THE ADVANCED MANAGEMENT ACCOUNTING

Running head: ADVANCED MANAGEMENT ACCOUNTING
Advanced management accounting
Name of the Student
Name of the University
Author Note

ADVANCED MANAGEMENT ACCOUNTING
Executive summary:
The report is prepared to demonstrate the importance of activity based costing technique to
the costing strategy of Belle Clinique. The information from the case study identifies that the
current costing system is not suitable as it is contributing to increasing the total overhead
costs. Facing the competitive pressure in terms of pricing the product, it has been found that
product IPL is not adequately priced as the sales of the product is falling continuously. The
reason is attributable to the rising overhead costs that has resulted in marking the price of the
product at certain percent of the mark up price. From the overall analysis of the facts of the
case, it has been ascertained that the adoption of activity based costing would assist Belle
Clinique in addressing the issue of pricing and increasing the sale of one of its product. It is
therefore recommended to implement the activity based costing system.

ADVANCED MANAGEMENT ACCOUNTING
Table of Contents
Executive summary:...................................................................................................................1
Introduction:...............................................................................................................................2
Discussion:.................................................................................................................................2
Development and history of ABC system:.................................................................................2
Identifying the price pressure and contribution of the current costing system:.........................3
Comparing the unit cost of the two products under traditional volume based costing and
proposed ABC system:...............................................................................................................3
Five options for improving the profitability of the products:....................................................3
Identifying five arguments supporting the implementation of ABC and five options against
the adoption of ABC:.................................................................................................................4
Recommendation and conclusion:.............................................................................................6

ADVANCED MANAGEMENT ACCOUNTING
Introduction:
The report is prepared for evaluating the costing techniques and make a
recommendations to the board of directors of Belle Clinique on the implementation and
adoption of activity based costing technique. The budgeted manufacturing overhead costs for
year 2020 is proposed to be analysed using the activity based costing. It has been found that
the company is facing the price pressure for one of its product that is ILP. On other hand,
increased sales is reported for its product HRL as the price of the product is very competitive.
Total manufacturing overhead is recorded at $ 8645000 and the budgeted machine hours is
910000 hours. The reason attributable to the significant production overhead is because of the
specialized equipment and significant automation. The overhead of production is allocated to
the products based on machine hours in the current costing system. Pricing of all the products
are don at cost and including the allocated production overhead.
Discussion:
Development and history of ABC system:
The inadequacy of the cost accounting resulted in the introduction of the activity
based costing technique and the objective of introducing such costing was to overcome the
difficulties of dividing the production into core activities. Increasing complexities of the
business resulted in devising a system that resulted in the allocation of cost that resulted in
assigning the cost accurately. One of the well-known system of management accounting in
the last twenty years is activity based costing. Allocation of costs is done in a better way and
the basis of assigning the cost are the different cost drivers (Almeida & Cunha, 2017). In the
mid 80’s, the method of activity based costing was perceived so that the misleading
allocation of overhead is corrected. It is admitted by many scholars and practitioners that
there are various pitfalls of activity based costing. It is also explained that the implementation