Costing Reports

 

Information is the life blood of business. The efficiency of an organisation is to a certain extent governed by the relevance and regularity of the information provided to those who perform the functions of management. The required information is supplied through reports which may be oral, graphic or written. However, oral reports should not form the basic of important managerial decisions. It would be advisable to have the reports always in writing. Graphic reports in the form of charts and diagrams facilitate quick grasp of significant trends by those who go through such reports. This aspect is considered in greater details in the next chapter.

Meaning of Report

A report is a formal communication which moves upward. It differs from the word “communication”. The superior communicates orders to the subordinate. The subordinate communicates results. The word ‘“report” is generally used for the factual communication by a lower level to a higher level of authority. Thus orders are ‘communicated’ while results are “reported”.

The term “reporting to management” refers to the formal system whereby through reports relevant information is constantly fed, to the management. It has how become a specialised function. Large concerns these days have a separate ‘management information division’. The Information Manager should know not only the information each level of management requires but also the techniques to be employed for collecting, storing, processing and finally communicating the required information.

Reporting is an important output of accounting function. Accountant is the custodian of factual data regarding cost, sales and profits and therefore he provides a useful information service. Depending on the size of the business, the information may be collected and communicated to the management by the accountant himself or the management/accountant or Information Manager who may be heading a separate Management Information Division.

Requisites of a Good Report

A report is a vehicle carrying information. The fruitfulness of the work done by the different executives not only depends on the quality of work itself but also the way in which the information or results are conveyed to their superiors. Thus, good reporting is necessary for effective communication. A good report should, therefore, have the following requisites :

1.                          Following points are important in this respect:

(a)          Report should have a suggestive title, heading, sub-headings, and paragraph divisions.

 

(b)         In case statistical figures are to be quoted in the report, only the significant totals should be given in the body of the report. The other statistical details may be given, in the appendix.

(c)          The report should contain facts rather than opinions. In case certain opinions are expressed, they should be logical sequence of facts presented in the report.

(d)         In case report is in response to a request or letter, cross reference of such request or letter should be given.

(e)          The report should bear the date on which it is put up. The names of the person to whom the report is to be sent should also be mentioned on the top.

(f)          the objectives of the report should be perfectly served by the contents of the report.

(g)          The contents should follow in a logical sequence :

(i)                      the summary of present position,

(ii)                   the course that might be taken and the expected results,

(iii)                   the recommendations and reasons for their submission.

2.                          The report should be submitted as soon as possible. Information delayed is information denied. Reports are meant for action. The sooner the report is made, the quicker can the action be taken. In some cases promptness in presentation is more important than any other general principles of reporting. Accuracy may have to be sacrificed to achieve the objective of promptness.

In order to increase the speed of collecting the accounting information, following steps may be taken:

(a)          A proper record-keeping system, tailored according to the requirements of submission of different reports, should be established in the organisation.

(b)         In order to avoid clerical errors and increase productivity, mechanical accounting devices may be used.

(c)          Accounting work should be departmentalised in order to prevent bottlenecks in reporting.

(d )    Employees may be asked to report immediately about any abnormal or extra-ordinary situation.

3.                          Reports are also meant for comparison. This is possible only when information contained in the report is placed in some perspective, e.g., time, norms or standards. Figures should be given for some previous period such as “last month” or “same month for the last year” etc. Actual figures may also be placed side by side with corresponding budget, standard or estimated figures. The objective is to highlight significant deviations from previous periods or standards or estimates. The principle of ‘Management by exception’ should be applied while drafting ‘reports.’ Insignificant variations need not be reported.

 

4.                          Consistency is closely linked with comparability since comparison is possible only when the reports are prepared and presented on a consistent basis. This objective can be achieved if the information embodied in the report emanates from a common source. Moreover uniform procedure should be followed over a period of time for collection, classification and presentation of the accounting information.

5.                          The report should be in-simple, unambiguous and concise form. Professional or technical jargon should be avoided since those who receive the report may be quite unfamiliar with expressions the accountant takes for granted. It should be also readable. Conciseness and rounding off of figures to a desirable point both add to readability of the report which is another dimension to simplicity.

6.                          The report should be appropriate for the person for whom it is meant. The following points are of significance in this context:

(i)                         Report should be related to the responsibilities of the recipients. For example, the Production Manager should be supplied with only such reports which relate to his division or area of control.

(ii)                      Report should be designed to suit the level of management for whom it is meant. The general principle is higher the level of management, the more concise the report should be. The top management gets reports from all areas but the number of reports and the details of the information have to be carefully pruned. However, reports to the middle-management have to be more detailed, covering section-wise performance and deviations. For example the top management has to be given reports covering profit and loss statement, the estimated funds flow, the capital expenditure follow up, the sales, production and other appropriate statistics. A Sales Manager, on the other hand, may be given reports only regarding such matters which directly affect him. He may be supplied with reports having detailed comparison of actual sales with the budgeted sales with reference to products, customers, territories salesmen etc.

7.                          In order to have an appropriate response of the report, it is necessary that every report should be addressed to a responsibility centre and should contain a message about the variances which are controllable at that point. There is no objection to the mention of all variances relating the area covered in order to make the report complete. But variances which are beyond the control of the executive reserving the report should be mentioned separately in the report.

8.                                      The report should be reasonably accurate. The degree of accuracy will depend upon the purpose for which the information is required. Such inaccuracies which will not affect the significance of the information may be ignored.

