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S T U D Y T E X T PERFORMANCE MANAGEMENT BPP Learning Media is the sole ACCA Platinum Approved Learning Partner – content for the ACCA qualification.In this, the only Paper F5 study text to be reviewed by the examiner: †¢ †¢ †¢ †¢ †¢ †¢ †¢ †¢ We discuss the best strategies for studying for ACCA exams We highlight the most important elements in the syllabus and the key skills you will need We signpost how each chapter links to the syllabus and the study guide We provide lots of exam focus points demonstrating what the examiner will want you to do We emphasise key points in regular fast forward summaries We test your knowledge of what you've studied in quick quizzes We examine your understanding in our exam question bank We reference all the important topics in our full indexBPP's i-Pass product also supports this paper. FOR EXAMS IN 2011 First edition 2007 Fourth edition November 2010 ISBN 9780 7517 8921 8 (Previous ISBN 9870 7517 6367 6) British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Published by BPP Learning Media Ltd BPP House, Aldine Place London W12 8AA www. bpp. com/learningmedia Printed in the United Kingdom We are grateful to the Association of Chartered Certified Accountants for permission to reproduce past examination questions.The suggested solutions in the exam answer bank have been prepared by BPP Learning Media Ltd, except where otherwise stated. All our rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of BPP Learning Media Ltd.Your learning materials, published by BPP Learning Media Ltd, are printed on paper sourced from sustainable, managed forests.  © BPP Learning Media Ltd 2010 ii Contents Page Introduction Helping you to pass – the O NLY F5 Study Text reviewed by the examiner! Studying F5 The exam paper v vii xi 3 21 33 41 49 63 73 95 123 157 173 199 215 233 267 287 319 337 365 387 403 419 463 Part A Specialist cost and management accounting techniques 2a 2b 2c 2d 2e 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Costing Activity based costing Target costing Lifecycle costing Throughput accounting Environmental accounting Cost volume profit (CVP) analysis Limiting factor analysis Pricing decisions Short-term decisions Risk and uncertainty Objectives of budgetary control Budgetary systems Quantitative analysis in budgeting Budgeting and standard costing Variance analysis Behavioural aspects of standard costing Performance measurement Divisional performance measures Further performance management Part B Decision-making techniques Part C BudgetingPart D Standard costing and variances analysis Part E Performance measurement and control Exam question bank Exam answer bank Index Review form and free prize draw Contents iii A note about copyright Dear Customer What does the little  © mean and why does it matter? Your market-leading BPP books, course materials and e-learning materials do not write and update themselves. People write them: on their own behalf or as employees of an organisation that invests in this activity. Copyright law protects their livelihoods. It does so by creating rights over the use of the content.Breach of copyright is a form of theft – as well as being a criminal offence in some jurisdictions, it is potentially a serious breach of professional ethics. With current technology, things might seem a bit hazy but, basically, without the express permission of BPP Learning Media: †¢ †¢ Photocopying our materials is a breach of copyright Scanning, ripcasting or conversion of our digital materials into different file formats, uploading them to facebook or emailing them to your friends is a breach of copyright You can, of course, sell your books, in the form in which you hav e bought them – once you have finished with them. Is this fair to your fellow students? We update for a reason. ) But the e-products are sold on a single user licence basis: we do not supply ‘unlock’ codes to people who have bought them second-hand. And what about outside the UK? BPP Learning Media strives to make our materials available at prices students can afford by local printing arrangements, pricing policies and partnerships which are clearly listed on our website. A tiny minority ignore this and indulge in criminal activity by illegally photocopying our material or supporting organisations that do.If they act illegally and unethically in one area, can you really trust them? iv Helping you to pass – the ONLY F5 Study Text reviewed by the examiner! BPP Learning Media – the sole Platinum Approved Learning Partner – content As ACCA’s sole Platinum Approved Learning Partner – content, BPP Learning Media gives you the unique o pportunity to use examiner-reviewed study materials for the 2011 exams. By incorporating the examiner’s comments and suggestions regarding the depth and breadth of syllabus coverage, the BPP Learning Media Study Text provides excellent, ACCA-approved support for your studies. NEW FEATURE – the PER alert!Before you can qualify as an ACCA member, you do not only have to pass all your exams but also fulfil a three year practical experience requirement (PER). To help you to recognise areas of the syllabus that you might be able to apply in the workplace to achieve different performance objectives, we have introduced the ‘PER alert’ feature. You will find this feature throughout the Study Text to remind you that what you are learning to pass your ACCA exams is equally useful to the fulfilment of the PER requirement. Tackling studying Studying can be a daunting prospect, particularly when you have lots of other commitments.The different features of the text, the purposes of which are explained fully on the Chapter features page, will help you whilst studying and improve your chances of exam success. Developing exam awareness Our Texts are completely focused on helping you pass your exam. Our advice on Studying F5 outlines the content of the paper, the necessary skills the examiner expects you to demonstrate and any brought forward knowledge you are expected to have. Exam focus points are included within the chapters to highlight when and how specific topics were examined, or how they might be examined in the future.Using the Syllabus and Study Guide You can find the syllabus and Study Guide on page xi of this Study Text Testing what you can do Testing yourself helps you develop the skills you need to pass the exam and also confirms that you can recall what you have learnt. We include Questions – lots of them – both within chapters and in the Exam Question Bank, as well as Quick Quizzes at the end of each chapter to test your knowledge of the chapter content. Introduction v Chapter features Each chapter contains a number of helpful features to guide you through each topic.Topic list Topic list Syllabus reference Tells you what you will be studying in this chapter and the relevant section numbers, together the ACCA syllabus references. Puts the chapter content in the context of the syllabus as a whole. Links the chapter content with ACCA guidance. Highlights how examinable the chapter content is likely to be and the ways in which it could be examined. What you are assumed to know from previous studies/exams. Summarises the content of main chapter headings, allowing you to preview and review each section easily. Demonstrate how to apply key knowledge and techniques.Definitions of important concepts that can often earn you easy marks in exams. Tell you when and how specific topics were examined, or how they may be examined in the future. Formulae that are not given in the exam but which have to be learnt. T his is a new feature that gives you a useful indication of syllabus areas that closely relate to performance objectives in your Practical Experience Requirement (PER). Introduction Study Guide Exam Guide Knowledge brought forward from earlier studies FAST FORWARD Examples Key terms Exam focus points Formula to learn Question Case StudyGive you essential practice of techniques covered in the chapter. Provide real world examples of theories and techniques. Chapter Roundup Quick Quiz Exam Question Bank A full list of the Fast Forwards included in the chapter, providing an easy source of review. A quick test of your knowledge of the main topics in the chapter. Found at the back of the Study Text with more comprehensive chapter questions. Cross referenced for easy navigation. vi Introduction Studying F5 The F5 examiner wants candidates to be able to apply management accounting techniques in business environments.The key question you need to be able to answer is ‘what does it all ac tually mean? ‘ Modern technology is capable of producing vast amounts of management accounting information but it has to be used to help managers to make good decisions and manage effectively. The emphasis in this paper is therefore on practical elements and application to the real world. The examiner does not want to trick you and papers will be fair. The F5 examiner The examiner for this paper is Ann Irons, who replaced Geoff Cordwell from the December 2010 sitting onwards.Ann Irons has written several articles in Student Accountant, including one on how to approach the paper (September 2010 issue). Make sure you read these articles to gain further insight into what the examiner is looking for. Syllabus update The F5 syllabus has been updated for the June 2011 sitting onwards. The full syllabus and study guide can be found in this Study Text on pages xi to xviii. The main changes are the omission of backflush accounting and the inclusion of environmental accounting and cost volume profit (CVP) analysis. The syllabus order has also been changed, which has been reflected in this Study Text.A full summary of the changes to the F5 syllabus is given on the next page.. Introduction vii viii Introduction Introduction ix 1 What F5 is about The aim of this syllabus is to develop knowledge and skills in the application of management accounting techniques. It covers modern techniques, decision making, budgeting and standard costing, concluding with how a business should be managed and controlled. F5 is the middle paper in the management accounting section of the qualification structure. F2 concerns just techniques and P5 thinks strategically and considers environmental factors.F5 requires you to be able to apply techniques and think about their impact on the organisation. 2 What skills are required? †¢ †¢ †¢ †¢ †¢ You are expected to have a core of management accounting knowledge from Paper F2 You will be required to carry out calculation s, with clear workings and a logical structure You will be required to interpret data You will be required to explain management accounting techniques and discuss whether they are appropriate for a particular organisation You must be able to apply your skills in a practical context 3 How to improve your chances of passing †¢ †¢ †¢ †¢ †¢ †¢ †¢ There is no choice in this paper, all questions have to be answered. You must therefore study the entire syllabus, there are no short-cuts Practising questions under timed conditions is essential. BPP's Practice and Revision Kit contains 20 mark questions on all areas of the syllabus Questions will be based on simple scenarios and answers must be focused and specific to the organisation Answer plans will help you to focus on the requirements of the question and enable you to manage your time effectively Answer all parts of the question.Even if you cannot do all of the calculation elements, you will still be ab le to gain marks in the discussion parts Make sure your answers focus on practical applications of management accounting, common sense is essential! Keep an eye out for articles as the examiner will use Student Accountant to communicate with students Read journals etc to pick up on ways in which real organisations apply management accounting and think about your own organisation if that is relevant 4 Brought forward knowledge You will need to have a good working knowledge of basic management accounting from Paper F2.Chapter 1 of this Study Text revises costing and brought forward knowledge is identified throughout the text. If you struggle with the examples and questions used to revise this knowledge, you must go back and revisit your previous work. The examiner will assume you know this material and it may form part of an exam question. x Introduction The exam paper Format of the paper The exam is a three-hour paper containing five compulsory 20 mark questions. You also have 15 min