THE INSTITUTE OF FINANCE MANAGEMENT

FACULTY: ACCOUNTING BANKING AND FINANCE

PROGRAM: BACHELOR OF ACCOUNTING
MODULE: COST ACCOUNTING (ACU 07424)
STREAM: C, GROUP: 2
YEAR: 2(2023/2024)

NAME: MOUREEN BARAKA ELIYA.

REGISTRATION NUMBER: IMC/BAC/2215633
I) Explain how cost plays the dominating role in decision making in organizations and
identify other qualitative factors which have been considered in making decisions in this
case of Bakhresa Co.

a. Market demand and competition.

The decision to introduce a new product line was influenced by the existing competitive market,
as well as the demand for the new product among customers.

b. Resource availability.

Bakhresa considered their existing manufacturing capacity, skilled labor, and equipment when
evaluating the feasibility of adding the new product line.

c. Human resources.

The condition for Bakhresa's son to join the company as the production manager for the new
product line reflects consideration for human resource management and ensuring competent
leadership for the new venture.

d. Capital investment.

The decision to purchase specialized machines and lease additional space involved assessing
capital investment requirements and exploring financing options, such as zero-interest rates from
newly-opened banks.

e. Operational efficiency.

The proposal highlighted the potential to offer hourly employees more steady work, indicating
consideration for maintaining a productive workforce.

The following are qualitative factors considered in this decision making approach in the
context of Bakhresa case includes.

a. Cost Analysis

Bakhresa Co. Ltd decision to expand its product line was primarily driven by cost analysis. By
adding a new product line (HBF Wheat flour), they aimed to spread their fixed costs over a larger
volume of units, which would decrease the unit product costs. This cost analysis involved
evaluating the additional capital investment required for specialized machines and leasing more
space, as well as considering the increase in electricity consumption. By understanding these
costs, Bakhresa could assess the financial viability and potential profitability of the new venture.
b. Market Dynamics and Competition.

Bakhresa recognized the competitive nature of the market, with the presence of other
manufacturers like Bakhresa Co. Ltd. They also understood the price sensitivity of consumers,
where even small price changes could significantly impact demand. The decision to introduce a
new product line was influenced by the opportunity to expand their market share and cater to
evolving consumer preferences.

c. Resource Utilization and Operational Efficiency.

The proposal to add a new product line considered the company's existing resources, including
manufacturing capacity, skilled labor, and equipment. By leveraging these resources, Bakhresa
could minimize additional operational costs and enhance efficiency. The plan also aimed to offer
more steady work to hourly employees, indicating a focus on optimizing resource utilization and
maintaining a productive workforce.

d. Capital Investment and Financing

Bakhresa explored financing options for the capital investment required to purchase specialized
machines and lease additional space. The decision to finance the purchase at a zero-interest rate
from newly-opened banks reflected a strategic approach to managing capital expenditure while
minimizing financial costs.

d. Strategic Alignment:

The decision to expand the product line aligned with Bakhresa strategic goals of growth and
diversification. By expanding their product offerings, they could capitalize on market
opportunities, strengthen their competitive position, and enhance long-term profitability.

ii) Identify the various costs which might be involved in making HBF Wheat flour product.

a. Direct Material Costs.

These encompass the expenses related to acquiring the main raw material, wheat, which includes
the cost of purchasing the wheat itself, as well as any additional costs associated with
transportation, inspection, and quality assurance procedures.

b. Direct Labor Costs.

These are the wages and salaries paid to employees directly involved in the production process.
This includes workers responsible for tasks such as cleaning the wheat, operating milling
equipment, conducting quality control tests, and packaging the final product.
c. Overhead Cost.

Overhead costs are indirect expenses necessary for production but not directly attributable to
specific units of output. This includes expenses such as electricity to power machinery,
maintenance and repair costs for equipment, depreciation of machinery and facilities, as well as
other general factory expenses.

d. Specialized Machinery Costs.

