Kostevoordeelanalise by die toedeling van koste vir 'n handelsafdeling van 'n administrasieraad : 'n gevallestudie

Abstract

Over a period of three financial years the profits shown by the Commerce Department of the Oranje-Vaal Administration Board reflected the following: - The profits in respect of the liquor activity reflected an increase of approximately 1000% whilst the profits of the sorghumbeer activity reflected a decrease of approximately 84%. The purpose of this case study is to investigate the allocation of overhead costs and to ascertain to what extent the profits are affected if at all. In Chapter 2 the organizational structure and functions of an Administration Board are briefly discussed. An Administration Board could be regarded as a local authority operating on a regional basis and as such it is responsible for the provision of essential services. In order to perform these duties an Administration Board should be self sufficient, which implies that all operating expenses must be covered by sufficient revenue. In the process of obtaining sufficient funds, the Commerce Department plays a major roll in creating a substantial source of income. This i s achieved through the activity of selling liquor and t he production and distribution of sorghumbeer .

The Commerce Department consist of the following subdivisions: - Management function - Liquor activity (sale of liquor) - Sorghumbeer activity (production and distribution of sorghumbeer) In Chapter 3 the problem of overhead costs is discussed. Basically two different types of overhead costs are identified, viz: - Fixed overhead costs. - Variable overhead costs. Fixed overhead costs consist of costs related to the management function. In total this cost is regarded as fixed cost over a specific period, which is not affected by any volume variances. Fixed overhead costs are allocated to the liquor and sorghumbeer activities in proportion to the total turnover- value of each activity . This method implies that any increase or decrease in turnover-value will have a corresponding effect on the fixed overhead costs allocated. Viarable overhead costs re present costs of services rendered to the Commerce Department by other Departments . of the

Administration Board. These services are rendered by the following Departments: - Finance, Internal Audit, Labour, Personnel and Administration - Viarable overhead costs are calculated on the total turnover-value of the liquor and sorghumbeer activities at a pre-fixed overhead rate per activity. In the event of the liquor activity a fixed overhead rate of 2% applies, whilst a fixed overhead rate of 10% is applicable on the sorghumbeer activity. In Chapter 4 the effect of the overhead costs allocated to the liquor activity is accounted for. Due to an increase in the income in excess of the increase in the expenditure over the period (figure 1) the allocation of overhead costs does not have a significant impact on the profits. In Chapter 5 the effect of the overhead costs on the sorghumbeer activity is accounted for. As far as the fixed overhead cost allocation is corncerned no serious problem is encountered. In regard to the variable overhead cost allocation, the overhead rate of 10%, calculated on the total turnover-value, creates a problem. It appears from the figures quoted (Table 7) that the total variable overhead costs amounted to R1 010 985 on a turnover-value of R10 109 888. In comparison with the sorghumbeer activity the liquor activity s hows a variable overhead cost allocation

of R702 970,00 on a turnover-value of R35 144 012,00 in respect of the 1981/82 period. In Chapter 6 a summary and some recommendations are furnished. It appear s that the overhead rate of 2% and 10%, respectively on the turnover-value of the liquor and sorghumbeer activities, contributes towards the increase and decrease in profits. In order to alleviate this problem it is suggested that a uniform overhead rate of+ 4% should apply to both the liquor and sorghumbeer activities. It also emerged from this study that part of the fixed overhead costs allocated towards the liquor activity is incorrect. The total costs in respect of management also include the costs of the marketing function. It is, however, evident that the marketing function is confined to the sorghumbeer activity only. Due to the method of fixing overhead costs proportionally with the turnover-value on both liquor and sorghumbeer activities, it follows that the liquor activity has been incorrectly burdened with marketing costs which in fact do not exist. The cost of the marketing function should be allocated directly to the sorghumbeer activity and omitted fr om fixed overhead cost.