utes for reading and planning. There will be a mixture of calculations and discussion and the examiner's aim is to cover as much of the syllabus as possible.Syllabus and Study Guide The F5 syllabus and study guide can be found on the next page. Introduction xi xii Introduction Introduction xiii xiv Introduction Introduction xv xvi Introduction Introduction xvii xviii Introduction Introduction xix Analysis of past papers The table below provides details of when each element of the syllabus has been examined and the question number in which each element appeared. Further details can be found in the Exam Focus Points in the relevant chapters. Covered in Text chapter June 2010 Dec 2009 June 2009 Pilot PaperSPECIALIST COST AND MANAGEMENT ACCOUNTING TECHNIQUES 2a 2b 2c 2d 2e 3 4 5 6 7 8 9 9 10 8 Activity based costing Target costing Life cycle costing Throughput accounting Environmental accounting DECISION-MAKING TECHNIQUES Cost-volume-profit analysis Multi-limiting factors and the use of linear programming and shadow pricing Pricing decisions Make-or-buy and other short-term decisions Dealing with risk and uncertainty in decision-making BUDGETING Objectives Budgetary systems Types of budget Quantitative analysis in budgeting Behavioural aspects of budgeting STANDARD COSTING AND VARIANCE ANALYSIS 11 12 12 13 13 14 15 16 Budgeting and standard costing Basic variances and operating systems Material mix and yield variances Planning and operational variances Behavioural aspects of standard costing PERFORMANCE MEASUREMENT AND CONTROL The scope of performance measurement Divisional performance and transfer pricing Performance analysis in not-for-profit organisations and the public sector 4 4 2 4 2 2 1 1 3 2 2 5 3 5 3 3 1, 4 4 4 1 1 2 1 xx Introduction Exam formulae Set out below are the formulae you will be given in the exam. If you are not sure what the symbols mean, or how the formulae are used, you should refer to the appropriate chapter in this Study Text. Chapter in Study Text Learning curve Y = axb Where Y a x b LR = cumulative average time per unit to produce x units = the time taken for the first unit of output = the cumulative number of units = the index of learning (log LR/log 2) = the learning rate as a decimal 10 Regression analysis y = a + bx b= a= 10 n ? xy ? ? x ? y n ? x 2 ? (? ) 2 ?y b? x ? n n (n? x 2 ? (? x)2 )(n? y 2 ? (? y)2 ) 5 r= n? xy ? ? x ? y Demand curve P b a = a – bQ = change in price change in quantity = price when Q = 0 MR = a – 2bQ Introduction xxi xxii Introduction P A R T A Specialist cost and management accounting techniques 1 2 Costing Topic list 1 Costing 2 The problem of overheads 3 A revision of absorption costing 4 Overhead absorption 5 Marginal costing 6 Absorption costing and marginal costing compared Introduction Part A of this Study Text looks at specialist cost and management accounting techniques. This chapter serves as a revision of concepts you will have covered in your previous studies.I n the following chapter we will be looking at more complex techniques so it is important that you are familiar with the key concepts and terminology in this chapter. If you want to get free study material of CAT, ACCA, CIMA, CFA, CIA visit : freefor911. wordpress. com 3 Exam guide This chapter serves as an introduction to your study of cost and management accounting techniques, as knowledge is assumed from Paper F2 Management Accounting and is still examinable at this level. Questions in this paper will focus on interpretation rather than doing calculations. 1 Costing FAST FORWARD Costing is the process of determining the costs of products, services or activities.Cost accounting is used to determine the cost of products, jobs or services (whatever the organisation happens to be involved in). Such costs have to be built up using a process known as cost accumulation. In your earlier studies you will have learnt how to accumulate the various cost elements which make up total cost. Abso rption costing cost accumulation system 2 The problem of overheads FAST FORWARD Indirect costs, or overheads, are costs incurred in making a product or providing a service, but which cannot be traced directly to the product or service. Absorption costing is a means of incorporating a fair share of these costs into the cost of a unit of product or service provided.If a company manufactures a product, the cost of the product will include the cost of the raw materials and components used in it and cost of the labour effort required to make it. These are direct costs of the product. The company would, however, incur many other costs in making the product, which are not directly attributable to a single product, but which are incurred generally in the process of manufacturing a large number of product units. These are indirect costs or overheads. Such costs include the following. †¢ †¢ Factory rent and rates Machine depreciation †¢ †¢ Supervision costs Heating and lig hting 4 1: Costing ? Part A Specialist cost and management accounting techniques Key termsA direct cost is a cost that can be traced in full to the product, service or department that is being costed. An indirect cost or overhead is a cost that is incurred in the course of making a product, providing a service or running a department, but which cannot be traced directly and in full to the product, service or department. In some companies, the overheads cost might greatly exceed the direct production costs. It might seem unreasonable to ignore indirect costs entirely when accumulating the costs of making a product, and yet there cannot be a completely satisfactory way of sharing out indirect costs between the many different items of production which benefit from them. 2. Using absorption costing to deal with the problem of overheads Traditionally, the view has been that a fair share of overheads should be added to the cost of units produced. This fair share will include a portion of all production overhead expenditure and possibly administration and marketing overheads too. This is the view embodied in the principles of absorption costing. 2. 1. 1 Theoretical justification for using absorption costing All production overheads are incurred in the production of the organisation's output and so each unit of the product receives some benefit from these costs. Each unit of output should therefore be charged with some of the overhead costs. 2. 1. 2 Practical reasons for using absorption costing (a) Inventory valuations Inventory in hand must be valued for two reasons. i) (ii) For the closing inventory figure in the statement of financial position For the cost of sales figure in the income statement The valuation of inventories will affect profitability during a period because of the way in which the cost of sales is calculated. Cost of goods sold = (b) Pricing decisions Many companies attempt to set selling prices by calculating the full cost of production or sales o f each product, and then adding a margin for profit. ‘Full cost plus pricing' can be particularly useful for companies which do jobbing or contract work, where each job or contract is different, so that a standard unit sales price cannot be fixed. Without using absorption costing, a full cost is difficult to ascertain. c) Establishing the profitability of different products This argument in favour of absorption costing states that if a company sells more than one product, it will be difficult to judge how profitable each individual product is, unless overhead costs are shared on a fair basis and charged to the cost of sales of each product. cost of goods produced + the value of opening inventories – the value of closing inventories 2. 2 Using marginal costing to deal with the problem of overheads For many purposes absorption costing is less useful as a costing method than marginal costing. In some situations, absorption costing can be misleading in the information it su pplies.Advocates of marginal costing take the view that only the variable costs of making and selling a product or service should be identified. Fixed costs should be dealt with separately and treated as a cost of the accounting period rather than shared out somehow between units produced. Some overhead costs are, Part A Specialist cost and management accounting techniques ? 1: Costing 5 however, variable costs which increase as the total level of activity rises and so the marginal cost of production and sales should include an amount for variable overheads. 3 A revision of absorption costing FAST FORWARD Absorption costing is a traditional approach to dealing with overheads, involving three stages: allocation, apportionment and absorption.Apportionment has two stages, general overhead apportionment and service department cost apportionment. Key term Absorption costing is a method of product costing which aims to include in the total cost of a product (unit, job and so on) an approp riate share of an organisation's total overhead, which is generally taken to mean an amount which reflects the amount of time and effort that has gone into producing the product. You should have covered absorption costing in your earlier studies. We will therefore summarise the simpler points of the topic but will go into some detail on the more complex areas to refresh your memory. Knowledge brought forward from earlier studiesAbsorption costing †¢ †¢ Product costs are built up using absorption costing by a process of allocation, apportionment and overhead absorption. Allocation is the process by which whole cost items are charged directly to a cost unit or cost centre. Direct costs are allocated directly to cost units. Overheads clearly identifiable with cost centres are allocated to those cost centres but costs which cannot be identified with one particular cost centre are allocated to general overhead cost centres. The cost of a warehouse security guard would therefore be charged to the warehouse cost centre but heating and lighting costs would be charged to a general overhead cost centre.The first stage of overhead apportionment involves sharing out (or apportioning) the overheads within general overhead cost centres between the other cost centres using a fair basis of apportionment (such as floor area occupied by each cost centre for heating and lighting costs). The second stage of overhead apportionment is to apportion the costs of service cost centres (both directly allocated and apportioned costs) to production cost centres. The final stage in absorption costing is the absorption into product costs (using overhead absorption rates) of the overheads which have been allocated and apportioned to the production cost centres. Costs allocated and apportioned to non-production cost centres are usually deducted from the full cost of production to arrive at the cost of sales. †¢ †¢ †¢ †¢ Question Cost apportionmentBriefly discuss the type of factors which could affect the choice of the bases an organisation can use to apportion service department costs. 6 1: Costing ? Part A Specialist cost and management accounting techniques Answer (a) (b) (c) (d) (e) The type of service being provided The amount of overhead expenditure involved The number of departments benefiting from the service The ability to be able to produce realistic estimates of the usage of the service The resulting costs and benefits Question More cost apportionment A company is preparing its production overhead budgets and determining the apportionment of those overheads to products. Cost centre expenses and related information have been budgeted as follows.Total $ 78,560 16,900 16,700 2,400 8,600 3,400 40,200 402,000 100 35,000 25,200 45,000 Machine shop A $ 8,586 6,400 Machine shop B $ 9,190 8,700 Assembly $ 15,674 1,200 Canteen $ 29,650 600 Maintenance $ 15,460 – Indirect wages Consumable materials Rent and rates Buildings insurance P ower Heat and light Depreciation (machinery) Value of machinery Power usage (%) Direct labour (hours) Machine usage (hours) Area (sq ft) Required 201,000 55 8,000 7,200 10,000 179,000 40 6,200 18,000 12,000 22,000 3 20,800 – 15,000 – – – – 6,000 – 2 – – 2,000 Using the direct apportionment to production departments method and bases of apportionment which you consider most appropriate from the information provided, calculate overhead totals for the three production departments. AnswerTotal $ Indirect wages 78,560 Consumable materials 16,900 Rent and rates 16,700 Insurance 2,400 8,600 Power Heat and light 3,400 Depreciation 40,200 166,760 Reallocate – Reallocate – Totals 166,760 A $ 8,586 6,400 3,711 533 4,730 756 20,100 44,816 7,600 4,752 57,168 B $ 9,190 8,700 4,453 640 3,440 907 17,900 45,230 5,890 11,880 63,000 Assembly $ 15,674 1,200 5,567 800 258 1,133 2,200 26,832 19,760 – 46,592 MainCanteen tenance $ $ 29,650 15,460 600 – 2,227 742 320 107 – 172 453 151 – – 33,250 16,632 (33,250) – – (16,632) – – Basis of apportionment Actual Actual Area Area Usage Area Val of mach Direct labour Mach usage Part A Specialist cost and management accounting techniques ? 