Assignment on the Management Accounting
Added on 2020-05-28
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Running head: MANAGEMENT ACCOUNTINGManagement accountingName of the studentName of the universityAuthor note
1MANAGEMENT ACCOUNTINGTable of ContentsAssessment task – Part A – Activity based costing...................................................................2a.Computation of the per unit cost for listed activities based on activity drivers..............4b.Determining the per unit cost for Lamington and preparation of activity bill................5c.Other costs.......................................................................................................................5Assessment task – Part B – Budgeting.......................................................................................6a.Impact of the sales revenue.............................................................................................7b.Analysis of the new fee structure and membership plan for rejecting it or adopting it. .9Reference..................................................................................................................................11
2MANAGEMENT ACCOUNTINGAssessment task – Part A – Activity based costingActivity based costing is the methodology for allocating the overheads more preciselyover those items actually used by the process. This method can be used for achieving targetdeduction in the overhead expenses (Bhimani 2012). It works best in the complexcircumstance where many products and machines are there, processes are tangled and noteasy for sorting out. On the contrary, it is not of much importance where the process ofproduction is simple. ABC identifies the special training, machine set up, special engineeringand other activities that generate costs and lead the company to the consumer resources. Asper ABC the company computes the resource cost used under the activities (Bunn and Sapio2015). Thereafter, cost of each activity is assigned only over the products that require theactivities. ABC has become important in past few years as the manufacturing costs increasedsignificantly, diversity with regard to the demands of the customer as well as the product hasbeen increased significantly, the costs of manufacturing overheads do not correlate with thedirect labour hours and productive machine hours anymore and few products are producedunder large batches while other products are produced under small batches. Variousadvantages are there with regard to usages of ABC. These are –Make or buy – it provides the comprehensive view regarding each cost that isassociated with in-house manufacturing of any product so that the company canprecisely analyse which cost shall be eliminated if the product is outsourced andwhich cost can be carried on.Minimum price – pricing is done for the product in such way that the market will beready to pay and the marketing manager shall know the product cost before decidingthe price of the product. It will assist the company to avoid the situation where thecompany will lose money due to high pricing of product. ABC helps to determine
3MANAGEMENT ACCOUNTINGwhich cost is to be included under this minimum product price based on thecircumstances under which the product is to be sold (Guerrero-Baena, Gómez-Limónand Fruet Cardozo 2013).Cost for production facility – it becomes easy to differentiate the overhead cost at thelevel of production plant which in turn enables the manager to compare theproduction cost among various facilities (Linassi, Alberton and Marinho 2016). Customer’s profitability – mostly the costs incurred by individual customers areproduct cost that includes the overhead expenses and other costs like handling ofproduct return, high level of customer service and agreements for cooperativemarketing. ABC method can sort through the additional overhead costs and may assistin determining which customer is earning the reasonable profit (Drury 2013).However, some issues must be taken into consideration before implementing the ABCsystem. These are –Volume for cost pool – though the ABC system produces information of high quality,it comes with the cost of various cost pools and cost of managing system increaseswith additional cost pools. For reducing these costs, ongoing analysis of cost shall becarried out with comparing the utility of each cost pool.Time for installation – the ABC system is quite difficult to install as it may requiremulti-year installations where the company try to install this across all the facilitiesand products. Further, it is difficult to manage the high level budgetary support astime wasted without the completion of installations (Fathi and Elham 2015).Project basis – generally the ABC projects are allowed on basis of the project so thatthe information is collected only once. Further, the information can be useful for thecurrent operational situation of the company. Therefore, management may notauthorize the funding for future ABC project.
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