Cost Calculation Methods in Accounting

This assignment examines the significance of different cost calculation methods in accounting and management within the context of Turkish businesses, particularly focusing on TAS-2. It delves into various research studies and perspectives on the subject, comparing traditional methods with contemporary approaches like beyond budgeting. The analysis highlights the influence of these methods on operational costs, decision-making processes, and overall organizational performance.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
P1Explain management accounting and essential requirements of different management
accounting systems......................................................................................................................3
P2 Explain different methods used for management accounting reporting 5
P3 Calculate costs using appropriate techniques of cost analysis to
prepare an income statement using marginal and absorption costs..............7
P4 Explain the advantages and disadvantages of different types of
planning tools used for budgetary control...............................................................13
P5 Compare how organizations are adapting management accounting
systems to respond to financial problems................................................................14
CONCLUSION.........................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Management accounting is the one of the domain that is used to control expenses and
monitoring same in the business. It is the branch of the accounting field that help business firms
in making effective use of resources in the business. In the current report, requirements of
different management accounting systems are explained. In the middle part of the report,
different methods used for management accounting reporting are explained. Marginal and
absorption costing method are used to prepare income statement for the business firm. At end of
the report, different management accounting systems are compared with each other and best one
is identified.
P1Explain management accounting and essential requirements of different management
accounting systems
Management accounting is the one of the most important segment of accounting which is
used to perform different sort of calculations and by considering same varied decisions are taken
in the business. There are number of calculations in the management accounting that are
performed to measure firm business performance like variance analysis and breakeven point etc.
All these things help managers in making varied sort of business decisions. It can be said that
there is significant importance of the management accounting for the managers of the business
firm. Under management accounting different sort of information are collected about labors and
raw material as well as inventory (Zimmerman and Yahya-Zadeh, 2011). Different calculations
are performing that help one in understanding the extent to which labors are used effectively and
efficiently in the business by the firm. Similarly, management accounting help one in
understanding the pattern in which inventory values are increasing and decreasing in the business
and cost of same is changing. Thus, it can be said that there is a wide scope of the management
accounting for the business firms. Variance analysis is also one of the most important tools that
is used to measure the firm performance. It is the tool that is used to measure firm performance
and identifying areas where performance is weak and strong. The area where firm performance is
weak is taken in to account by the managers and steps are taken to improve performance. It can
be said that management accounting provides a lots of input to the business firm in respect to
areas where improvement in the business performance is strongly needed. Different management
accounting systems and requirements of same are given below.

Cost accounting: Cost accounting system is used by the most of the business firms and under
this all type of expenditures that are made in the business is recorded in the books of accounts.
While recording expenses in the business it is ensured that all of them are classified under the
appropriate headings in the accounts. Thus, cost accounting system help managers in identifying
the extent to which variable and fixed expenses increased in the business (Macintosh and
Quattrone, 2010). The main requirements of the cost accounting system are that manager prepare
separate list of all expenses and record their values separately. Thereafter, all expenses are
recorded separately under different headings. Under cost accounting systems projection about
expenses are also made on the basis of past data and plan that firm will followed in its business
in respect to production of goods and services in its business. Projected values are further used to
measure the firm performance in the upcoming months. It can be said that there is significant
importance of the management accounting systems for the managers.
Job order costing: Job order costing system is one under which different jobs are created and
costing of same is done. Job refers to the different orders that are received from the varied
customers in the business. It can be said that job order costing is the one of the important method
that is used for costing of the product. There are some important requirements of the job order
costing. Under this it is very important to do costing of different product lines separately. The
main requirement of job order costing is that all expenses in respect to product are recorded
separately. Different costing methods like absorption and marginal costing method is used do
costing of each job. It can be said that there is due importance of the job order costing methods
for the business firms.
Process costing: Process costing is another management accounting systems and under this cost
of different stages of production is done. There are number of stages in production of goods and
services. Different raw materials are used in production of goods and services. There are some
requirements of the process costing and under this it is important to collect data related to
different stages of the production separately and accounting of same is also done separately
(Baldvinsdottir, Mitchell and Nørreklit, 2010). The data that is recorded for each stage of
production is used to compute overall cost of production and per unit cost. It can be said that
process costing is the one of the best approach that is used for costing of the product. This is
because in each stage of production different quantity of raw material is consumed and labors are
used. Process costing system ensured that all resources will be taken in to account and costing of