1: Costing 7 4 Overhead absorption FAST FORWARDAfter apportionment, overheads are absorbed into products using an appropriate absorption rate based on budgeted costs and budgeted activity levels. Having allocated and/or apportioned all overheads, the next stage in absorption costing is to add them to, or absorb them into, the cost of production or sales. 4. 1 Use of a predetermined absorption rate Knowledge brought forward from earlier studies Step 1 Step 2 Step 3 The overhead likely to be incurred during the coming year is estimated. The total hours, units or direct costs on which the overhead absorption rates are based (activity levels) are estimated. Absorption rate = estima ted overhead ? budgeted activity level 4. 2 Choosing the appropriate absorption base Question Absorption basesList as many possible bases of absorption (or ‘overhead recovery rates') as you can think of. Answer (a) (b) (c) (d) (e) (f) (g) (h) A percentage of direct materials cost A percentage of direct labour cost A percentage of prime cost A percentage of factory cost (for administration overhead) A percentage of sales or factory cost (for selling and distribution overhead) A rate per machine hour A rate per direct labour hour A rate per unit The choice of an absorption basis is a matter of judgement and common sense. There are no strict rules or formulae involved. But the basis should realistically reflect the characteristics of a given cost centre, avoid undue anomalies and be ‘fair'.The choice will be significant in determining the cost of individual products, but the total cost of production overheads is the budgeted overhead expenditure, no matter what basis of abs orption is selected. It is the relative share of overhead costs borne by individual products and jobs which is affected. Question Absorption rates Using the information in and the results of the question on page 7, determine budgeted overhead absorption rates for each of the production departments using appropriate bases of absorption. 8 1: Costing ? Part A Specialist cost and management accounting techniques Answer Machine shop A: Machine shop B: Assembly: $57,168/7,200 = $7. 94 per machine hour $63,000/18,000 = $3. 50 per machine hour $46,592/20,800 = $2. 24 per direct labour hour 4. 3 Over and under absorption of overheads FAST FORWARDUnder-/over-absorbed overhead occurs when overheads incurred do not equal overheads absorbed. The rate of overhead absorption is based on estimates (of both numerator and denominator) and it is quite likely that either one or both of the estimates will not agree with what actually occurs. Actual overheads incurred will probably be either greater tha n or less than overheads absorbed into the cost of production, and so it is almost inevitable that at the end of the accounting year there will have been an over absorption or under absorption of the overhead actually incurred. †¢ †¢ Over absorption means that the overheads charged to the cost of sales are greater than the overheads actually incurred.Under absorption means that insufficient overheads have been included in the cost of sales. Suppose that the budgeted overhead in a production department is $80,000 and the budgeted activity is 40,000 direct labour hours, the overhead recovery rate (using a direct labour hour basis) would be $2 per direct labour hour. Actual overheads in the period are, say $84,000 and 45,000 direct labour hours are worked. $ Overhead incurred (actual) 84,000 90,000 Overhead absorbed (45,000 ? $2) Over-absorption of overhead 6,000 In this example, the cost of production has been charged with $6,000 more than was actually spent and so the cost that is recorded will be too high.The over-absorbed overhead will be an adjustment to the profit and loss account at the end of the accounting period to reconcile the overheads charged to the actual overhead. Question Under and over-absorption The total production overhead expenditure of the company in the questions above was $176,533 and its actual activity was as follows. Machine shop A Machine shop B Assembly Direct labour hours 8,200 6,500 21,900 Machine usage hours 7,300 18,700 – Required Using the information in and results of the previous questions, calculate the under- or over-absorption of overheads. Answer $ Actual expenditure Overhead absorbed Machine shop A Machine shop B Assembly $ 176,533 ,300 hrs ? $7. 94 18,700 hrs ? $3. 50 21,900 hrs ? $2. 24 57,962 65,450 49,056 172,468 4,065 Under-absorbed overhead Part A Specialist cost and management accounting techniques ? 1: Costing 9 4. 4 The reasons for under-/over-absorbed overhead The overhead absorption rate is pre determined from budget estimates of overhead cost and activity level. Under or over recovery of overhead will occur in the following circumstances. †¢ †¢ †¢ Actual overhead costs are different from budgeted overheads. The actual activity level is different from the budgeted activity level. Actual overhead costs and actual activity level differ from those budgeted. QuestionOver and under-absorption Elsewhere has a budgeted production overhead of $180,000 and a budgeted activity of 45,000 machine hours. Required Calculate the under-/over-absorbed overhead, and note the reasons for the under-/over-absorption in the following circumstances. (a) (b) (c) Actual overheads cost $170,000 and 45,000 machine hours were worked. Actual overheads cost $180,000 and 40,000 machine hours were worked. Actual overheads cost $170,000 and 40,000 machine hours were worked. Answer The overhead recovery rate is $180,000/45,000 = $4 per machine hour. (a) Actual overhead Absorbed overhead (45, 000 ? $4) Over-absorbed overhead $ 170,000 180,000 10,000Reason: Actual and budgeted machine hours are the same but actual overheads cost less than expected. (b) Actual overhead Absorbed overhead (40,000 ? $4) Under-absorbed overhead $ 180,000 160,000 20,000 Reason: Budgeted and actual overhead costs were the same but fewer machine hours were worked than expected. $ (c) Actual overhead 170,000 160,000 Absorbed overhead (40,000 ? $4) Under-absorbed overhead 10,000 Reason: A combination of the reasons in (a) and (b). 10 1: Costing ? Part A Specialist cost and management accounting techniques 5 Marginal costing FAST FORWARD In marginal costing, inventories are valued at variable production cost whereas in absorption costing they are valued at their full production cost.Marginal cost is the cost of one unit of a product/service which could be avoided if that unit were not produced/provided. Contribution is the difference between sales revenue and variable (marginal) cost of sales. Margi nal costing is an alternative to absorption costing. Only variable costs (marginal costs) are charged as a cost of sales. Fixed costs are treated as period costs and are charged in full against the profit of the period in which they are incurred. Knowledge brought forward from earlier studies Key terms Marginal costing †¢ In marginal costing, closing inventories are valued at marginal (variable) production cost whereas, in absorption costing, inventories are valued at their full production cost which includes absorbed fixed production overhead.If the opening and closing inventory levels differ, the profit reported for the accounting period under the two methods of cost accumulation will therefore be different. But in the long run, total profit for a company will be the same whichever is used because, in the long run, total costs will be the same by either method of accounting. Different accounting conventions merely affect the profit of individual periods. †¢ †¢ Quest ion Absorption and marginal costing A company makes and sells a single product. At the beginning of period 1, there are no opening inventories of the product, for which the variable production cost is $4 and the sales price $6 per unit.Fixed costs are $2,000 per period, of which $1,500 are fixed production costs. Normal output is 1,500 units per period. In period 1, sales were 1,200 units, production was 1,500 units. In period 2, sales were 1,700 units, production was 1,400 units. Required Prepare profit statements for each period and for the two periods in total using both absorption costing and marginal costing. Answer It is important to notice that although production and sales volumes in each period are different, over the full period, total production equals sales volume. The total cost of sales is the same and therefore the total profit is the same by either method of accounting.Differences in profit in any one period are merely timing differences which cancel out over a longe r period of time. Part A Specialist cost and management accounting techniques ? 1: Costing 11 (a) Absorption costing. The absorption rate for fixed production overhead is $1,500/1,500 units = $1 per unit. The fully absorbed cost per unit = $(4+1) = $5. $ Sales Production costs Variable Fixed Add opening inventory b/f Less closing inventory c/f Production cost of sales Under-absorbed o/hd Total costs Gross profit Other costs Net profit (300? $5) (300? $5) Period 1 $ 7,200 $ Period 2 $ 10,200 Total $ $ 17,400 6,000 1,500 7,500 – 7,500 1,500 6,000 – 6,000 1,200 (500) 700 5,600 1,400 7,000 1,500 8,500 – 8,500 100 8,600 1,600 (500) 1,100 1,600 2,900 14,500 1,500 16,000 1,500 14,500 100 14,600 2,800 (1,000) 1,800 (b) Marginal costing The marginal cost per unit = $4. Sales Variable production cost Add opening inventory b/f Less closing inventory c/f Variable prod. cost of sales Contribution Fixed costs Profit Period 1 $ 7,200 6,000 – 6,000 1,200 4,800 2,400 2,00 0 400 $ Period 2 $ 10,200 5,600 1,200 6,800 – 6,800 3,400 2,000 1,400 $ Total $ 11,600 1,200 12,800 1,200 11,600 5,800 4,000 1,800 $ 17,400 (300? $4) (300? $4) Question Direct labour Direct materials Production overhead Standard production cost per unit 3 hours at $6 per hour 4 kilograms at $7 per kg Variable Fixed Marginal and absorption costing $ 18 28 3 20 69RH makes and sells one product, which has the following standard production cost. Normal output is 16,000 units per annum. Variable selling, distribution and administration costs are 20 per cent of sales value. Fixed selling, distribution and administration costs are $180,000 per annum. There are no units in finished goods inventory at 1 October 20X2. The fixed overhead expenditure is spread evenly throughout the year. The selling price per unit is $140. Production and sales budgets are as follows. Six months ending Six months ending 31 March 20X3 30 September 20X3 Production 8,500 7,000 Sales 7,000 8,000 12 1: Costing ? Part A Specialist cost and management accounting techniquesRequired Prepare profit statements for each of the six-monthly periods, using the following methods of costing. (a) (b) Marginal costing Absorption costing Answer (a) Profit statements for the year ending 30 September 20X3 Marginal costing basis Six months ending 31 March 20X3 $'000 $'000 Sales at $140 per unit 980 Opening inventory – Std. variable prod. cost (at $49 per unit) 416. 5 416. 5 Closing inventory (W1) 73. 5 343 637 Variable selling and so on costs 196 Contribution 441 Fixed costs: production (W2) 160 selling and so on 90 250 Net profit 191 Profit statements for the year ending 30 September 20X3 Absorption costing basis Six months ending 31 March 20X3 $'000 $'000 Sales at $140 per unit 980 Opening inventory – Std. cost of prod. at $69 per unit) Closing inventory (W1) (Over-)/under-absorbed overhead (W3) Gross profit Selling and so on costs Variable Fixed Net profit 586. 5 586. 5 103. 5 483. 0 (10. 0) 473 507 196 90 286 221 224 90 314 234 Six months ending 30 September 20X3 $'000 $'000 1,120 73. 5 343. 0 416. 5 24. 5 392 728 224 504 160 90 250 254 (b) Six months ending 30 September 20X3 $'000 $'000 1,120 103. 5 483. 0 586. 5 34. 5 552. 0 20. 0 572 548 Part A Specialist cost and management accounting techniques ? 1: Costing 13 Workings 1 Opening inventory Production Sales Closing inventory Marginal cost valuation (? $49) Absorption cost valuation (? $69) 2 3 Normal output (16,000 ? 