Management Accounting and Costing Methods

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Assignment Brief Number 1

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Contents
Part 1: Meaning of management accounting, type of management accounting and role of
management accountants.................................................................................................................3
Part 2: Classification of cost that helps in decision making process of management.....................3
Part 3: Unit Cost of PC and VP through using the absorption costing and marginal costing
methods............................................................................................................................................4
Part 4: Costing Method for accounting of special order..................................................................5
Part 4.1: Costing Method.............................................................................................................5
Part 4.2: Calculation of cost using the job order costing method................................................5
Part 5: Optimum production mix of PC and VP to maximise profit...............................................6
Part 6: Break-even units of IP..........................................................................................................6
Part 7: Evaluation of proposal for expenditure of $600,000 to promote IP....................................7
References........................................................................................................................................8

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Part 1: Meaning of management accounting, type of management accounting and role of
management accountants
Management accounting deals with the processes involved in development and
presentation of management reports and accounts to provide detailed and timely financial
information to the business managers for assisting them in taking decisions regarding carrying
out daily operational activities. The process of management accounting is significantly different
from that of financial accounting which involves developing and producing annual reports
mainly for the use of external stakeholders.
The different types of management accounting systems can be stated as follows:
 Cost Accounting: This is described as an accounting method that is used for recording,
classifying and summarizing the costs associated with the production process of a
company by examining the input and fixed costs that are involved in each step of
production.
 Inventory management system: The system involves examining the costs associated with
ordering, holding and managing the inventory or stocks of a business.
 Job Costing System: The system is used for gaining an estimate of the manufacturing
costs involved in production of different items that are significantly different from each
other (Kaplan and Atkinson, 2015)
The role of management accountant is to record financial information that can be used by
business managers internally for taking various types of decisions regarding a company’s future
growth and development. They are involved in developing budgets, carrying out asset and cost
management and developing financial reports to be used by the management team.
Part 2: Classification of cost that helps in decision making process of management
The businesses require the knowledge regarding the different costs concepts for taking
accurate decisions regarding their future growth and development. The different types of cost
concepts that are used in decision-making processes of businesses can be discussed as follows:
 Fixed and Variable Costs: The fixed costs are the costs that do not vary with the level of
business activities while variable costs fluctuate with the level of business activity. Rent
is an example of fixed costs while direct materials are an example of variable cost.
 Overhead Costs: The costs incurred in production of an additional unit and they are
allocated mainly to the manufacturing goods (Higgins, 2012)
 Step Costs: The costs are fixed and representing the additional costs that can be required
at step of the production process of a company. This can be due to variation in demand
and the volume level associated with each step of the production process.