same will be done accurately. It can be said that process costing system is the systematic
approach of doing costing of the product.
Throughput costing: Throughput accounting system is the new sort of management accounting
system that is used by the firm in its business. It is also considered as modern cost accounting
system. This costing system was developed by the Israel business man. The main focus of the
modern cost accounting system is on cost control and due to this reason it laid stress on
controlling all sort of expenses in the business (Ward, 2012). Strategies are prepared to ensure
that cost will remain in control and will lead to elevation of profitability in the business. It can be
said that there is due importance of the throughput costing system for the business firms and by
using same business performance can be improved to great extent by the business firm.
P2 Explain different methods used for management accounting reporting
Management accounting play a significant role in enhancing the current skills and the
capabilities of an enterprise with the passage of time (Li, Choi, 2014). The information included
in the management is both quantitative and qualitative information supplied by the top
management among all the employees in accomplishing all desired aims and the objectives of an
enterprise which will be completed in the near future. In managerial accounting reports about the
existing organization will be prepared in order to convey all important information and
announcement related to the existing business structure of an entity. The process of decision gets
simplified when each and every information are available with the management in order to attain
all the goals and the objectives within a given time frame (Vakhrushina and Malinovskaya,
2014). Management accounting principles are adopted by an entity owner in enhancing the
overall performance as quality of all the services need to be improved in order to retain all the
customers within the same business entity for the long period. There are various managerial
accounting reports need to be prepared by an entity in order to cater the variety of needs and the
higher expectations of all its employees working for the development of the organization are give
as below:
Cost reports- The business entity needs to give more emphasizes on ascertaining the current
cost to be incurred in the business by devising various cost reduction strategies. Cost reports
prepared by the firm in order to analyses the available resources in the market which will be
optimally utilized order to increases income of an entity by suppressing its expenditures in the
business. The nature of cost will e identified in order to treat al the cost according to its basic

nature. The ascertainment about the nature o costs is essential in order to develop the price of all
the products or services currently offered by an entity to attract its price sensitive customers.
Cost can be of different kinds such as fixed which the same remains in the zero or more than
zero level of production in the business enterprise. On the other hand, variable costs is that cost
which gets changes wt the increase or decrease in the units of sales generated by an entity in a
particular tie period. It is important to know the nature of costs as fixed costs and variable cost
will be included in determining the price of the products or services along with the specific
amount of profit included in the price of the products (Otley and Emmanuel, 2013). Any increase
in the sales units will generate higher variable costs which in turn increases the price of the
products which in turn decreases total number customers towards the business of an entity. Cost
reports will be prepared using two important techniques such as marginal as well as absorption
costing technique whose presentation in determining the total costs incurred in the business
entity of Israel businessman. The cost reports prepared by an entity will include various aspects
such as material costs, overhead, labor as all these aspects are regarded as one of the important
aspects in the organization as these will be considered while determining the price of all the
products or services currently sells by an entity to its various users.
Budget- Budgets are important technique to be used by an individual in predicting their own
future performance by analyzing the current resources kept by an entity owner in their existing
business. Important source of enhancing the current skills of an entity by considering all the facts
and figures in the current statements in form of budgets (Pani and Mukhopadhyay, 2013).
Budgets is act like a important aspect of forecasting as this analyses the existing resources in
determining the future performance of an entity that helps an entity owner in generating higher
outcome in the near future. Budgets will be prepared for each and every segments of the business
such as sales, purchase, production, cash, operating expenses, master budget and total budget.
The primary objective behind the preparation of all the budgets is to accomplish all the goals and
the objectives within a given time frame. Budgets are acts like a directing statement which gives
right direction to an entity in spending expenditures according to the budget which helps in
improving their overall performance. It is essential for an entity to focus on all the strength and
capabilities of an organization in delivering right information in fulfilling higher expectations of
all the customers.

P3 Calculate costs using appropriate techniques of cost analysis to prepare
an income statement using marginal and absorption costs.
Computation of net income under costing approach marginal:
Interpretation
Marginal costing is that approach highly concerns with the determination of cost which is
also useful method in developing the prices for all the products or services of an enterprise. The
customers are attracted by offering affordable pricing as the main motive of an enterprise is to
grab the attention of most of the price sensitive customers towards the products or services. In
this costing technique variable costs are only considered by an entity in devising al the products
or services of the business organization (Vakhrushinaand Malinovskaya, 2014). The term
marginal costing also involves similar concept like marginal cost according to which additional
unit incurred in the business will generate additional burden on the business in form of marginal
cost. The costing of all the marginal’s cost in an enterprise is termed as marginal costing. This
kind of costing is highly related with the improvement of the overall business structure as in this
particular approach the greater emphasis is give on considering only that costs which is affecting
the sale and the revenue of the business enterprise in particular financial year.

