Fiba702 Budgeting And Control : Assessment Answers

Answer:

• Cost management refers to the underlying process related to controlling as well as planning the budget for the business. It is a type of management accounting only which is meant to ensure that the actual cost incurred in various activities tend to remain within the budgetary limits.  In this process, typical variances are computed to reflect the deviation of the actual cost from the budgeted cost which are then analyzed. Cost management is the primary responsibility of the CFO (Chief Financial Officer) but carried out with various officers to whom this work is delegated under the overall guidance and supervision of the CFO.

• Cost assignment may be defined as the general process through which costs are assigned to various cost objects or pools. When the link that binds the cost and the respective cost object or pool is direct and thus traceable, then the cost is traced to the respective cost object by the management accountant. However, it is possible that the cost and the respective cost object may be bound by an indirect link and thus cost allocation is used by the management accountant.  In the process of cost allocation, cost drivers are deployed for cost assigning.

• The variable cost for an airline company would be first and foremost fuel, catering expenses, cabin crew and other manpower present at the airport. These are variable costs as these tend to change in accordance with the number of passengers travelling. However, there are significant fixed expenses such as the airport charges that airlines pay to park their airplanes, other infrastructure for overhauling the passengers and their luggage, lease rentals on airplanes, cost of airplane if these are bought, part of the staff along with terminal expenses. These do not tend to change with the number of passengers that are travelling and hence termed as fixed costs .

• There are various ways in which the cost driver may be selected for determining the manufacturing overhead. The traditional method requires that a appropriate cost driver such as direct labor or machine hours. However, it is recommended that there should be close link between the cost driver and the cost it seeks to represent. In this process, the activity based costing can be of help which recommends breaking a particularly activity into smaller sub activity and identifying a cost driver for each of these activities which eventually leads to the determination of overheads costs for the various products.

• The relevant range may be defined as the particular activity level which are limited by a minimum value and the maximum value. Within this relevant range, a particular cost or revenue may occur and it will change in case the boundaries of the relevant change are breached either in the positive or negative direction. For instance, the fixed costs tends to remain fixed within a given relevant range of output and if the output level is increased beyond that level, there would be a change in the fixed cost.