These are the costs associated with purchasing any specialized machinery or equipment required
specifically for the production of the HBF Wheat flour. These costs may include the initial
purchase price of the machinery, installation costs, and any ongoing maintenance expenses.

e. Quality Control Costs.

These encompass the expenses incurred to ensure the quality and consistency of the HBF Wheat
flour product. This includes the cost of equipment used for testing and analyzing the wheat and
flour samples, as well as the salaries of quality control personnel responsible for conducting these
tests.

iii) Differentiate between “Unit cost” and “Cost unit”

a. Unit Cost

This refers to the cost incurred to produce a single unit of a product. It represents the total cost
of production divided by the total number of units produced. When referring to Bakhresa Co.
Ltd., unit cost would be calculated by dividing the total cost of producing the HBF Wheat flour
product this including direct material costs, direct labor costs, overhead costs, etc.) by the total
number of tons of HBF flour produced during a specific period, such as a month.

b. Cost Unit

This refers to the unit of measurement used to express costs in relation to the output of a
particular product or service. It represents the basis on which costs are assigned to individual units
of production. When referring to Bakhresa Co. Ltd., the cost unit for the HBF Wheat flour
product could be expressed in various ways, such as cost per ton, cost per kilogram, or cost per
bag of flour. This allows the company to analyze and compare costs across different levels of
production and measure the efficiency of its operations.
iv) Identify relevant and irrelevant costs for the introduction of HBF flour product.

a. Relevant costs

Are those costs that are directly affected by a decision and differ between alternatives. In the case
of introducing the HBF flour product, relevant costs would include:

i. Direct Material Costs. The cost of purchasing wheat specifically for the production of HBF
flour.
ii. Direct Labor Costs. Wages for employees directly involved in producing the HBF flour,
such as millers, cleaners, and packagers.
iii. Overhead Costs. Indirect costs necessary for production, such as electricity, maintenance,
and depreciation of machinery, which would vary with the introduction of the new
product.
iv. Specialized Machinery Costs. Costs associated with purchasing specialized machines
required for the production of HBF flour.
v. Quality Control Costs. Expenses related to ensuring the quality of the HBF flour product.
vi. Packaging Costs. Costs associated with packaging materials and labor for packaging the
HBF flour.

b. Irrelevant costs, on the other hand, are those costs that do not differ between alternatives
and therefore do not impact the decision-making process.

i. Sunk Costs. Costs that have already been incurred and cannot be recovered, such as the
initial cost of acquiring the land and factory for the existing PPF flour product.
ii. Allocated Corporate Overhead. Overhead costs that are shared across different product
lines and are not affected by the introduction of the new product.
iii. Past Advertising Costs. Advertising expenses incurred for the existing PPF flour product
that would not change with the introduction of the HBF flour product.

V) Identify controllable and non-controllable costs.

a. Controllable costs

Are those costs that can be directly influenced or controlled by managerial decisions and actions
within a certain time frame, in refereeing to Bakhresa case they include.

i. Direct Material Costs: The cost of purchasing wheat specifically for the production of HBF
flour can be controlled through negotiation with suppliers, exploring alternative sources, or
implementing cost-saving measures such as bulk purchasing.
 ii. Direct Labor Costs. Wages for employees directly involved in producing the HBF flour,
such as millers, cleaners, and packagers, can be controlled through efficient workforce
management, productivity improvement initiatives, and incentive schemes.
iii. Overhead Costs. While certain overhead costs may be fixed or semi-variable and less
controllable in the short term, managerial actions such as implementing energy-saving
measures, optimizing maintenance schedules, and reducing waste can help control these
costs to some extent.
iv. Marketing and Advertising Costs. Costs related to promoting the new product to existing
and potential customers can be controlled through budgeting, selecting cost-effective
advertising channels, and monitoring the effectiveness of marketing campaign

