Activity based Costing and Budgeting Report

Added on - 28 May 2020

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Running head: MANAGEMENT ACCOUNTINGManagement accountingName of the studentName of the universityAuthor note
1MANAGEMENT ACCOUNTINGExecutive summaryThe main objective of the report is to focus on the applicability and advantages of activitybased costing and budgeting. Unlike the traditional cost allocation method that allocates thecost based on the machine hours or labour hours, ABC systems segregates the activities basedon the batch level, activity level, product level and sustaining activity of the company. On theother hand, budget assists in projecting the future expenses and revenues which in turn assistthe company to achieve the target.
2MANAGEMENT ACCOUNTINGTable of ContentsPart A – Activity based costing..................................................................................................3a.Computation of per unit cost for the listed activities......................................................3b.Preparation of the bill of activities for Lamington and determination of the per unitcost4c.Other costs.......................................................................................................................4Part B – Budgeting.....................................................................................................................5a.New fee structure and membership plan.........................................................................5b.Impact of the sales revenue.............................................................................................5c.Evaluating the plan of new membership and the structure of fees.................................7Conclusion..................................................................................................................................7Reference....................................................................................................................................8
3MANAGEMENT ACCOUNTINGPart A – Activity based costingActivity based costing popularly known as ABC is the system under which all theactivities of the firm related to manufacturing of product are recognized and then the indirectcosts are allocated to the product (Fathi and Elham 2015). Unlike the traditional costallocation method that allocates the cost based on the machine hours or labour hours, ABCsystems segregates the activities based on the batch level, activity level, product level andsustaining activity of the company.Using the ABC method, the company can gain variousadvantages like the company can identify the costs that are to be allocated. Further, it helps tomeasure the activity drivers for allocating the overheads. Further, through this method theentities can focus on the corporate strategies as the costs can be identified in efficient way.The ABC approach can assist the employees to get clear idea regarding various categories ofcost and analysing the costs that can be used to add the values. In this way, the entire costallocation process can be improved which in turn can lead into higher performance (Linassi,Alberton and Marinho 2016). Further, it can contribute to the strategic development alongwith the better calculations for prices. Though it requires lot of times initially forimplementation, once it is implemented, it can be of great use for the entity. Therefore,implementation of the ABC system can be proved as the great opportunity for the company toidentify the cost and allocate the overheads to appropriate heads.a.Computation of per unit cost for the listed activitiesActivityTotal activity costActivity driverQuantity ofactivity driverCost per unitof activityPrepare annual accounts$ 5,000.00None availableProcess receivables$ 15,000.00No. of invoices5000$ 3.00Process payables$ 25,000.00No. of purchaseorders2500$ 10.00Program production$ 28,000.00No. of productionschedules1000$ 28.00
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