Comparison of Managerial Accounting Techniques

This report compares and contrasts different types of managerial accounting techniques such as job order costing, process costing, activity-based costing, marginal costing, and target costing. It discusses the definition, application, and characteristics of each method, as well as their advantages and disadvantages. The report also provides examples and calculations to illustrate how each method is used in practice. Overall, it highlights the importance of cost calculation in determining profits and expenses for businesses.

COSTING ESSAY

Table of Contents
INTRODUCTION................................................................................................................................3
MAIN BODY.......................................................................................................................................3
Comparison and contrast differences types of managerial accounting techniques..........................3
CONCLUSION....................................................................................................................................8
REFERENCES.....................................................................................................................................9

INTRODUCTION
Costing is branch of accounting which is used by personal to recognize cost of each process
of running their business activity. This report has been formulated to difference various methods
used by cost accountant through which they can calculate or measure cost required for operating
business. This report also differentiate and compare job order costing, process, marginal and target
costing in systematic way.
MAIN BODY
Comparison and contrast differences types of managerial accounting techniques.
Costing: This term is define as tool or systematic procedure which help in determine cost of
each business operation. There are various methods which use by cost accountant for calculate and
allocate theses cost on the basis of requirement of departments. Following are methods which
define below:
Job order costing: In this type of costing method, cost are assign according to each job work as
each job is order according to specific requirement of customer. This method useful to determine
value of per unit cost required to fulfilled demand of customers (Bataineh, 2018).
The Toy Limited had the following stock list on
April 1, 2020:
Direct Material 500000
Finished Goods 280000
Work in progress – Material 20000
Work in progress- Labour 30000
Work in progress - Fixed overhead 12000
Cost of purchasing material = 1200000
Labour cost = 160000
Applicability of factory overhead was 60000, as
on 30 April
Direct Material 460000
Finished Goods 440000
Work in progress – Material 100000

Work in progress- Labour 180000
Work in progress - Fixed overhead 80000
Calculate cost of placing job
Statement of Job Costing
WIP – Raw material 1240000
Labour cost = 1600000
Fixed overhead 600000
Finished Goods 3520000
Cost of goods sold 6960000
Process costing: This method is also known as continuous costing method. In this cost are assign
for large size of products. It is used to assign indirect and direct cost in manufacturing industries.
This method is used to calculate cost of each process of converting raw materiel into finished goods
(Defourny and et.al.2019).
Activity based costing: This is unique style of calculating cost. In this manager identify activities
and on the basis of that each cost is assign on the basis of activities. In this cost are calculated on the
basis of assign products and service activity.
Calculation
of activity
based
costing
Activity cost
pool
Estimated
overhead
Cost driver Expected
activity
Standard Speciality Total Rate of
overhead for
purchasing
activity
Purchasing 1200000 Number of
order
820 1180 2000 1200000/200
0 = 600

purchase
Production
units
2025000 Setup
number
500 2000 2500 800000/1600
0 = 810
Supervision 1600000 Hours of
supervision
3000 5000 8000 1600000/800
0 = 200
Assembling 800000 Assembly
hours
8000 8000 16000 800000/1600
0 = 50
Maintained
of machine
3000000 Machine
hour
50000 50000 100000 3000000/100
000 = 30
Total overhead = 8625000
 Marginal costing: This is also known as variable method. It is part of managerial
accounting. In this only variable cost are charged and calculated for determine profits. In
marginal costing method fixed cost are written of against contribution. Organization use this
methods for recognize impact of addition units on generating profit or incurring expenses.
marginal costing
Particulars May June
Sales 25000 18750
Less: Variable costs
Sales commission 500 375
Manufacturing cost 2000 1500
Direct material 6000 4500
Direct labour 4000 3000
Total cost 12500 9375
Contribution 12500 9375
Less: Fixed cost
Fixed selling 1000 1000
Fixed production overhead 2000 2000
Fixed administration 3000 3000
Net profit 6500 3375
Target costing: This method is used to determine the overall cost of specific product life
cycle. Target costing is beneficial for reduce cost of entire process of product life cycle. In this cost