b. Non-controllable costs

These are costs that cannot be directly influenced or controlled by managerial decisions and
actions. These include

i. Sunk Costs. Costs that have already been incurred and cannot be recovered, such as the
initial cost of acquiring the land and factory, are non-controllable since they are historical
and cannot be changed by current managerial decisions.
ii. Allocated Corporate Overhead. Overhead costs that are shared across different product
lines and are determined at a higher level of the organization may be non-controllable at
the operational level.
iii. Past Advertising Costs. Advertising expenses incurred for the existing PPF flour product
that have already been spent and cannot be altered are non-controllable for the introduction
of the HBF flour product.

vi) Explain the importance of Cost accounting knowledge and how it is important in an
organization such as Bakhresa Co.ltd.

a. Decision Making.

Cost accounting provides valuable information for decision-making. Whether it's deciding to
introduce a new product line, invest in new machinery, or outsource certain functions, having a
clear understanding of the costs involved allows management to make informed decisions that
align with the company's strategic objectives. For Bakhresa, cost accounting knowledge would
have been essential in assessing the feasibility of introducing the HBF flour product and
determining its potential impact on the company's overall profitability.
b. Cost Control.

This is where by it is efficient for a business to focus on controlling the cost of material, labour
and other kind overhead costs. For example to achieve maximum efficiency on their inventory
management they can adopt the EOQ technique which is the costing technique. Similarly by
applying the cost of labor and the capacity of machinery their efficiency van be improved also.

c. Price determination.

Cost accounting makes the best distinction between fixed and variable cost. This is then used by
the company or the business unit to fix the prices of the products. The management here finds the
most ideal price for the product which is not too highly and not too low .

d. Fixing of the standards.

The organization use the standard to make the estimates and budget for their future. They use this
as their basis to measure the actual efficiency of the process or about the department.

e. Inventory Management.

Cost accounting helps in managing inventory efficiently by providing insights into inventory
costs, turnover rates, and carrying costs. This ensures that Bakhresa maintains optimal inventory
levels to meet customer demand while minimizing carrying costs and the risk of obsolescence.

Performance Evaluation: Cost accounting helps in evaluating the performance of different

departments, products, or divisions within the organization. By comparing actual costs against
budgeted costs and analyzing variances, management can identify areas of success and areas
needing improvement. This enables Bakhresa to reward high-performing employees or
departments and take corrective actions where necessary to improve overall performance.

vii. What is your advice to Mr. Kazingumu?

a. Implement cost analysis.

Mr kazingumu the production manager of Azam PPF wheat flour needs to work closely with he
cost accountants to conduct a thorough analysis of the production costs for the PPF Wheat flour
product. And identify any areas of inefficiency or cost escalation that may be contributing to the
increase in unit costs. Where by Mr.Kazingumu should conduct a detailed cost analysis to
identify the reasons behind in rising unit cost of the PPF Wheat flour product
b. Evaluate Pricing Strategy.

Review the current pricing strategy for the PPF Wheat flour product and assess its
competitiveness in the market. Consider whether adjustments to pricing may be necessary to
maintain or regain market share while still ensuring profitability.

c. Marketing and Promotion.

Work with the marketing team to develop targeted marketing campaigns or promotional activities
aimed at boosting sales of the PPF Wheat flour product. Highlight its unique selling points and
competitive advantages to attract and retain customers

d. Customer Feedback.

Engage with customers to understand their needs, preferences, and any issues they may be
experiencing with the PPF Wheat flour product. Use this feedback to make improvements or
adjustments to the product that better align with customer expectations. And improve customer
value proposition which may involve in product reposition, quality enhancement and
diversification

e. Training and Skill Development.

Mr kazingumu needs to Invest in training and skill development for himself and his team to
enhance their capabilities in sales, marketing, and product management. By staying updated on
industry trends, market dynamics, and customer preferences, they can better position the PPF
Wheat flour product and effectively address challenges in the marketplace.