2) Budgeted output Difference ? std. ixed prod. o/hd per unit (Over-)/under-absorbed overhead Six months ending 31 March 20X3 Units – 8,500 8,500 7,000 1,500 $73,500 $103,500 Six months ending 30 September 20X3 Units 1,500 7,000 8,500 8,000 500 $24,500 $34,500 Budgeted fixed production o/hd = 16,000 units ? $20 = $320,000 pa = $160,000 per six months Six months ending 31 March 20X3 8,000 units units 8,500 500 units ? $20 ($10,000) Six months ending 30 September 20X3 8,000 units 7,000 units 1, 000 units ? $20 $20,000 6 Absorption costing and marginal costing compared FAST FORWARD If opening and closing inventory levels differ profit reported under the two methods will be different.In the long run, total profit will be the same whatever method is used. 6. 1 Reconciling the profit figures given by the two methods The difference in profits reported under the two costing systems is due to the different inventory valuation methods used. (a) If inventory levels increase between the beginning and end of a period, absorption costing will report the higher profit because some of the fixed production overhead incurred during the period will be carried forward in closing inventory (which reduces cost of sales) to be set against sales revenue in the following period instead of being written off in full against profit in the period concerned.If inventory levels decrease, absorption costing will report the lower profit because as well as the fixed overhead incurred, fixed production ov erhead which had been carried forward in opening inventory is released and is also included in cost of sales. (b) 6. 2 Example: Reconciling profits The profits reported for period 1 in the question on page 11 would be reconciled as follows. Marginal costing profit Adjust for fixed overhead in inventory (inventory increase of 300 units ? $1 per unit) Absorption costing profit $ 400 300 700 Exam focus point Remember that if opening inventory values are greater than closing inventory values, marginal costing shows the greater profit. 14 1: Costing ?Part A Specialist cost and management accounting techniques 6. 3 Marginal versus absorption costing: reporting to management FAST FORWARD Marginal costing is more useful for decision-making purposes, but absorption costing is needed for financial reporting purposes to comply with accounting standards. We know that the reported profit in any period is likely to differ according to the costing method used, but does one method provide a more re liable guide to management about the organisation's profit position? With marginal costing, contribution varies in direct proportion to the volume of units sold. Profits will increase as sales volume rises, by the amount of extra contribution earned.Since fixed cost expenditure does not alter, marginal costing gives an accurate picture of how a firm's cash flows and profits are affected by changes in sales volumes. With absorption costing, in contrast, there is no clear relationship between profit and sales volume, and as sales volume rises the total profit will rise by the sum of the gross profit per unit plus the amount of overhead absorbed per unit. Arguably this is a confusing and unsatisfactory method of monitoring profitability. If sales volumes are the same from period to period, marginal costing reports the same profit each period (given no change in prices or costs). In contrast, using absorption costing, profits can vary with the volume of production, even when the volume of sales is constant.Using absorption costing there is therefore the possibility of manipulating profit, simply by changing output and inventory levels. 6. 4 Example: Manipulating profits Gloom Co budgeted to make and sell 10,000 units of its product in 20X1. The selling price is $10 per unit and the variable cost $4 per unit. Fixed production costs were budgeted at $50,000 for the year. The company uses absorption costing and budgeted an absorption rate of $5 per unit. During 20X1, it became apparent that sales demand would only be 8,000 units. The management, concerned about the apparent effect of the low volume of sales on profits, decided to increase production for the year to 15,000 units.Actual fixed costs were still expected to be $50,000 in spite of the significant increase in production volume. Required Calculate the profit at an actual sales volume of 8,000 units, using the following methods. (a) (b) Absorption costing Marginal costing Explain the difference in profits cal culated. Solution (a) Absorption costing Sales (8,000 ? $10) Cost of production (15,000 ? $9) Less: over-absorbed overhead (5,000 ? $5) $ 135,000 (25,000) (110,000) (30,000) 63,000 33,000 $ 80,000 Closing inventory (7,000 ? $9) Profit Part A Specialist cost and management accounting techniques ? 1: Costing 15 (b) Marginal costing Sales Cost of sales Cost of production (15,000 ? $4) Closing inventory (7,000 ? $4) Contribution Fixed costs Loss $ $ 80,000 0,000 ((28,000) 32,000 48,000 50,000 (2,000) The difference in profits of $35,000 is explained by the difference in the increase in inventory values (7,000 units ? $5 of fixed overhead per unit). With absorption costing, the expected profit will be higher than the original budget of $10,000 (10,000 units ? ($10 – 9)) simply because $35,000 of fixed overheads will be carried forward in closing inventory values. By producing to absorb overhead rather than to satisfy customers, inventory levels will, of course, increase. Unless th is inventory is sold, however, there may come a point when production has to stop and the inventory has to be sold off at lower prices.Marginal costing would report a contribution of $6 per unit, or $48,000 in total for 8,000 units, which fails to cover the fixed costs of $50,000 by $2,000. The argument above is not conclusive, however, because marginal costing is not so useful when sales fluctuate from month to month because of seasonal variations in sales demand, but production per month is held constant in order to arrange for an even flow of output (and thereby prevent the cost of idle resources in periods of low demand and overtime in periods of high demand). Question Absorption v marginal costing A clothing manufacturer makes a specific brand of jeans which it sells at a standard price of $100 per pair. The manufacturer’s costs are as follows.Standard variable production cost: $16 per pair Total fixed production cost per month: $240,000 (10,000 pairs are planned to be p roduced per month) Total fixed non-production costs: $300,000 per month In Month 1, when the opening inventory is 1,000 pairs, production of 10,000 pairs is planned and sales of 8,000 pairs are expected. In Month 2, sales are planned to be 9,000 pairs and production is still 10,000 pairs. Required (a) What would be the net profit for Months 1 and 2 under (i) (ii) (b) Absorption costing Marginal costing What comments could you make about the performance of this business? 16 1: Costing ? Part A Specialist cost and management accounting techniques Answer (a) Absorption standard cost per unit = $16 + 240,000/10,000 = $40 Absorption costing Month 1 Month 2 $’000 $’000 $’000 $’000 800 900 Marginal costing Month 1 Month 2 $’000 $’000 $’000 $’000 800 900Sales 8,000 @$100 Cost of sales Opening inventory (1,000 @ $40) Production (10,000 @ $40) Less: closing inventory* (3,000 @ $40) Gross profit Contribution Less other costs Fixed product ion Fixed non-production 40 400 (120) (320) 480 120 400 (160) (360) 540 1,000 @ $16 10,000 @ $16 3,000 @ $16 16 160 (48) (128) 672 (240) (300) 48 160 (64) (144) 756 (240) (300) (300) 180 (300) 240 (540) 132 (540) 216 * Closing inventory = 1,000 + 10,000 – 8,000 (b) The absorption costing net profit is higher than the marginal costing net profit in both months because inventories are rising. Under absorption costing, where inventories are increasing, a greater amount of the fixed production cost is carried forward n the closing inventory valuation than was brought forward in the opening inventory valuation. This means that the impact of these costs on profit is delayed under absorption costing. Under marginal costing, the full impact of the fixed production costs on profit is immediate. The business is profitable and sales have increased. However, a build up of inventories in the clothing manufacturing industry is unwise as demand is subject to tastes and fashion. The business needs to respond rapidly to changes in demand or it will become rapidly uncompetitive. Part A Specialist cost and management accounting techniques ? 1: Costing 17 Chapter Roundup †¢ †¢ Costing is the process of determining the costs of products, services or activities.Indirect costs, or overheads, are costs incurred in making a product or providing a service, but which cannot be traced directly to the product or service. Absorption costing is a means of incorporating a fair share of these costs into the cost of a unit of product or service provided. Absorption costing is a traditional approach to dealing with overheads, involving three stages: allocation, apportionment and absorption. Apportionment has two stages, general overhead apportionment and service department cost apportionment. After apportionment, overheads are absorbed into products using an appropriate absorption rate based on budgeted costs and budgeted activity levels. Under-/over-absorbed overhead occurs wh en overheads incurred do not equal overheads absorbed.In marginal costing, inventories are valued at variable production cost whereas in absorption costing they are valued at their full production cost. If opening and closing inventory levels differ profit reported under the two methods will be different. In the long run, total profit will be the same whatever method is used. †¢ Marginal costing is more useful for decision-making purposes, but absorption costing is needed for financial reporting purposes to comply with accounting standards. †¢ †¢ †¢ †¢ †¢ †¢ 18 1: Costing ? Part A Specialist cost and management accounting techniques Quick Quiz 1 Here are some terms you should have encountered in your earlier studies. Match the term to the definition.Terms Direct cost Prime cost Overhead Classification by function Fixed cost Variable cost Product cost Avoidable cost Controllable cost Relevant cost Cost centre Cost unit (b) (c) (d) (e) (f) (g) (h) (i ) (j) (k) (l) 2 3 Definitions (a) Specific costs of, say, an activity, which would not be incurred if the activity did not exist Total of direct costs Future cash flow which will be changed as the result of a decision Product produced by an organisation Dividing costs into production, administration, selling and distribution, research and development and financing costs Cost that can be traced in full to whatever is being costed Organisation's departments A cost that varies with the level of output A cost that is incurred in the course of making a product but which cannot be traced directly and in full to the product Cost that is incurred for a particular period of time and which, within certain activity levels, is unaffected by changes in the level of activity Cost identified with goods produced or purchased for resale and initially included in the value of inventory Cost which can be influenced by management decisions and actions †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢ € ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ is the process of determining the costs of products, activities or services. How is an overhead absorption rate calculated? A B C D Estimated overhead ? actual activity level Estimated overhead ? budgeted activity level Actual overhead ? actual activity level Actual overhead ? budgeted activity level 4 Over absorption means that the overheads charged to the cost of sales are greater than the overheads actually incurred. True False 5Fill in the blanks in the statements about marginal costing and absorption costing below. (a) (b) If inventory levels †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ between the beginning and end of a period, absorption costing will report the higher profit. If inventory levels decrease, †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ costing will report the lower profit. 