2) Oral activity.

Discuss the following questions taking into account the subjects of your specialization.

1. Do you know what time of the year an annual report is usually prepared and presented to applicants?

2. What are the structure and the main demands of organizing and writing of the annual report?

3. Do you know the differences between organizing and writing an annual report in your country and other states? Which exact ones? Give examples.

V. Language study

1) Look at the terms in the left-hand column and find the correct synonyms or definitions in the right-hand column. Copy the corresponding letters in the blanks.

1. verbal _____	a. happening once a year
2. report _____	b. someone who directs the work
3. annual _____	c. some who has a share in a market
4. cash ______	d. to produce change in something
5. affect ______	e. oral
6. chairman ____	f. a written or spoken description
7. stockholder ___	g. money

2) Translate the sentences.

1. Голова відділку вимагає річний звіт, оскільки фінансовий підрозділ не може розпочати планування на наступний рік. 2. Балансова відомість, яку я вам надала, допоможе вам зрозуміти грошові потоки на нашому виробництві за теперішній місяць. 3. Він підрахував заробіток та дивіденди від останньої угоди. 4. Якщо інвестори не отримають балансовий звіт, подальше надходження фінансування припиниться, і ми не зможемо завершити розробку нашого проекту.

Unit 5

Overheads and their recovery

I. Pre-reading activity

Discuss the following questions and write the answers on the separate sheets of paper.

1. What is another way of expressing the term “overhead”? _______________________________________________

2. Which is easier to allocate more accurately, direct costs or overheads? _______________________________________________

II. Reading

Read the text and answer the questions that follow it. Study new terms.

Overheads and their recovery

The cots of a business are of two types – direct and indirect. The direct costs vary directly with production. If one additional unit of production is made, there will be a measurable decrease in direct cost. When one unit less is made, there will be similar measurable decrease in direct cost. Direct or raw material is normally the largest component in direct cost. It includes all items of material that are of sufficient size to warrant the effort of charging directly to the job. Small items, such as glue, paint and small quantities of nails, screws, and rivets, do not merit the clerical effort involved in charging directly to the job, and would be recovered as an overhead.

Direct wages will vary directly with productions where remuneration is based upon piecework only. This means that a specific amount is paid when a production operation is successfully finished. If it is not finished, no payment is made. In this book it is assumed that direct labor is of this nature. Many organizations remunerate labor on the basis of a large basic wage, topped up with a productivity bonus. The basic element is paid regardless of the level of production. In such cases wages will not vary directly with production, and fall into the category of an indirect cost or overhead.

Overhead is a general term applied to all the costs involved in running a business, other than direct costs. It covers the costs of running the works organization; product research and development; the administration of the business; selling and distributing the product; and the cost of raising finance. Overheads are diverse, covering the whole of the business organization. The management accountant has the problem of allocating these costs to the individual product lines being manufactured.

Cost centers

To help in this task, the organization is split up into cost centers. These are areas of activity to which are gathered all costs of a like nature. A maintenance department, canteen and stores are example of cost centers. Normally centers will identify with physical areas of the organization. A store center is a physical area in which materials are kept, while awaiting issue to production. A center will gather together all the costs of raising finance for the business, other than from owners or shareholders. It is a function of the administration department, and cannot be identified with a physical area of the business.

Where a cost center has a product which is being manufactured, it is known as a product center. Examples are a machine shop which is machining parts for assembly into the saleable product in an assembly shop. Where a center has a product that is saleable, thus giving rise to an income, it is also known as a profit center. It is capable of showing a profit or loss on its overall activities.

Cost location

The management accountant’s task is to allocate the many diverse overheads onto the cost of each product manufactured. It is a major task requiring the use of many different bases allocation. The allocation of direct cost to a product can be precise. In the case of overhead allocation an element of logical guesstimate enters. There is a two-fold process, firstly to collect all overhead costs onto the product or profit centers; and secondly to load the overheads onto each product passing the center.