analyse information relating to the allocation, apportionment and absorption of overhead costs |
6.2.A Identify fixed costs in accordance with the organisation's procedures
6.2.B Identify variable costs in accordance with the organisation's procedures
6.2.C Identify semi-variable costs in accordance with the organisation's procedures
6.2.D Attribute overhead costs to production and service cost centres using the direct method of allocation and apportionment
6.2.E Attribute overhead costs to production and service cost centres using the step-down method of allocation and apportionment
6.2.F Correctly calculate overhead absorption rates using the labour hours method
6.2.G Correctly calculate overhead absorption rates using the machine hours method
6.2.H Accurately record and analyse information relating to overhead costs in accordance with the organisation's procedures
6.2.I Make adjustments for under and over recovered overhead costs in accordance with established procedures
6.2.J Review methods of allocation, apportionment and absorption at regular intervals in discussions with senior staff and ensure agreed changes to methods are implemented
6.2.K Consult staff working in operational departments to resolve queries in overhead cost data |
| 3. Prepare and evaluate estimates of costs and revenues |
6.3.A Identify information relevant to estimating current and future revenues and costs
6.3.B Prepare estimates, incorporating break-even analysis, of future income and costs
6.3.C Prepare estimates, incorporating margin of safety, of future income and costs
6.3.D Prepare estimates, incorporating target profit, of future income and costs
6.3.E Prepare estimates, incorporating profit volume ratio, of future income and costs
6.3.F Prepare estimates, incorporating limiting factors, of future income and costs
6.3.G Prepare estimates for project appraisal, using payback method, of future income and costs
6.3.H Prepare estimates for project appraisal, using discounted cash flow methods, of future income and costs
6.3.I Correctly calculate the effects of variations in capacity on product costs
6.3.J Analyse critical factors affecting costs and revenues using appropriate accounting techniques and draw clear conclusions from the analysis
6.3.K State any assumptions used when evaluating future costs and revenues
6.3.L Identify and evaluate options and solution for their contribution to organisational goals
6.3.M Give a verbal presentation of recommendations to appropriate people in a clear and concise way and supported by a clear rationale
6.3.N Present recommendations in a written report to appropriate people in a clear and concise way and supported by a clear rationale |