6 Fill in the following blanks with either ‘marginal' or ‘absorption'. (a) (b) (c) (d) (e) Using †¦Ã¢â‚ ¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ costing, profits can be manipulated simply by changing output and inventory levels. Fixed costs are charged in full against the profit of the period in which they are incurred when †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ costing is used. †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ costing fails to recognise the importance of working to full capacity. †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ costing could be argued to be preferable to †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ costing in management accounting in order to be consistent with the requirements of accounting standards. †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ costing should not be used when decision-making information is required. Part A Specialist cost and management accounting techniques ? 1: Costing 19 Answers to Quick Quiz 1 Direct cost Prime cost Overhead Classification by function Fixed co st Variable cost Product cost Avoidable cost Controllable cost Relevant cost Cost centre Cost unit Costing B True (a) (b) (a) (b) (c) (d) (e) Increase Absorption absorption marginal marginal absorption, marginal absorption (f) (b) (i) (e) (j) (h) (k) (a) (l) (c) (g) (d) 2 3 4 5 6 Now try the questions below from the Exam Question Bank Number Q1Level Introductory Marks 10 Time 18 mins 20 1: Costing ? Part A Specialist cost and management accounting techniques Activity based costing Topic list 1 Activity based costing 2 Absorption costing versus ABC 3 Merits and criticisms of ABC Syllabus reference A1 (a), (b) A1 (c) A1 (c) Introduction Chapter 2 covers Part A of the syllabus, specialist cost and management accounting techniques. It has been divided into five sub-chapters to reflect the examiner's emphasis that all five techniques are equally important and equally examinable. In this chapter we will be looking at the first alternative method of cost accumulation, activity based costin g (ABC).ABC is a modern alternative to absorption costing which attempts to overcome the problems of costing in a modern manufacturing environment. If you want to get free study material of CAT, ACCA, CIMA, CFA, CIA visit : freefor911. wordpress. com 21 Study guide Intellectual level A1 (a) (b) (c) Activity based costing Identify appropriate cost drivers under ABC Calculate costs per driver and per unit using ABC Compare ABC and traditional methods of overhead absorption based on production units, labour hours or machine hours 1 2 2 Exam guide There was a question on ABC in the Pilot Paper for F5. It was also examined in June 2008 and June 2010 and is therefore a crucial topic to understand. 1 Activity based costing FAST FORWARD /08, 6/10 An alternative to absorption costing is activity based costing (ABC). ABC involves the identification of the factors (cost drivers) which cause the costs of an organisation's major activities. Support overheads are charged to products on the basis of their usage of an activity. †¢ †¢ For costs that vary with production level in the short term, the cost driver will be volume related (labour or machine hours). Overheads that vary with some other activity (and not volume of production) should be traced to products using transaction-based cost drivers such as production runs or number of orders received. 1. 1 Reasons for the development of ABCThe traditional cost accumulation system of absorption costing was developed in a time when most organisations produced only a narrow range of products (so that products underwent similar operations and consumed similar proportions of overheads). And overhead costs were only a very small fraction of total costs, direct labour and direct material costs accounting for the largest proportion of the costs. The benefits of more accurate systems for overhead allocation would probably have been relatively small. In addition, information processing costs were high. In recent years, however , there has been a dramatic fall in the costs of processing information.And, with the advent of advanced manufacturing technology (AMT), overheads are likely to be far more important and in fact direct labour may account for as little as 5% of a product's cost. It therefore now appears difficult to justify the use of direct labour or direct material as the basis for absorbing overheads or to believe that errors made in attributing overheads will not be significant. Many resources are used in non-volume related support activities, (which have increased due to AMT) such as setting-up, production scheduling, inspection and data processing. These support activities assist the efficient manufacture of a wide range of products and are not, in general, affected by changes in production volume.They tend to vary in the long term according to the range and complexity of the products manufactured rather than the volume of output. The wider the range and the more complex the products, the more support services will be required. Consider, for example, factory X which produces 10,000 units of one product, the Alpha, and factory Y which produces 1,000 units each of ten slightly different versions of the Alpha. Support activity costs in the factory Y are likely to be a lot higher than in factory X but the factories produce an identical number of units. For example, factory X will only need to set-up once whereas Factory Y will have to set-up the 22 2a: Activity based costing ?Part A Specialist cost and management accounting techniques production run at least ten times for the ten different products. Factory Y will therefore incur more set-up costs for the same volume of production. Traditional costing systems, which assume that all products consume all resources in proportion to their production volumes, tend to allocate too great a proportion of overheads to high volume products (which cause relatively little diversity and hence use fewer support services) and too small a pr oportion of overheads to low volume products (which cause greater diversity and therefore use more support services). Activity based costing (ABC) attempts to overcome this problem. 1. Definition of ABC Key term Activity based costing (ABC) involves the identification of the factors which cause the costs of an organisation's major activities. Support overheads are charged to products on the basis of their usage of the factor causing the overheads. The major ideas behind activity based costing are as follows. (a) (b) (c) Activities cause costs. Activities include ordering, materials handling, machining, assembly, production scheduling and despatching. Producing products creates demand for the activities. Costs are assigned to a product on the basis of the product's consumption of the activities. 1. 3 Outline of an ABC systemAn ABC system operates as follows. Step 1 Step 2 Key term Identify an organisation's major activities. Identify the factors which determine the size of the costs of an activity/cause the costs of an activity. These are known as cost drivers. A cost driver is a factor which causes a change in the cost of an activity. Look at the following examples. Costs Ordering costs Materials handling costs Production scheduling costs Despatching costs Possible cost driver Number of orders Number of production runs Number of production runs Number of despatches Step 3 Step 4 Collect the costs associated with each cost driver into what are known as cost pools.Charge costs to products on the basis of their usage of the activity. A product's usage of an activity is measured by the number of the activity's cost driver it generates. Question Which of the following definitions best describes a cost driver? A B C D Any activity which causes an increase in costs A collection of costs associated with a particular activity A cost that varies with production levels Any factor which causes a change in the cost of an activity Cost driver Part A Specialist cost and mana gement accounting techniques ? 2a: Activity based costing 23 Answer D Any factor which causes a change in the cost of an activity. Exam focus pointABC is a popular exam topic. Questions on activity based costing often require a comparison with more traditional methods. The implications for the business of each approach is often required. 2 Absorption costing versus ABC 6/08, 6/10 The following example illustrates the point that traditional cost accounting techniques result in a misleading and inequitable division of costs between low-volume and high-volume products, and that ABC can provide a more meaningful allocation of costs. 2. 1 Example: Activity based costing Suppose that Cooplan manufactures four products, W, X, Y and Z. Output and cost data for the period just ended are as follows.Number of production runs in the Material cost Direct labour Machine Output units period per unit hours per unit hours per unit $ W 10 2 20 1 1 X 10 2 80 3 3 Y 100 5 20 1 1 80 3 3 Z 100 5 14 Direct labour cost per hour $5 Overhead costs Short run variable costs Set-up costs Expediting and scheduling costs Materials handling costs Required Prepare unit costs for each product using conventional costing and ABC. $ 3,080 10,920 9,100 7,700 30,800 Solution Using a conventional absorption costing approach and an absorption rate for overheads based on either direct labour hours or machine hours, the product costs would be as follows. W $ 200 50 700 950 10 $95 X $ 800 150 2,100 3,050 10 $305 Y $ 2,000 500 7,000 9,500 100 $95 Z $ 8,000 1,500 21,000 30,500 100 $305 Total $ Direct material Direct labour Overheads * Units produced Cost per unit 4,000 * $30,800 ? 440 hours = $70 per direct labour or machine hour. 24 2a: Activity based costing ? Part A Specialist cost and management accounting techniques Using activity based costing and assuming that the number of production runs is the cost driver for setup costs, expediting and scheduling costs and materials handling costs and that machi ne hours are the cost driver for short-run variable costs, unit costs would be as follows. W $ 200 50 70 1,560 1,300 1,100 4,280 10 $428 X $ 800 150 210 1,560 1,300 1,100 5,120 10 $512 Y $ 2,000 500 700 3,900 3,250 2,750 13,100 100 $131 Z $ 8,000 1,500 2,100 3,900 3,250 2,750 21,500 100 $215 Total $Direct material Direct labour Short-run variable overheads (W1) Set-up costs (W2) Expediting, scheduling costs (W3) Materials handling costs (W4) Units produced Cost per unit Workings 1 2 3 4 $3,080 ? 440 machine hours = $10,920 ? 14 production runs = $9,100 ? 14 production runs = $7,700 ? 14 production runs = Conventional costing unit cost $ 95 305 95 305 44,000 $7 per machine hour $780 per run $650 per run $550 per run ABC unit cost $ 428 512 131 215 Difference per unit $ + 333 + 207 + 36 – 90 Difference in total $ +3,330 +2,070 +3,600 –9,000 Summary Product W X Y Z (a) (b) The figures suggest that the traditional volume-based absorption costing system is flawed.It underal locates overhead costs to low-volume products (here, W and X) and over-allocates overheads to higher-volume products (here Z in particular). It underallocates overhead costs to smaller-sized products (here W and Y with just one hour of work needed per unit) and over allocates overheads to larger products (here X and particularly Z). 2. 2 ABC versus traditional costing methods Both traditional absorption costing and ABC systems adopt the two stage allocation process. 2. 2. 1 Allocation of overheads ABC establishes separate cost pools for support activities such as despatching. As the costs of these activities are assigned directly to products through cost driver rates, reapportionment of service department costs is avoided. 2. 2. Absorption of overheads The principal difference between the two systems is the way in which overheads are absorbed into products. (a) (b) Absorption costing most commonly uses two absorption bases (labour hours and/or machine hours) to charge overheads to p roducts. ABC uses many cost drivers as absorption bases (eg number of orders or despatches). Absorption rates under ABC should therefore be more closely linked to the causes of overhead costs. Part A Specialist cost and management accounting techniques ? 2a: Activity based costing 25 2. 3 Cost drivers The principal idea of ABC is to focus attention on what causes costs to increase, ie the cost drivers. a) The costs that vary with production volume, such as power costs, should be traced to products using production volume-related cost drivers, such as direct labour hours or direct machine hours. Overheads which do not vary with output but with some other activity should be traced to products using transaction-based cost drivers, such as number of production runs and number of orders received. (b) Traditional costing

