CMA ASSIGNMENT

Institute of Education and Research

Department of MBE

Submitted to:

(Dr. Shaukat Ali Raza)

Submitted by:

(Ahsan Iqbal)

Student no: (S/2019-1609)

Submitted date: Feb 23, 2021

TABLE OF CONTENT

TABLE OF CONTENT...................................................................................................................0

INTRODUCTION...........................................................................................................................1

COST ACCOUNTING SYSTEM...................................................................................................2

1. INPUT MEASUREMENT BASIS..........................................................................................2

STANDARD COSTING:............................................................................................................2

2. INVENTORY VALUATION METHOD................................................................................2

ACTIVITY BASED COSTING..................................................................................................2

3. Cost Accumulation Method......................................................................................................2

Process Costing............................................................................................................................2

4. COST FLOW ASSUMPTION.................................................................................................3

FIFO METHOD...........................................................................................................................3

5. RECORDING INTERVAL CAPABILITY.............................................................................3

PERPETUAL METHOD.............................................................................................................3
COST ACCOUNTING INFORMATION SYSTEM USED BY UNILEVER

INTRODUCTION
Unilever is a London-based, European company whose shares are listed on the stock exchanges
of several European countries. We transport all kinds of products from pet food to food and
detergents as well as other personal and consumer products. Unilever has subsidiaries in more
than 80 countries around the world, which disseminates a wealth of information and resources.
William Lever (its founder) starts his business as a grocery store in the UK. He founded Lever
Brothers in England in 1827. Sunlight was Lever Brothers ’first product and began marketing
branded products while Margarine Unie was founded in the Netherlands by Simon Vanberg and
Anton Jergens. Procurement of raw materials as a result of the sale of finished products, both
companies lose money as a profit. Due to these factors, a merger was considered in 1930. The
two companies merged and changed their business name to Unilever PLC. The word UNI is
taken from Margarine Unie and the lever is taken from Lever Brothers. Headquarters were
established in England and Rotterdam. Unilever run business in 80 countries and having 500
operating companies. It employs 300,000 people and has sales of £ 23,000 million. The global
business ratio is 60% in Europe, 20% in North America and 20% in other regions. The
designated board manages the operations of subsidiaries around the world. Lever Brothers
Pakistan Limited began operations in 1948. The merger of Sadik’s vegetable oil and related
industries in Rahimyar Khan was affected with Lever Brothers and HVM in Karachi. As a result
of the merger, Lever Brothers Pakistan Limited was established in 1955 as an independent
operating company of Unilever. The company is also listed on the stock exchanges of Pakistan.
Lever Brothers Pakistan Limited has approximately 1,900 employees in Pakistan.

Unilever is one of the largest and largest multinational companies in the world. Unilever began
its larger business by establishing its first factory in the Netherlands in 1890. Having operated in
Pakistan for the past 40 years, the company is committed to improving living standards. World-
class high-quality products at customers' doors. The fact that more than 90% of Pakistanis use
Unilever products is a testament to their successful operations. Their product range includes the
world-famous brands Wheel, LUX, Lifebuoy, Fair & Lovely, Ponds, Close Up, Sun silk, Lipton,
Lipton, Taaza, Pepsodent, Clear, Vim, Surf Excel and Rexona.

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COST ACCOUNTING INFORMATION SYSTEM USED BY UNILEVER

COST ACCOUNTING SYSTEM

Cost management systems are designed to provide information that can be used to make
decisions. Whether it is a product or a service, the cost system reports cumulative costs. The
product type determines the calculation process and cost system used to set costs. Unilever uses
the five most common cost accounting systems. The following sections describe each.

1. INPUT MEASUREMENT BASIS

STANDARD COSTING:
Unilever uses standard costs. This is because all manufacturing costs are introduced or charged
into inventory using standard or pre-determined prices and quantities. The difference between
applied and actual costs is recorded in the variance account, which forms the basis of the concept
of accounting control, which is slightly different from the concept of statistical control.

2. INVENTORY VALUATION METHOD

ACTIVITY BASED COSTING
Unilever is currently using Activity Based Costing in their Inventory valuation method to
determine accurate product costs. Complex companies like Unilever are most likely to benefit
from such costing because they are most useful when cost information is difficult to understand
or evaluate.

ABC provides Unilever with information on improvement processes and products and services
that have the greatest impact on the company’s profitability. The ABC system also helps
determine which factors contribute most to Unilever’s costs. This allows management to make
the best choice. An alternative to reducing Unilever's total costs. The ABC system is the best tool
used to perform environmental accounting at the enterprise level.

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COST ACCOUNTING INFORMATION SYSTEM USED BY UNILEVER

3. Cost Accumulation Method

Process Costing
Unilever is currently using Process Costs in their cost accumulation method because process
costing reduces the cost of all units to the average unit cost. Multiple WIP accounts are used, one
for each process. When a product moves from one process to another, the costs of the previous
process are passed on to the next process. Unilever's process calculation method has five steps.
First, I present a summary of the flow of physical business units. Second, calculate the output in
the corresponding units. Third, calculate the corresponding unit cost. Fourth, I will summarize
the total costs described. And finally, allocate the total cost to the finished units and to the units
that end the process in the inventory.

4. COST FLOW ASSUMPTION

FIFO METHOD
How to estimate the cost of goods sold that use the cost of the oldest product in stock, expect
first arrival to be processed first and next arrival first. Other reasons to use FIFO Unilever uses
FIFO as an advance on the cost flow of a product. This is because most products are perishable
and have a short date. Unilever also believes in tax minimization. For tax purposes, FIFO
assumes that the edible assets of inventory renaming correspond to those recently purchased or
produced.

Because of this assumption, FIFO’s financial management and valuation methods involve many
tax minimization strategies. For this reason, Unilever uses the FIFO method as a cost stream.
FIFO better shows Unilever the value of the final balance sheet. One reason for using Unilever's
FIFO method is the rise in inflation. For this reason, Unilever uses FIFO inventory accounting to
improve the appearance of its balance sheet.

5. RECORDING INTERVAL CAPABILITY

PERPETUAL METHOD
Unilever currently uses a perpetual method to maintain inventory data. The purpose of this
method is to provide the company with real inventory data in real time.

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COST ACCOUNTING INFORMATION SYSTEM USED BY UNILEVER

To record purchases, a regular system charge from the purchase account and a continuous system
charge from the goods inventory account. To record a sale, the perpetual system requires an
additional entry to charge for the cost of the goods sold and to credit the inventory. By recording
the cost of goods sold (or each sale), a perpetual inventory system reduces the need to adjust the
recording and calculation of goods sold at the end of the financial year, which requires a periodic
inventory system.

For this reason, Unilever uses the perpetual method instead of the periodic inventory method:

 The permanent method allows Unilever to determine the cost and profit or loss of
products sold on a per-sales basis, as opposed to the standard method of earning a profit
or loss at the end of the period.
 Unilever preferred a permanent system because it is a realistic double-entry book system
with arbitrary periodicity.
 Companies can use this method to monitor inventories more closely because whenever
inventories increase or decrease, they must be debited or credited to other accounts, such
as lost profits. And in a permanent system, you’ll soon notice an increase in inventory
losses, not at the end of the year when physical inventory levels are calculated. The
advantage that Unilever has gained from using a permanent storage system is high
control. It helps manage your inventory levels and makes it easier to compare physical
inventory. Whenever a shortage (i.e., a missing or stolen item) is detected, you must debit
it from your inventory account.

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