Steps for Effective Reporting

In order to have effective and efficient reporting, the following steps should be taken :

(i)                         ‘Reporting’ should be the logical outcome of accounting routine. This requires detailed planning of flow of paper work and its analysis.

 

(ii)                                    Efforts should be made to avoid duplication of work. Journals, ledgers etc. should be designed in a way that “control data” is available without additional analysis.

(iii)                                 Codification and mechanisation should be extensively used. They greatly help in speeding up of reports.

(iv)                                Accounts for a period should be closed a few days before the close of the period. For example, accounts relating to month of June may be closed on 15th June. The period from 15th June to 30th June may be used for processing the data and the reports may be sent on 1st July.

(v)                                   In case actual data are not readily available, the interim estimates may be used in their place. The quality of reports in such a case would depend upon the quality of estimates. The actuals may later on be compared with the estimates and the deviations or the variations found out. These deviations or variations will help the persons responsible to report better estimates for the future.

Types of Cost Reports

Cost reports may broadly be classified into two categories :

(i)                                       Routine reports.

(ii)                                    Special reports.

Routine reports. These reports are submitted to different levels of management as per a fixed time schedule. The schedule should indicate the following :

(a)                 Title of the report.

(b)                The recipients of the report and its copies.

(c)                 The periodicity of reporting.

(d)                The respective dates on which the manuscript and the reports are to be sent.

S. No.	Name of the Report	Period	Original addressed to	Copy to
1.	Material utilisation	E wEekly	Shop Foreman	Departmental Manager Production Controller
2.	Labour efficiency	Wweekly	Shop Foreman	Departmental Manager Production Controller
3.	Idle time/overtim	Wweekly	Shop Foreman	Departmental Manager Production Controller
4.	Idle capacity	MMonthly	Managing Director	Production Controller Production Manager
5.	Stock levels	MMonthly	Managing Director	Production Controller Production Manager
6.	Stock turnover	MMonthly	Managing Director	Production Controller Production Manager
7.	Labour cost	MMonthly	Managing Director	Production Manager Production Controller

 

 

(e)                 sources of data and the date by which the data should be ready at the respective sources. Routine reports are usually printed or cyclostyled, leaving blank spaces to be filled in. Following is a list of the important routine reports which may be prepared in an industrial organisation :

 

8.	Sales analysis (by products, territories and channels)	Fortnightly	Sales Manager	Personnel Manager Managing Director
9.	Finished stock	Fortnightly	Sales Manager	Managing Director
10.	Product cost estimates (for price fixation and Quotations)	When required	Sales Manager	Managing Director Production Manager Production Manager
				Production Manager
11.	Break-even-analysis	Whenever	Managing Director	Production Manager
		required		Sales Manager
12.	Material Price variance Usage variance	Monthly Monthly	Purchase Officer Shop Foreman	Production Manager Production Manager Production Controller Chief inspector
13.	Labour Rate variance Efficiency variance	Monthly Monthly	Personnel Manager Shop Foreman	Production Manager Production Manager Production Controller Personnal Manager

Copies of Reports addressed to higher levels are sent to lower levels. Reports originally addressed to lower levels are summarised and sent to higher levels.

Some of the reports like Materials Wastage Reports (regarding waste, scrap, spoilage, defective etc.) have been explained in the chapter on ‘Materials’’. Similarly Idle Time Reports etc. have been explained in the chapter on “Direct Labour and Direct Expenses’’. Students are advised to go through the proformas of these reports. Variance Reporting to Management has been explained in the Chapter on Standard Costing. Moreover regular reports for derivation of actual and budgeted performances can also be submitted. This aspect has been explained in the Chapter on Budgetary Control.

Special reports. Special reports are required for special purposes. The purpose of obtaining such reports, and the time limit within which such reports are to be submitted, has to be specifically and clearly laid down. Sometimes special staff may have to be employed for the purpose. Special reports may require co-ordination of various departments or functions such as industrial engineering, marketing etc. Examples of some of the specific reports are given below :

(i)                          Reports for information about competitive products.

(ii)                       Report by Purchase Department on problems involved in purchasing of materials.

(iii)                    Report by the cost accountant on the implications of price movements on the cost of the products.

(iv)                   Report regarding market research about a specific product or products.

(v)                      Report regarding choice of products or selection of a method of production when alternative choices are available.

(vi)                   Report on cost-benefit analysis (including non-cost considerations), whenever management has to decide among alternative courses of acts.

Review of Reports

Constant review regarding the utility of different reports should be done so that no executive is starved of information and no executive is fed with unwanted data. In other words a report should neither be a burden to the sender nor a nuisance to the

 

receiver. It will be appropriate for each executive to ask himself the following questions regarding each of the reports submitted to him:

(a)          “Do I want it ?”

In, case the answer is ‘No’, he need not ask any further questions.

(b)         “Is it relevant to my position ?”

In other words whether such a report helps him in making better decisions.

(c)          “Does it come in time ‘?”

Meaning thereby whether it comes too late or too early than required.

(d)         “ Is it at the right frequency?”

In other words the report should not be come more or less often than required.

(e)          “Is it accurate enough?”

It implies whether the report is less accurate or more accurate than desired.

(f)          “Is its presentation in the best form for me?”

The Presentation of information should be in the most suitable form .

In case correct answer are found to these questions and remedial measures are taken when necessary , the reports – the carriers of information – will effectively serve the objectives for which they are meant.