Implementing a New CSR Strategy for New Balance Essay

Introduction New Balance is a large company specialized in manufacturing footwear products at a global level. The case study reveals that New Balance is currently committed to formulating an integrated Cooperate Social Responsibility (CSR), which will enable it to place itself in a good position in a highly competitive market (Veleva, 2010). In 2009, the company was still struggling to build a CSR, which would create a reputable name for its products in the global market. However, as Veleva (2010) illustrates, the firm faced various challenges such as lack of a CSR department, which would foresee the implementation of an integrated CSR. This calls for the analysis of the various strengths and weaknesses of the company and lay out the steps it should follow in implementing an integrated CSR strategy. New Balance Strengths and Weaknesses Overall Governance According to Veleva (2010), even before the word CSR became a common word in the global industries. New Balance always insisted on being responsible for all its employees and the communities in which it was operational. Luo and Bhattacharya (2006) support this argument by explaining that for a company to have an effective CRS, it should start internally before going external. New Balance has strong values and governance system that ensures a commitment to responsibility both for internal and external components of its operations. Despite the fact that New Balance was so much committed to CSR, it left out important segments of corporate responsibility such as openness and accountability (Veleva, 2010). The company’s framework did not provide a basis for its leaders to analyze the risks and opportunities of CSR, and this explains clearly, why it was affected by the economic recession of the year 2007-2009. Products and Services From the case study, New Balance had many consumers in the global market. One of its main strengths was the designing and marketing of products. The company ensured that its products met customers’ expectation, and the same time ensured that these products were produced in an  environmentally-friendly manner. According to Sen, Bhattacharya, and Korschun (2006), a company should focus on ensuring that its production does not compromise the capability of future generation to get such a product or even a better one. New Balance looked for materials and ensured that its production was socially and environmentally acceptable in order to increase the social benefits of its production. The case study shows that New Balance decided to take a different approach from other footwear companies by concentrating on recycling. This is one of its weaknesses in its production. Veleva argues that the company did not have a framework in place for accessing the impacts of recycled products. Som e of the environmentally-friendly materials that the company used for its production did not produce quality and durable products, hence did not attract customers. Operations New Balance has various strengths in its CSR strategy in terms of its operations (Veleva, 2010). One of the values of this company was to ensure that the working environment was safe for all its employees. By reducing the number of suppliers almost by half, New Balance was able to gain control over all its production, cut down on costs and hence improve efficiency. Another approach employed by New Balance was by getting rid of materials and production methods, which are harmful to the environment. This company focused on recycling most of its waste products. Therefore, it cuts down on waste, hence reducing cost on disposal and at the same time protected the environment from pollution. In 2008, a time when US focused on ensuring nil pollution to its environment, New Balance was among the first companies that adopted the green chemicals to replace the cleaners, which were used in previous years to ensure compliance with the set environmental standards. However, the company experienced a challenge in controlling its suppliers, especially those oversea. Another challenge for the company was to manage its CSR activities overseas and hence, there was a gap between its domestic CSR and oversees CSR. Community Support According to Veleva (2010), New Balance is a company that always supported the communities in which it had operations. New Balance employees took pride in volunteering and helped the surrounding communities. According  to Engardio et al. (2007), charity and volunteering are one of the major factors that enable a company to retain and satisfy its employees. Volunteering as a value was steered by the CEOs of the company Anne and Jim Davis, who embraced it and ensured that all their employees were active and valued community work. Volunteering and charity work is a value that improves public relations of an organization, its corporate image, trade name, employee teamwork and skill building (Margolis, Elfenbein & Walsh, 2007. However, despite the great involvement in community support, New Balance community support strategy was not in line with its business strategy. The company mainly focused on the US communities and lacked a proper communication plan to communicate both to its inter nal and external stakeholders. Analysis From the strengths and weaknesses identified, New Balance should focus on three of the main areas identified with great risks: effective leadership, a structure for recognizing CSR risks and opportunities that are of great importance to the business and aligning of CSR strategy with business strategy. With clear and effective leadership and a CSR that is aligned with a business strategy any company can reach its highest level of production and innovation (Luo & Bhattacharya, 2006). Steps for implementing an integrated CSR strategy Who should be involved? According to Sen, Bhattacharya and Korschun (2006), for any CSR to be implemented successfully, all stakeholders both internally and externally should be involved. While CSR is mainly steered by leaders, New Balance should at all stages involve its employees. Various studies have shown that employees play a vital role in CSR implementation and making it a success. Suppliers as part of the external stakeholders should also be involved in CSR implementation in order to give their views on whether it is aligned with business strategy or not. What should the Communication Plan consist of? New Balance should adopt a comprehensive communication plan that will effectively communicate its CSR activities internally and externally. Internally, the company can focus on newsletters, meetings, Internet communication, to ensure that employees are always aware of CSR activities and their progress. According to Engardio et al. (2007), frequent and clear communication on CSR to employees enables them to know that CSR is a priority and hence commits themselves to make it a success. Externally, the company should come up with a communication plan that will identify all external individuals and groups that need to be made aware of the CSR activities and how to reach out to them. External CSR communication channels can consist of awareness campaigns, advertise, speeches, and even sending hard copies of CSR report to the most important external stakeholders (Luo & Bhattacharya, 2006) What resources are needed? New Balance mainly requires human resources in order to implement its new CSR strategy effectively. It should focus on effective leadership apart from Anne and Jim Davis, who are the CEOs. Therefore, it should invest in searching for new and effective leaders internally or externally, who will support the two CEOs in effectively running the business. The company should also focus on coming up with a CSR department consisting of intellectuals who understand what CSR entails in order to effectively identify risks and opportunities and align the CSR activities with the company’s business. According to Margolis, Elfenbein and Walsh (2007), finances are needed in CSR implementation. Therefore, New Balance should form a committee, which will strategize on how the company will get the funds required to finance its CSR implementation. What is the Timeline? For any CSR implementation to be successful, it must be time bound (Engardio et al. 2007). The CSR steering team should come up with a timetable clearly showing all the stages of CSR implementation and their time limits. Each stage should be given a time limit and periodically monitored in order to ensure that it is completed within the allocated time. An effective CSR implementation is done during the shortest time possible to cut down on wastage in terms of human resources and finances and hence save cost. What are the measures of success? New Balance should come with an approach of measuring its CSR implementation performance. Primarily, it should identify the objectives, fundamental to its CSR commitment and come up with performance indicators, which should be used to measure the results of CSR activities. When the objective has been achieved, it means that the CSR is a success while it is a failure when an objective has not been achieved. What are other important items to include? According to Luo and Bhattacharya (2006), a company should ensure that their employees are adequately trained on CSR in order to make its implementation a success. New Balance employees should be properly trained on the importance of CSR and its implementation to ensure it becomes a success. Margolis, Elfenbein and Walsh (2007) point out that in any CSR implementation, there are obstacles such as resistance by some employees and stakeholders. Therefore, it is important that New Balance puts in place mechanisms and strategies of dealing with problematic behavior and resistance to its CSR implementation. Conclusion From the analysis, it is clear that New Balance is a company that is devoted to community support and volunteering. Its two CEOs are devoted to ensuring that the company creates a good reputation and markets its brand by embracing CSR. However, various loopholes that have been identified, prevented the company from achieving its CSR objectives and goals. Such loopholes are the lack of an effective leadership body, Lack of aligning CSR with the company’s business among others. Therefore, despite much involved in community support, the company did not achieve the benefits that come along with CSR such as reputation, good corporate image, and good public relations among others. Implementing an effective CSR will call for New Balance to bring together both human resources and finances. Effective leadership and CSR personnel are needed in order to analyze the various risks and opportunities related to CSR. The company also needs to align its CSR strategy with its business in order to rip all the benefits that come along with it. Every stakeholder, both internal and external should be involved in CSR implementation in order  to ensure maximum support and hence make it a success. References Engardio, P., Capell, K., Carey, J., & Hall, K. 2007. Beyond The Green Corporation. Retrieved from http://static.twoday.net/foehrenbergkreis/files/bw-january-29-2007-beyond-the-green-corporation.pdf Luo, X., & Bhattacharya, C.T. (2006). Corporate social responsibility, customer satisfaction, and market value. Journal of Marketing, 70(4), 1–18; Margolis,J.D., Elfenbein,H.A, & Walsh, J.P (2007). Does pay to be good? A meta-analysis and redirection of research on corporate social and financial performance. Working Paper, University of California at Berkeley. Sen S., Bhattacharya, C.T., & Korschun, D. (2006). The role of corporate social responsibility in strengthening multiple stakeholder relationships: A field experiment. Journal of the Academy of Marketing Science, 34(2), 158-166. Veleva V. (2010). New Balance: Developing an integrated CSR strategy. Richard Ivey School of  Business.