The principles of the marginal costing emphasizes on the impact of variable cost created
on the total level of production generated by the business in a particular year as this enhances the
efficiency of overall production level units in the business. The Breakeven point is the basic
approach involved in the marginal costing which determines that point where initial investment
of an entity gets equalizes the cash flow generated in a particular year. So, an entity owner needs
to surpass this point in order to generate higher amount of sales and the revenue in the overall
business tenure.
Particula
rs
Jan Feb March April May June
Sales 100 200 300 400 500 600
Variable
cost
40 140 240 340 440 540
Contributi
on
60 60 60 60 60 60
Fixed cost 2000 3000 4000 5000 6000 7000
BEP(Fixe
d
cost/Contr
ibution
per unit)
33.33 50.00 66.67 83.33 100.00 116.67
Formula of Breakeven point
Fixed cost/contribution per unit
It can be said that the performance of an entity will be increases with the passage of time
as the level of current skills and the capabilities will get increases in order to get competitive
advantages over variety of customers exists in the external market (Braun and Tietz, 2013). The
above breakeven point statements reflects the true performance of the business which shows that
the higher performance of an entity which is increases over the period.
Marginal costing is also regarded as the contribution cost in which the sale mix will be
created according to the particular contribution generated by a product. Higher the contribution
will help an individual in generating higher returns in the near future from a specific product as

his organization will think about its overall cost before designing their prices. No business
operated their firm with no earning of profit in the business. Knowing contribution of each and
every product helps an entity in order to ascertain the profitability generated from a particular
product takes places in the business enterprise. This will help in improving existing efficiency of
all the departments located in the firm (DRURY, 2013). Various departments include finance,
human resource departments. Marketing and operations departments which required being linked
their business action with all the goals and the objectives of the business. This helps in charging
best appropriate selling price for all the products as it is important in order to get higher
competitive advantages over all the market rivals of the business.
The marginal costing is important source of technique in evaluating the current level of
stock in the business as utilizing all inventories will help in generating higher outcome in the
near future. The efficiency of the stock can be ascertained using various techniques such as
FIFO, LIFO and average cost method as determining the efficiency of all the inventories is
essential in order to get higher competitive advantage over variety of competitors exist in the
external market (Ball, 2013). First in first out method emphasizes on selling inventories firstly
purchased in an entity. It is essential value stock using FIFO in order to sells all the stock instead
of piling up in the business which created warehousing costs to be incurred by the business
enterprise.
Marginal costing is that approach which helps in recovering all the fixed costs incurred I
the business by reducing the variable cost currently available in the business as an entity can
minimize variable costs but doesn't make changes in the fixed cost of the business. Fixed cost is
rigid which cannot be altered in an enterprise but the variable cost can be arranged according to
the choice of an individual over a particular time period.
In the above income statements prepared under marginal costing has produces less profit
as comparison to the absorption costing (Bozkurt, Dokur and Yildirim, 2014). This is also
regarded as the variable costing in which variable cost is given higher preference as compared to
the fixed cost incurred in the business. This is not complete costing as the results generated
through this mode are not reliable on whom an entity will not make important decisions in the
business. The business performance will not be increases using the results of this particular
costing as the results generated through this mode is not highly reliable as the results will not be
trusted by other individuals.

Computation of net income under costing approach absorption:
Interpretation
Absorption costing is opposite technique of marginal costing which is
used to determine the cost of a particular product using both variable and
fixed costs in developing their products or services of an enterprise (Braun
and Tietz, 2013). The main aim of this approach is to consider all the
external market changes in the business environment in devising pricing
strategies used to develop the prices of several business products.
This kind of costing emphasizes on both kind of costs such as fixed as
well as variable costs as this is regarded as the complete costing which is
important in order to develop al the products or services of the business

enterprise. The efficiency of all the inventories gets improved by plying this
approach in enhancing the skill and the capabilities of an individual in order
to grab higher market opportunities. This kind of costing emphasizes on
ascertaining all the manufacturing costs as this helps an entity owner in
order to manufacture various kinds of products or services according to the
aims ad targets currently framed by an entity owner (Bagliani and Martini,
2012). The management of the corporation gives higher preference to all
the tools and techniques that can be used in compensating the effect of
higher costs in the business enterprise. Variable costing is essential factor
to be ascertained by an entity in the initial phase in order t grab higher
market opportunities for the business enterprise.
The variation occurred in the cost factor on the business is due to
fixed cost absorbed over the period on the available units of the production
in the business enterprise. This absorption is not show in the marginal
costing where fixed cost is excluded from the total sales generated by an
entity as a period cost. The absorption costing technique is used to enhance
the quality of all the services offered by an entity to its various customers.
The quality of all the materials gets increased in order to provide ultimate
advantage to the business in generating higher outcome for the business
(Bebbington, Unerman and O'Dwyer, 2014). The profit in the absorption
costing is always higher than compared to the profit generated by marginal
costing. The reason behind higher profit n the absorption costing is due to
the inclusion of all kinds of costs as a period costs which will be included in
the making of product that help in generating final outcome in the near
future.
P4 Explain the advantages and disadvantages of different types of planning
tools used for budgetary control
Budgeting- It is regarded as one of the process followed by an entity in which current financial
resources are analyzed by including all the resources in form of formal written statements to be
presented among the top management in order to seek their approval. The approval pf the

