Introduction to Management Accounting: Importance of Correct Costing Method

INTRODUCTION TO MANAGEMENT ACCOUNTING

EXECUTIVE SUMMARY
In this assignment, the various methods of cost allocation is discussed along with the
analysis. The important of using correct cost allocation method along with its impact on
decision making has been discussed. In order to help the accountant of the company a
recommendation has also been made.

Contents
Introduction................................................................................................................................3
Traditional system of costing and its disadvantages..................................................................4
Activity Based Costing..............................................................................................................5
Importance of correct costing method........................................................................................6
Analysis of cost data of Beztec Limited....................................................................................7
Recommendation for Sue smith...............................................................................................10
Analysis of the gross profit margin of the company................................................................11
Treatment of over recovery and under recovery......................................................................12
Recommendation and Conclusion............................................................................................13
Bibliography.............................................................................................................................14

Introduction
The management of the organisation has to take various important decisions which includes
product costing also. The price determination of a product is a difficult job. The management
has to consider many factors into consideration before taking any final decision. A wrong
decision might hurt the financial stability of the company.
Beztec limited is engaged in the production of printer whose names are Lexon and Protox.
The management of the company is thinking of replacing the older version of Lexon with a
new version. The management has taken up this decision because of the low returns. It is the
view of an accountant Sue Smith that these results are because of the adoption of
inappropriate costing methods. It is also of the view that the management must change th
method of costing which will help them to take correct actions.
In this assignment, we will learn about the two different costing methods and the importance
of using an appropriate costing method (Atkinson, 2012).