of each stage of product life cycle is calculated. It is price based costing in which on the basis of
cost assignment pricing strategies are formulated (Hammami, Al-Omiri, Bouraoui and Anam,
2019).
Selling per unit of XYZ limited = 500 per unit
Expected annual sale = 10000
Estimated return of investment rate = 18 %
Cost of initial investment = 1550000
target cost per unit=
Total target revenue = 18*1550000 = 2790000 Targeted profit per unit = 2790000/100000 = 27.9
Target cost = Target price- Target profit
500-27.9 = 472.120 per unit cost.
Following are the difference between theses methods of costing:
Particular Job order
costing
Process costing Activity based
costing
Marginal
costing
Target costing
Definition Job order
costing is a
method in
which
organization
calculate cost
of assigning
each job.
Process costing
is system
procedure of
assign and
calculating
cost required
for ruing
specific
production
activity.
Activity based
costing is a
method which
help in assign
cost according
to each activity
(Kalkhouran,
Nedaei, and
Rasid, 2017).
Marginal
costing is
procedure of
cost
accounting
through which
manager
recognize cost
of addition
costing.
Target costing
is procedure of
determining
cost of
products
overall life
cycle by using
different
techniques of
costing.
Tools Statement has
been
formulated in
which direct
materiel,
labour and
direct
Tabular
statement are
used in which
each stage of
cost is
determine .
In this
activities are
allocated and
distributed on
the basis of
that cost assign
and calculate.
Only variable
elements are
taken for
calculate value
of profits .
Cost of target
is determine on
the basis of
finding market
research,
product
characteristics

overhand are
use to calculate
job costing.
on the basis of
that cost has
been
determine.
uses This technique
of costing is
used for the
purpose of
identifying
cost of each
order.
This technique
of costing is
apply for
determine cost
required for
each and every
process of
formulation of
product. For
determine the
main cause of
incurring high
cost.
This technique
of costing is
used for
allocate
resource in
effective
manner
according to
the needs of
department.
To find out
impact of using
additional units
on generating
profit as well
as increment in
cost per units
To determine
price of
specific
product on the
basis of
formulate
effective
business
strategy to
generate
business
profits.
Application Printings press,
sports car
manufacturing,
furniture firms,
film
studios,auto
mobile garages
engineering
industries use
job order
costing
technique for
their data to
day business
operations.
This technique
of costing is
apply generally
for textile,
paper, lather
and
organizations
which are
engaged in
producing
chemicals.
Generally
manufacturing
organizations
use activity
based costing
method
(Zamrud, Abu,
Kamil. and
Safeiee,
2019).
Automotive,
organizations
use marginal
costing
technique.
Generally
marketing and
selling
organizations
in using target
costing
method.
Continental
Teves, Boeing
company use
target market
costing
technique .

Application Printings press,
sports car
manufacturing,
furniture firms,
film
studios,auto
mobile garages
engineering
industries use
job order
costing
technique for
their data to
day business
operations.
This technique
of costing is
apply generally
for textile,
paper, lather
and
organizations
which are
engaged in
producing
chemicals.
Generally
manufacturing
organizations
use activity
based costing
method.
Automotive,
organizations
use marginal
costing
technique.
Generally
marketing and
selling
organizations
in using target
costing
method.
Continental
Teves, Boeing
company use
target market
costing
technique .
CONCLUSION
From the above analysis it has been identified that Calculation of cost help in determine
profit and expense incurred for run business operations. Manager have options to use different types
of costing methods for determine their cost and profit.

REFERENCES
Books and journals
Bataineh, A., 2018. Applicability of activity-based costing in the Jordanian hospitality
industry. International Journal of Economics and Business Research,15(4). pp.475-489.
Defourny, et.al. 2019. National costs and resource requirements of external beam radiotherapy: A
time-driven activity-based costing model from the ESTRO-HERO project. Radiotherapy
and Oncology, 138. pp.187-194.
Hammami, H., Al-Omiri, M., Bouraoui, T. and Anam, O.A., 2019. TARGET COSTING:
ADOPTION AND ITS RELATIONSHIPS WITH COMPETITION INTENSITY,
INTENDED STRATEGY AND FIRM SIZE. Asia-Pacific Management Accounting
Journal.14(3). pp.223-250.
Kalkhouran, A. A., Nedaei, B.H. and Rasid, S.Z.A., 2017. An exploratory investigation of an
integrated model of costing practices in small and medium-sized enterprises. International
Journal of Managerial and Financial Accounting, 9(4). pp.338-360.
Zamrud, N. F., Abu, M. Y., Kamil, N. N. N. M. and Safeiee, F. L. M., 2019, August. A comparative
study of product costing by using activity-based costing (ABC) and time-driven activity-
based costing (TDABC) method. In Proceedings of the International Manufacturing
Engineering Conference & The Asia Pacific Conference on Manufacturing Systems (pp.
171-178). Springer, Singapore.