management is essential in order to take action in the near future which will be expressed in the
financial terms (Otley and Emmanuel, 2013). The business performance of an entity will be
increases by making amendment in the original structure of the business goals and the objectives
of the business entity as they focuses on attaining all targets within prescribed time limit in order
to capture higher market share as compare to all the competitors in the external market located in
the business environment. The budget is an estimation of all the revenues and expenditures
included in the business in order to determine the future of an entity in the upcoming times in
enhances the current business operations of the business. This is used to allocate all resources
among different departments in the business to generate higher outcomes in the near business
enterprise that helps in getting competitive advantage among various set of competitors exists in
the market (Otley and Emmanuel, 2013). It is also regarded as important source of
communication as this helps in exchanging important information with the managers about new
ideas or creativity in improving the existing business practices in boosting the operations.
Advantages
 Budgets prepared by an entity in order to create higher level of coordination among all
the departments to enhance the singular efficiency of each and every employee working
in the business for increasing overall efficiency of the business (Li, Choi, 2014). This
efficiency will help in stealing attention of most of the users towards an enterprise.
 Control can be imposed by an entity that helps in achieving all the targets within a given
time span decided by an enterprise. The dashboards are prepared in order to keep watch
on all the employees in knowing its performance towards the business activities or any
other else an employee is focusing.
Disadvantages
The preparation of budgets will provide assurance to an entity in order to generate guaranteed
success in the near future. The estimates involves in the budgets prepared by the business owner
will not assure an entity owner in order to generate higher outcomes in the near future. Wrong
estimates will not produce reliable outcome for the business as data will be based on historical
costs.

P5 Compare how organizations are adapting management accounting
systems to respond to financial problems.
Benchmarking- The best practices of the industry standards will act as a standard for an
individual in improving their performance in order to break the higher records maintained by
other business entity in the industry (Pani and Mukhopadhyay, 2013). It shows positive influence
of the management on the external environment that helps in improving overall performance of
the business. The process of benchmarking is stresses on several factors such as quality,
continuous improvement, competitiveness to be maintained by the business over long term
period in the business environment in order to access wide number of opportunities.
KPI- It is an acronym which stands for Key performance indicator used to report progress made
by an individual in their business by reflecting success benchmark set by an entity. It is that
approach used to measure the success of an organization by tracking its overall performance in
delivering right amount of information to next level of management in the business enterprise.
This is strategic aim of the business in measuring all qualitative and quantitative goals prepared
by the business enterprise in strengthening their overall performance (Sales metrics, 2016). KPI
are created in order to process all the desired aims and targets framed by an entity owner in a
given time period.
There are various characteristics of KPI that includes preparation of SMART goals and
the objectives which are specific, measurable, attainable, reliable and achievable in given time
period by determining best appropriate time in order to accomplish a given target. The
accomplishment of all the goals and desired aim is important in order to attain all specific targets
according to the business of an enterprise.
KEY PERFORMANCE
INDICATOR
TARGET
PERFORMANCE
LEVEL
ACTION PLAN

Employee Increase by 10% by the
year-end
Create production teams and publish
internal league tables to encourage
competition.
CONCLUSION
It can be concluded from the above assignment that management
accounting is regarded as important approach in enhancing the overall
capabilities of the business in maintaining strong market position (Ball,
2013). This project report states about the generation of profit by preparing
income statements under marginal as well as absorption costing technique.
The results have obtained that profit will be generated from the absorption
costing is higher than compared to the profit generated by marginal
costing. This project report also stresses on management accounting
systems and reporting in increasing compliance of legal rues and the
regulations framed by the local government in improving the overall quality
of the services offered by an entity to its variety of customers (Bagliani and
Martini, 2012). This project report also talks about management accounting
systems that helps in resolving all the financial problems faced by an entity
in a particular year.

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