Effective Teaching Methods that can be Implored to Integrate a Child Essay

Effective Teaching Methods that can be Implored to Integrate a Child with Down's Syndrome into a Mainstream Primary School in Ir - Essay Example Thus, the application of qualitative research design is meant to match the requirements of the research topic, in that an in-depth understanding of the appropriate methods that teachers should apply to teach students suffering from this disorder is vital, for the benefits of the students. A vital aspect of qualitative research is that it emphasizes more on the particular case being undertaken, while making a few of general propositions (Stebbins, 2001 p60). There are various reasons as to why the research opted to apply qualitative research design. The research design is most appropriate for the topic under study, in that, qualitative research uses the natural setting as the source of information, where the settings and the environment of study is observed, described and interpreted based on neutrality (Wolcott, 1995 p25). Since the topic requires the observation of the educational needs of students suffering from Down's syndrome, and the consequent devising of the means, which the t eachers can apply to address these needs, then the research design remains most relevant for the study. ... rmation about the people and their environments, which is a necessity for this study, in that, there is a need to evaluate and understand all the relevance needs of students suffering from this disorder and the viable ways in which teachers can meet these special needs of the students. More reasons as to why qualitative research remains the most applicable method for this research, is the fact that, some aspects of study cannot be quantified. Additionally, there are those aspects, which are difficult to express in quantitative terms, such as the experiences that an individual has (Patton, 2002 p18). Therefore, qualitative research comes in handy to ensure that those relevant aspects of the study, which cannot be quantified, are investigated and their contribution to the study analyzed. Considering that fewer generalizations and assumptions are involved in qualitative research, then, it is possible to explore highly the area of study and generate hypotheses (Ziman, 2000 p86). Addition ally, the application of qualitative method ensures the comfort of the participants, in that, they are allowed to present their own ideas, information and experiences in their own words and style, which seems more appropriate to them. The advantages associate with qualitative method of study is the fact that it afforded an opportunity to deeply scrutinize the responds and obtain a deeper insight and understating regarding the nature and educational needs of children with Down's syndrome. The method allowed an opportunity to obtain advice from people who had greater experiences in dealing with the students suffering from the disorder, among them a 30-year-old girl with Down's syndrome, who have gone through the mainstream education system. Better still; the method was easier to apply in that

Library Assignment Example | Topics and Well Written Essays - 250 words

Library - Assignment Example This can be easily proved by the fact that the major element in the company’s policy is the ability to create and give a high level of customer service and support. Blue Nile faces some business risks that may threaten its ability to satisfy stockholder expectations. The major problem for the company is the situation when primary competitors come from online and offline retailers. The latter suggested products from the higher value segment of the market in this field. There are several ways chosen by Blue Nile to handle and change this situation. They are: the creation of some new designs for jewelry, 2) the encouragement to offer as many discounts and memberships as possible and 3) the creation of more endorsement. Blue Nile is a merchandiser. Everything in the company functions to achieve the best results in the market. For instance, Blue Nile does everything to display all possible guarantees and polices on its website to make this information available for customers. This adds popularity and environment of trust to the company. Works Cited www.sec.gov/edgar/searhedgar/companyseach.html

Integrated case study of Orion company Essay Example | Topics and Well Written Essays - 9000 words

Integrated case study of Orion company - Essay Example According to Ahlstrom and Bruton (2009) businesses today are focused on international competition and opportunities afforded by globalization. It is further mentioned that competition has increased greatly during the past two decades due to globalization and the energizing forces of technological changes and major financial innovation. Management in modern environment, where tastes, likes and dislikes changes every minute, is an herculean task as it requires the leaders to create and develop an effective strategy that could withstand the consumer demand, product innovation, effective human resource management, employee retention and motivation, consumer relationship, marketing, etc. Similarly, international business management requires formulating strategy that addresses all the issues hitherto mentioned, but also addresses issues pertaining to organizational culture because they may be working in a different setup with people of different culture, political, legal, environmental con cerns and socio economic issues. Phatak (2006) states that the need for international management arises with a firm’s initial involvement in international operations by way of exports of its products, technology, or services to foreign markets. Orion Food Industries produces a range of ready prepared meals for local market and distribution within West and East Malaysia has achieved national coverage with retail sale made direct to supermarket in major population centres. Further export markets also booming and according to British Press, curry has replaced fish and chips as the number one food of choice in Europe. Assuming this as the greatest opportunity for Orion Foods and to seize the available opportunity, this report aims to provide the strengths and weaknesses of Orion Foods in regard to International Business expansion in European in terms of human resource, culture, management, market structure, and

Research paper final Essay Example | Topics and Well Written Essays - 2000 words

Research paper final - Essay Example This should change because maintaining vibrant Internet demands that the government respects privacy of the information people share online. This research paper argues that illegal data mining is a threat to the Internet and American technology companies. According to data from American data companies, National Security Agency’s Internet surveillance, and illegal data mining is hurting international sales of American Internet companies and hurting online freedom. Estimates by a policy research group called Information Technology & Innovation Foundation says by 2016 US companies will lose an estimated $35 billion in lost revenues (Herman 15). Some of the companies likely to lose out most are Apple and Google that benefit most from an open Internet without national boundaries. Data mining is become an important way of getting personal information because so many people rely on the Internet to communicate and get all types of information. According to Carr (2008), he does not all his research as a writer online. Previously, he had to get magazines, books, and other written materials to research and this used a lot of time and slowed down his productivity. Internet research on the other hand is easy. He says that he starts his research by selecting a few articles, which guides him onto resources that are more similar by clinking on links. Within a short time, he is able to get quality resources that he can use for his writings. The downside of this convenience is his activities can easily be tracked. Search engines and other websites track their visitors using cookies. Tracking is done for purposes of advertising. The other groups of people interested in online activities of people are hackers and the NSA. Hackers are interested in stealing personal informa tion for personal gain. NSA on the hand track online users in order to detect illegal online activities and communications between

Human resource management Essay Example | Topics and Well Written Essays - 500 words - 3

Human resource management - Essay Example The participants in the organization will be particularly asked for the pay increase which would satisfy them the most. Then based on the feedback the management could arrive at a decision which would at most satisfy the majority of the employees. This is very vital because this way JVA Crop can save hundreds of thousands of dollars by holding back the talent that is working at present for the company. In addition to this performance of the same persons can be increased and thus the company’s goals can be achieved easily (Katkowski et al, 2002). If the employee feels that his present position at the company will benefit them personally then it is obvious that production activity of the company increases and also such staff is far less probable to look for employment elsewhere Mitra et al. (1997). Also Lagging Indicator and Leading Indicator mode of appraisal will be introduced. This means that the lag performance of an employee will indicate the achievements of the employee for a particular period after which his performance will be evaluated and he will be rewarded or punished accordingly. Lead Indicator is an activity which indicates the supposed to-be-done activity for his goals to be achieved (Transparent HR processeshttp: //www.infosys.com/HCM/case-studies/telenet-case-study.asp retrieved on 4th October 2009). The entire above said mode can be effectively applied to JVA Corp to bring the organization back on the track where it was before the terrorist attack of 2001. Not only this, the company will be benefited and will be able to retain its present employees who are star performers. Katkowski, D. A., Medsker, G. J., Pritchard, K. H. (2002). Literature review of â€Å"acceptable† or â€Å"just noticeable different† pay increases. Poster presented at the 17th annual meeting of the Society for Industrial and Organizational Psychology, April, 2002, Toronto,

Employment Law Essay Example | Topics and Well Written Essays - 750 words - 3

Employment Law - Essay Example employees, while the employer should follow the conditions of the plan in providing those benefits in a way that is both consistent, as well as nondiscriminatory (Duddington 7). The principle of employment-at-will is a variety of federal, as well as state laws prohibiting discrimination based on race, age, gender, disability, or national origin. According to the Federal law, Civil Rights Act Title Vii, if an employee assumes that he or she gets a termination, demotion, or denial of promotion due to unlawful discrimination, he or she has to report a complaint within 180 days. Failure of filing a discrimination claim in the time limit bars the claim; this claim undergoes investigation and if the claim turns to be having merit, it will try to resolve it through conciliation or litigation. However, if there is no discrimination found, or the claim cannot be resolved thereby leading to dropping of the claim, which is normally the case, there is the suing of â€Å"a right-to-sue letter"; following the issuance of the letter of right-to-sue letter, the employee has the ability of taking his or her claim of discrimination up to Federal court (Duddington 22). In Title Vii of the Federal law, the employee must file his or her lawsuit in ninety days after obtaining a right-to-sue letter or, again, the claim gets barred. In the case o f Ms. Clark, it is clear that the motivation behind her termination was the fact that was a woman, as well as being the age of fifty three. The management of the company was biased when the termination of Ms. Clark, first they asserted that she made poor judgment about accepting the union’s representative’s invitation. This was ridiculous considering that she had worked for Danskin Inc. for over twenty years plus the fact that she was the Vice chairman of the company hence she knew exactly what was appropriate for the company. Apart from that, had a perception that Ms. Clark was exceedingly old and incapable of getting another job, as a result,

Chapter 7 Reaction Paper Essay Example | Topics and Well Written Essays - 500 words

Chapter 7 Reaction Paper - Essay Example Stereotypes end up dehumanizing a whole group of people, essentially pigeonholing them without giving them any chance to prove their own unique identity. When talking about the â€Å"accuracy† of stereotypes, I did not like the fact that the author mentions that some stereotypes are â€Å"accurate.† The fact that he goes on to mention very objective terms (like the income of a certain group of people), further augments my point. Stereotypes, I feel are based on subjective terms and not objective ones, and that is precisely why they are so damaging. However, I did like the idea the author then goes on to say how, even though we cannot get rid of stereotyping all together, we need to recognize them for what they are so that they can be productive and not destructive. In this regard the chapter itself contains certain stereotypes, which the author also admits. However, I would have liked it if there had been mention of stereotypes causing prejudices to be formed. I liked h ow the article relays the idea that we need to acknowledge that people are different, or that certain groups of people will be different as a collective. However, if that is true, then, perhaps, there is a premise for stereotyping to be an effective social tool. Nonetheless, it need not be so if we refrain from making rigid assumptions about a whole group of people and applying them on individuals as well.

