Human and financial resource management

1. Introduction – In this document, I will illustrate the cost that needs to be considered by the Head of Department of Information and Communication (DIC) in the planning of a new Student Common room. In order to understand and calculate the cost properly I first need to decide upon the equipments and facilities that I will put in the student common room, the equipments that I have decided to place inside the student common room are table tennis table, two snooker tables, football table, play-station, TV, telephone, cupboard. ten chairs, three tables and an air conditioner.

I have made sure that the cost of the overall equipments and the maintenance cost remains as low as possible by selecting equipments and facilities that will not be expensive to buy, maintain and repair. All these facilities will give students to catch up with friends, meet students from other courses and have somewhere to go between classes to sit and unwind. 2. Cost – The cost that needs to be considered for the plan that I have made are cost of the sports equipments, tables, chairs, cupboard, play-station, telephone and TV.

Other cost that needs to be taken in to account is staff wage as one staff will be required to assist the students if they require any assistance and the staff will also will be responsible for taking care of the equipments. Electricity, telephone, TV license and heating costs will also need to be taken in to account. 3. Cost object/ element – Any item for which a separate measurement of costs is desired is known as cost object (Encyclopedia, 2006). The cost object for DIC student common room will be running the student common room for a year.

The cost element are the elements that consists the cost of manufacturing, they consist of three elements i. e. Labour, materials and expenses (Scribd, 2008). So in the given scenario of student common room the cost element for ‘materials’ will be all the sports equipments, cupboards, Tv, play-station, telephone, chairs and tables, cost element for ‘labour’ will be staff wages, and cost element for ‘expenses’ will be electricity cost, TV licenses cost, maintenance and repairment cost and air-conditioning cost.

4. Cost classification – The data collection system accumulates costs and classifies them into certain categories such as labour, materials or overheads costs and then allocates these costs to cost object (Broadbent and Cullen, 2003, p. 81). In order to plan the overall cost of the student common room, we need to classify cost in number of different ways. Cost can be classified in many different ways for example according to nature, functions, time, normality, controllability.

However I will be classifying cost in two different ways i. e. According to identifiably (direct and indirect cost) and according to behavior (fixed, variable and semi-fixed variable cost) because only these two types of cost are relevant to the student common room. 4a. Direct and indirect cost – We need to understand why and how cost change for this we will look at types of cost classification which are direct and indirect cost.

Direct cost can be identified as forming part of the product or service and indirect cost are usually referred to as overheads, they are expenses which do not form part of the product or service (Chadwick, 2001, p. 3). So basically direct materials, labour and expenses can be are those which can be traced in relationship with a particular operation however indirect materials, labour and expenses are of general nature and cannot be traced in relationship with the a particular operation.

The direct material cost of student common room will be all the sports equipments like table tennis table, football table, TV, play-station, snooker table, cupboard, chairs and tables. The direct labour cost will be staff wage who will help and assist student inside the common room if help required. The direct expenses will be repairment and maintenance cost of the equipments. The indirect materials cost of student common room will be air conditioners, cleaning materials. Indirect labour cost will be supervisors wage and cleaner’s wage.

Indirect expenses will be electricity bills, TV license cost, telephone cost and depreciation of equipments. 4b. Fixed, variable and semi variable cost – To make cost benefits decisions we need to understand how cost changes in relation to fixed and variable cost, which is behavioral part of cost classification. Fixed cost are the cost that does not changes irrespective of the level of activity, variable cost is the cost that changes with the level of activity and semi-variable cost are types of cost which have both cost elements i. e. Fixed as well as variable cost.

In the scenario staff wages will be fixed cost as it has nothing to do with number of students who will use the facility or the number of hours staff work, also the purchasing of the equipments and other utilities will be fixed cost as the cost of equipments does not change will the number of students using that particular equipment like snooker table, table football and so on, the building it self will be fixed cost, their also might be an increase in fixed cost (step fixed cost) if another staff is required if there is a special event that takes place in student common room.

Electricity will be variable cost as more students turn on the TV or play Xbox or play-station more electricity will be used. Telephone cost will be semi variable cost as there will be fixed line rental cost (fixed cost) plus number of times student use the phone the higher the cost will be (variable cost). 5. Absorption costing – In absorption, costing attempts to ensure that all cost whether it is variable or fixed cost are covered by the revenues received.

So it can be helpful as it will give us an estimate of how much overhead cost (which comprises of indirect expenditure) we are spending in proportion to the revenues received. In the given scenario cost centre (i. e. student common room) is providing a service to the students so the revenue received will be zero, this type of costing technique will not be very useful for student common room.

Activity based costing represents a way to look at operating costs and provides methods to dissect the underlying activities, which cause costs to exist (Industrial Relation Centre, 2008) so for example in the given scenario activity will be setting up a play station or an Xbox and number of setups will be cost driver, also another activity will be purchasing an cost driver of this will be the number of purchase orders. 6. Marginal costing Marginal costing is also called variable costing, fixed cost are taken as period costs i. e. they are written off in the period in which they occurred.

Marginal costing can be used for decision making e. g. Pricing, profits targets, special contracts, make or buy decisions and whether or not to continue with the product or service (Chadwick, 2002, p. 234). Similarly in the given scenario marginal cost can help us in providing information about the cost of buying one extra snooker table, or to decide whether to continue on providing telephone service to student in common room.

However it can be sometimes useful for a business to think of the opportunity cost, opportunity cost is the next best choice available so for example having a telephone line which will cost around 120 every three months, the opportunity cost lost might be the benefits lost because we could have spend  120 on training staff and making them more productive.

Reference

Broadbent, M. and Cullen, J. (2003) Managing Financial Resources. 3rd ed. Oxford: Butterworth- Heinemann Chadwick, L. (2002) Essential finance and accounting for managers. Harlow: Financial times/ Prentice Hall Chadwick, L. (2001) Essential management accounting for managers. Harlow: Financial times/ Prentice Hall