Management Accounting: Techniques and Importance in Decision Making

Management Accounting

Contents
Management Accounting.................................................................................................................1
Introduction......................................................................................................................................3
Main Body.......................................................................................................................................3
Question 1........................................................................................................................................3
Question 2........................................................................................................................................4
Question 3........................................................................................................................................7
a) Various budget preparation................................................................................................7
b) Recommendations to organisation in regard to their financial feasibility.........................9
Question 4........................................................................................................................................9
Conclusion.....................................................................................................................................11
REFERENCES..............................................................................................................................13
INTRODUCTION.........................................................................................................................14

Introduction
Management accounting is a broad term which includes various forms of techniques that are
helpful in decision making by supervisors or managers in an organisation. It includes
different types of management techniques such as Activity based costing, marginal costing,
budget preparation, balanced scorecard and other factors which hamper decisions in an
organisation. There is considerably huge importance of cost accounting in an organisation in
order to determine wide range of factors connected with organisational decisions. In this
report, impact of cost accounting techniques will be analysed in order to evaluate
performance of an organisation and respective decision which needs to be taken in such
regard. It is believed that cost accounting plays vital role in management of organisational
operations in more effective and efficient manner.
Main Body
Question 1
Activity based costing is a method where various activities are being analysed in order to
assign each product their respective cost unit (Libby and Salterio, 2019. It is very significant
method which is used by various organisation in order to keep track of cost on basis of each
activity. It assigns indirect cost more into direct costs as compared to other costing
techniques. It is therefore one of the useful technique of costing.
a) Compute activity cost
Activity Based costing
Activity cost Pool Cost driver
Time percent-
age
Cost driver
rate
Handle customer orders 5000 customers order 50% 10000
Process customer complaints 700 customer complaints 35% 2000
Perform customer credit check 600 credit checks 15% 1000
b)
Activity Unit time (Hours) Cost driver rate (600000/30000)
= 20
Handle customer orders 2 40
Process Customer Complaints 7 140

Perform customer credit check 5 100
280
c)
Activity cost Pool
Cost driver
rates
Cost as-
signed
5,000 customer orders 40 200000
600 customer complaints 140 84000
400 credit checks 100 40000
d) By analysing above activity based costing, it is assumed that organisation needs to
emphasize over utilization of unused capacity in order to eliminate wastage in operations
of an organisation (Wegmann, 2019. Such practices promote healthy flow of operations
in an organisation.
Question 2
Question 2
Working Notes:
January
Sales price per unit 300 RM
Sales level of single shift 4000 capacitor
Production capacity single shift 5500 capacitor
Variable production cost 150
RM per
capacitor
Fixed production cost 300000 RM per month
Variable selling and distribution cost 30
RM per
capacitor
Fixed selling and distribution cost 60000 RM per month