Focus on Trash Island, Save Our Life Essay Example for Free

Focus on Trash Island, Save Our Life Essay Ignored by humans for decades of years, garbage floating on the ocean has become a trash island. The island consists of plastic bags, cans, tires and other plastic debris. The worse thing is that the trash island is still growing. The seawater in the center of Subtropical Airflow of pacific flows extremely slowly, with the addition of weather patterns, a large amount of garbage gather in this place. Year after year, a trash island has formed, which was called â€Å"the eighth continent†. It consists of four million tons of pelagic plastics, chemical sludge, and other debris, researchers estimate island area may be twice the size of Texas! (Wikipedia.com) The floating debris can absorb organic pollutants from seawater, and then such debris can be ingested by small fish, which are then eaten by larger fish. Many of these fish are then consumed by humans, resulting in their ingestion of toxic chemicals. (Ballard 2004). Therefore, human life will be threatened by this situation. What should be done to reduce the amount of pollution and garbage building up on trash islands? It is undeniable we should take this problem seriously; otherwise humans will be faced with disaster. After realized how urgent we should clean the trash island, humans did a lot of work, try to diminish it. Once it was a project called â€Å"Project Kaisei†, which devoted to study the ways of cleaning up the trash island. According to the material, in 2009, Project Kaisei embarked on its first expedition to the Pacific Patch. There are two vessels in this trip, one is the â€Å"Kaisei†, and the other is the â€Å"New Horizon†. Each research vessel had a crew of scientists and volunteers on board in order to research the effects that might be occurring as a result of the large amounts of floating debris in this area of ocean. Investigation was carried out for material science, toxicity, invasive species, ecosystem impact and new catch methods to develop ways for removing some of the debris in the future in a larger scale.(projectkaisei.org). Similar projects are taken; scientists and government are trying to find ways to recycle plastic wastes. Project Kaisei drawn out a plan to save the ocean, which will raise about 200 million dollars in the next 18 month, then it will clean up more than 400,000 tons of garbage; those garbage can be decomposed as fuel. The Kaisei Project indeed got a good return, basically it clean up part of the island, however, the island is still growing because those factories never stop dumping plastic waste into the ocean. Take the real situation into consideration, I think the best strategy we should do is to avoid the island growing bigger. Charles Moore, who firstly found â€Å"the eighth continent†, said even cost all the countrys financial resources, and killed a large number of wildlife, it is impossible to clean up the whole trash island in the Pacific Ocean. (Earth Island Journal, 2010). The technology may not be advanced so much that we can’t clean up the whole island at present; moreover, the costs have far exceeded the benefits. I believe we should develop the technology firstly and seek out the most effective and economical process to recycle and resolve the trash. On the other hand, we can take other actions to prevent more debris from inflowing the ocean. And the costs will be much lower than cleaning the island up. Unquestionably the garbage island is a serious issue that worth to think. Prevention may not solve the problem once for all, but it can avoid it getting worse. And it is practical and workable, has a chance to be enacted. Government can encourage entrepreneur to develop green industry; policy can be carried out to close those factories which had high pollution productive process. Research and development department has the ability to improve technology, as a result, the discharge of pollutant will be reduced and eliminated. Communities can contribute by lobbying companies to find environmentally safe alternatives to plastic and formulate reusable packaging. â€Å"International treaties prohibiting dumping at sea must also be enforced, such as prohibiting sewage from being allowed to flow into the ocean, or eliminating the use of plastic bags†(Silverman, 2007). Factories can find a way to reduce the discharge of plastic waste, or they can stop dumping the wasted into the ocean; there must be approach to resolve the waste rather than simply discard them to the sea. With all efforts, the trash island will not bigger any more. Beyond this, our individual should stop dumping plastic wastes into the sea. As an article said, about 80% of the debris comes from land, much of which is plastic bags, bottles and other consumer products as wind â€Å"blows plastic rubbish out of littered streets and landfills where it gets into rivers and storm drains before riding the tides and currents out to sea† (Grant, 2009). Some tourists always think the ocean is â€Å"a big trash dustbin†, they enjoy the scenery as well as drop the trash unconsciously. Environmental protection advertisement, public announcement and collection can be made to wake up the awareness of environmental protection from human. Although it’s hard to persuade those factories to close down their pollution business, the policies still need to be put into effect. It is indeed the most helpful approach to prevent the trash island grow up. At the national level in the United States, authorities like the Clean Water Act, the Resource Conservation and Recovery Act, and the Pollution Prevention Act of 1990 do not specifically mention marine debris, but include standards applicable to the control of land based sources of marine debris (Interagency 2008). The most important thing is, such management can heighten human’s awareness of protecting environmental, constant dropping wears the stone, I believe it will lead a right direction. If we can change our habits, the trash island will not grow. â€Å"Ultimately more plastic recycling and wider use of biodegradable materials is the best hope for controlling these garbage patches† (McLendon, 2010). Without global effort, we cannot successfully control the situation and protect the ocean environment; marine animals and human’s life will be at risk. Changes and actions need to be made, thus we can fix the problem and prevent it from occurring again. In conclusion, reduction of sources and international collaboration for cleanup is the most efficient way to reduce the expansion of the trash island. Work Cited Project Kaisei Capturing the Plastic Vortex. Project Kaisei Capturing the Plastic Vortex. N.p., n.d. Web. 05 Dec. 2012. Ballard, K. ―The importance and conservation of Biomes.â€â€" University of California. (2004) Great Pacific Garbage Patch. â€Å"Wikipedia. Wikimedia Foundation http://en.wikipedia.org/wiki/Great_Pacific_Garbage_Patch. Captain Charles Moore. Earth Island Journal, Aug. 2009. Web. 05 Dec. 2012. Silverman,J.(2007,September 19).Why is the Worlds Biggest Land fill in the Pacific Ocean Retrieved February13,2012,from HowStuffWorks: http://science.howstuffworks.com/environmental/earth/oceanography/greatYpacificYgarbageYpatch3.html Grant, R.(2009,April 24).Drowning in plastic: The Great Pacific Garbage Patch is twice the size of France.TheTelegraph . Interagency Report on Marine Debris Sources, Impacts, Strategies and Recommendations. Interagency marine debris coordinating committee (2008) McLendon,R.(2010,February 24).WhatistheGreatPacificGarbagePatch? Retrieve d February 13, 2012,from Mother Nature Network: http://www.mnn.com/earthYmatters/translatingYuncleYsam/stories/whatYisYtheYgreatYpacificYoceanYgarbageYpatch

Legal Pluralism and Customary Law: Marriage Concepts

Legal Pluralism and Customary Law: Marriage Concepts What is legal pluralism?.Virtually every society is legally plural whether or not is has a colonial past including Cameroon. Legal pluralism has been existing in Cameroon for long with it numerous ethnic groups and diverse cultures. It is estimated that Cameroon has approximately 250 ethnic group and cultures with the Bangwa been one of the them, during colonization era, legal pluralism was intensified with the white mans culture and law also having a role to play whether or not is has a colonial past. Legal pluralism is a central theme in the reconceptualization of the law/society (S.A Merry, legal pluralism (review article),). It is also generally defined as a situation in which two or more legal systems coexist in the same social field. (Pospil,1981 Modern and Traditional Administration of Justice in New Guinea,; Griffiths 1986a What is Legal Pluralism?,. Moore S.F (1986a), Social Facts and Fabrications: Customary law on Kilimanjaro, 1880-1980). To Hookers, he define is from the social science version, he provide a masterful and comprehensive overview of legal pluralism in this sense, in surveying plural legal systems in Asia, Africa, and the Middle East (1975). He define legal pluralism as circumstances in the contemporary world which have resulted from the transfer of whole legal systems cultural boundaries (Hookers, M.B.(1975) legal pluralism: An Introduction to Colonial and Neo-colonial laws. Griffiths distinguishes between the social science view of legal pluralism as an empirical state of affairs in society (the coexistence within a social group of legal order that do not belong to a single system) and what he calls as juristic view of legal pluralism as a particular problem, of dual legal systems created when European countries established colonies that superimposed their legal systems. To Moore (1986b), he tries to describe the new legal pluralism in which he says, the new legal pluralism moves away from questions ab out the effect of law on society or even the effect of society on law towards conceptualizing a more complex and interactive relationship between official and unofficial form of ordering. This brings us to point Masaji Chiba, Three dichotomies of law. An analytical scheme of legal culture, Tokai law Review,1987, he define what is official and unofficial law? Official law was defined as the legal system sanctioned by the legitimate authority of the country, typical of which was state law directly sanctioned by the legitimate government of a state. And he also defined unofficial law as all type of law other than state law are classified as unofficial law insofar as they are not officially authorized by state law. On the other hand, customary law can be defined as a cultural construct with political implications, a set of ideas embedded in relationships that are historically shifting ( Moore, Social Facts and Fabrications: Customary Law on Kilimanjaro, 1880-1980). In Cameroon customary law is a source of law in the country it is legally recognized even though there are some customary law which are not in accordance to the repugnancy clause. The customary court ordinance cap 142 of 1948 applicable to Anglophone Cameroon defines customary law as the native law and custom prevailing in the area of the jurisdiction of the court so far as it is not repugnant to natural justice, equity and good conscience, nor incompatible either direct or by natural implication with the written law for the time being in force. What actually is marriage? In Christendom, marriage is typically regarded as an institute and ordained by God for the lifelong relationship between one man as husband and one woman as wife. It can also be defined as a legalized social relationship between one man and one woman with the exclusion of all others (Monogamy) on the other hand marriage can be defined as union between one man with two or more wives (Polygamy). There is another form of marriage today mostly in the western world, a union between one man and another man or between one woman and another woman (Homosexual marriage). And this marriage today is of contemporary debate if actually it should be acceptable? Customary marriage generally in Cameroon is another way of say it is polygamous marriage because the man can get married to as many women as he intern to with or without the consent of the wife. Marriage historically in Cameroon were arranged with varying degrees of veto power by the potential bride and groom, but individual chioce stressing companionship is becoming more common. Polygamy is a goal with many groups but it is not easily financially attainable. Some women prefer small-scale polygamy for the company and mutual aid a co-wife might provide. My main point of concern to this Bangwa customary marriage is how it is not inconformity with the Cameroonian State law, Repugnancy Clause and also Human Right of the girl child. But before I actually explain the Bangwa marriage I will give brief explanation of the Cameroon legal system. Cameroonian Legal System The Cameroonian legal system is a relic of the colonial era, it is unique in the sense that, it consist of two distinct and often conflicting legal system, the English Common law in Anglophone Cameroon and the French Civil law in Francophone Cameroon. Cameroon is referred to as a bi-jural country ( Prof. P.Y Ntamack University Yaoundà ©-Cameroon). Cameroons legal system can be explain from; pre-colonial, colonial and the post independence era. There exist diverse unwritten indigenous laws and usages which apply to the numerous ethnic groups and cultures in Cameroon. Cameroon has been ruled by the following countries; Germany 1884, Britain and France 1916), and each of them had it own system of rule. The main sources of Cameroon have been shape due the two legal systems. The main sources are: The Constitution: Cameroon has passed through three constitution, 1960, 1972 and 19960. The legislation: This is main the parliament. Judicial Precedent: It is treated differently by the Civil law and Common law. In the Frencophone courts,