A poultry firm and concepts of costing, budgeting, budgetary targets

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Introduction

Cost can be defined as the amount of resources, usually measures in monetary terms, sacrificed to achieve particular objective (McLaney & Atrill, 2008:281). This report will consider a specific poultry firm to analyse the concepts of costing, budgeting, budgetary targets and provide implementation details and recommendations based on the analysis. The analysis, implementation and recommendations of costing and budgeting would be done on the basis of the learning in this course and my previous work experience.

Costing

There are different types of costs associated with a manufacturing firm. Fixed cost is the company spending which is autonomous on the amount of operations. Variable cost changes according to the capacity of production. Moreover, product cost is the cost involved in producing or purchasing a product. Period cost is non- manufacturing cost which is not included in the cost of purchase or production. Furthermore, traditional cost accounting has been one main, widely-used approach to costing both internally and externally. This general ledger (GL) system performs as the firm’s indicator measuring the healthiness and prosperity of the whole company. The conventional GL methodology can only recapitulate the firm’s everyday expenditure as per the individual account details (for example labor, material) (Narong 2009).Any expenditure and overheads are not linked to any exact activity or procedures. This shows that the firm lacks the aptitude to assess the inner competence, excellence and prosperity per product. Activity based costing (ABC) is the appropriate entirety value management solution that can increase these deficiencies. The activity based costing approach records, recapitulate and hearsays the expenses into the costs of behavior or procedure and ultimately related to each manufactured goods and clients. “Unlike traditional accounting reports that make managers react to by being happy or sad, activity based costing data makes them smarter” (Narong 2009).

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Overview of the firm

KPC farm is a hen and egg production firm. The fixed costs for KPC farm are rent, insurance, interest, real-estate taxes, wage and salaries and maintenance costs. The variable costs for KPC farm are labor, electricity, transportation. Furthermore, vaccination, food, crops cost, direct labour (assembly line workers), manufacturing overhead (indirect material and indirect labour, depreciation on plant and machinery, and utilities) are the product costs at KPC farm. Marketing costs (depreciation of delivery van, advertisement, sales commission and cold storage) and administrative costs (depreciation of land and building, management costs like salaries and travel) are period costs.

Capital Investment Cost Straight line Depreciation (Yrs)
Land £ 450,000.00 N.a No salvage value
Buildings £ 200,000.00 25 No salvage value
Equipment £ 100,000.00 12 No salvage value
Farm machinery £ 13,000.00 10 10% salvage value
Car £ 4,000.00 5 7% salvage value
Total Investment cost £
Working Capital
Hens No of hens x price per bird
Vaccination No of hens x vaccination cost
Food Price of food for first three months
Crops cost Production costs per bale x no of bales produced
Capital
Value Weight
Equity @ 18% £ 357,000.00
Debt @12.5% (interest included in total) £ 467,320.00
Total Capital £
Bank Loan Agreement to be repaid over 5 yrs
Yr 1 £75,000 Yr 2 £75,000 Yr 3 £100,000 Yr 4 £100,000 Yr 5 £117,320
New car cash purchase in Yr 5 £ 20,000.00 Depreciate over 10 years
Planning cost £ 5,000.00
Operating cost
No of hens 9000
Cost per hen £ 3.00
Weekly food consumption per 1000 hens 0.167 Per KG
Price per KG £ 0.28 £ 0.36
Vaccination per hen £ 1.00
Salaries and wages
Farm manager £ 500.00 Per week
Casual labour £ 60.00 Per week
Insurance £ 3,000.00 Per Year
Utilities £ 350.00 Per month
Fuel £ 200.00 Per month
Hen waste removal £ 1,600.00 Per year
Technical Information
Life cycle of Hen 52 Weeks
No.

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