Management Accounting Information and Cost Control

This assignment discusses the importance of management accounting information in cost control. It presents two different methods: the Absorption Costing (ABC) system method and the Reciprocal services method. The tables provided show the service departments' overheads and costs for various projects, demonstrating how these tools can help initiate control effectively. The conclusion highlights the benefits of management accounting in taking enhanced decisions.

Management Accounting for
Costs & Control

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Assessment 1....................................................................................................................................1
1. Discuss panopticism and relevance to management accounting........................................1
2. Functions of management accounting................................................................................2
3. Usage of checklists as a control device..............................................................................2
4. Manufacturing and income statement................................................................................3
5. Labour cost and concepts...................................................................................................6
6. Material control account.....................................................................................................6
7. Accrued payroll account.....................................................................................................7
8. Payroll entries.....................................................................................................................8
9. Activity Based Costings.....................................................................................................9
10. Service department allocation of costs.............................................................................9
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Management accounting is required in the organisation to initiate control over various
costs in effective way. Present report deals with various tools which are required in organisation
to control costs and achieve production quite effectually. Moreover, income and manufacturing
statements are prepared in this report.
Assessment 1
1. Discuss panopticism and relevance to management accounting
Panopticism is a French term given by Michel Foucault which means that internal
surveillance is made by the leader in the best possible manner. This is done by leader so that
behaviour may be extracted and modified. This term is a symbol of surveillance of the society. It
is quite simple technique to improve upon behaviour in effective way (Hu, Martinez and Yang,
2017). The diagram shows that leader sees many. This can be explained with context of
organisation. The leader sees employees so that performances may be observed and improved as
well.
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Illustrati
on 1: Panopticism Source: spacecollective.org

Panopticism is quite related to management accounting in the organisation. This is
evident from the fact that management is benefited by this information to take enhanced
decisions with much ease. This means that internal surveillance is made by management so that
employees may perform in effective manner and also operational activities are achieved quite
effectually. Management accounting information is utilised by top managerial personnels in
order to make firm stronger internally so that operations may be performed effectually and
desired objectives are accomplished as well (Cooper, Ezzamel and Qu, 2017). Thus, it can be
said that management accounting and panopticism are similar terms as surveillance is done to
make necessary improvements.
2. Functions of management accounting
The main functions of management accounting are as follows-
1. Planning
Planning is required in the company so that it may be able to achieve goals in effective
manner. The main tools for planning purpose are funds flow statement, cash flow statement,
marginal costing, absorption costing etc.
2. Decision-making
This is the main function of management accounting to make enhanced decision with
much ease. For taking decision, various information is gathered and provided to management
and as such, personnels assess company's performance to make further improvements if any.
This is useful to the company as it better decision is taken for making organisation internally
effective.
3. Controlling
Controlling is another effective function which initiates control over departments so that
budgeted results may be compared with actual ones and as such, corrective action may be taken.
This is essential for company in order to make improvements in effective manner (Objectives or
functions of Management Accounting).
3. Usage of checklists as a control device
The checklist is quite useful in reducing human errors and mistakes in order to improve
upon the same in effective way. This is required so that failure may be reduced up to high extent.
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Consistency is achieved in carrying task with much ease. Checklist means to do list which states
that it is a type of schedule and it lays down tasks to be accomplished in step-by-step manner and
as such, errors will be reduced quite easily (Warren and Jones, 2018). The checklists can be used
as a control device that can be seen in the context of Valen Halen Rock band.
The band is one of the popular American rock band and it has used checklists as a control
device to eradicate any errors in their performance. They had prepared checklists in which all
tasks were listed and as such, band provided their performance in the best possible way
(Honggowati and et.al, 2017.) Moreover, it initiated good control on performances so that results
can be achieved quite satisfactorily. Moreover, in the 2012 year, one of the band member was
diagnosed with diverticulitis which was Eddie Van Halen who is a guitarist. This had led to
cancellation of shows but they prepared checklists in order to perform and they conducted
various tours.
4. Manufacturing and income statement
Tendulkar Manufacturing Co
Manufacturing statement for the year ended 30
September 2007
Particulars Amount Amount
Direct material
Opening balance of raw material 11000
Purchase of raw material 842000
inward charges on purchased raw material 25340
878340
LESS: Closing raw material balance 26000
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Material provided to production 852340
15000
867340
LESS: WIP material 15000
Raw materials in manufactured product 852340
Direct Labour
labour 456780
ADD: WIP labour opening balance 17000
473780
LESS: WIP labour on closing 11000
Direct labour in manufactured product 462780
prime cost 1315120
Manufacturing overhead
Manufacturing expenditures 370000
Factory salaries 367800
Expenses of insurance 2775
Applicable rates 9425.25
Machine depreciation 12900
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762900.25
ADD: WIP expenditures 1\10\2006 26000
788900.25
LESS: WIP expenditures 30\9\2007 8000
Manufacturing overhead in manufactured product 780900.25
COG manufactured 2096020.25
Tendulkar manufacturing co
Statement of income for the year ended 30
September 2007
Particulars Amount Amount
Finished Goods sales 3856000
COGS
Opening balance of Finished Goods 50000
COG manufactured 2096020
COG available for sale 2146020
less : Closing balance of finished goods 32000
COGS 2114020
GP 1741980
Add : Revenue of discount 5320
1747300
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selling expenditures
commission on sales 47600
advertisement expenses 24000
Freight outwards expenses 6543
78143
expenses of administration
office salaries 35000
general expenditures 54320
Power and light expenses of office 23000
Applicable rate 3141.75
insurance expenses 925
Paid audit fees 12000
128386.75
financial expenditures
expenses on discount 3450
209979.75
Net profit 1537320.25
expenses of tax 56740
Earnings after Tax 1480580.25
5. Labour cost and concepts
A) Perpetual inventory system is quite effective as computerised system is used to maintain
inventory and as such, it can be said that there is no need to conduct physical stocktake as
modern system saves time and provide accuracy (Zhao and et.al, 2017).
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B) Organisation should treat overtime payments as indirect labour as it is excess paid over
regular wage rate and as such, it should be included in manufacturing overhead cost only and not
as a direct labour.
6. Material control account
Material control
account
Particulars Amount Particulars Amount
Balance at April 1 60000 WIP 60000
purchases 80000 control on overhead 30000
Balance at April 30 50000
140000 140000
Journal entries
Particulars Amount Amount
Direct materials to production
WIP control a/c Dr 60000
To material control a/c 60000
Issue of indirect material
Control on overhead a/c Dr 30000
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To material control a/c 30000
Material purchase
material control a/c Dr 80000
To accounts payable a/c 80000
7. Accrued payroll account
accrued payroll Account
Particulars Amount Particulars Amount
Wages and salaries to factory
workers
18000 Balance at July 1 20000
Balance at July 30 8000 Work in progress
control
28000
accrued salaries and
wages
10000
26000 58000
Journal entry
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Particulars Amount Amount
Wages and salaries during month
of march
Wages and salaries a/c Dr 50000
To accrued payroll a/c 50000
8. Payroll entries
Weekly total hours 48 hours
Hourly rate $22 per hour
Direct labour in Production 35 * 22 $770.00
Indirect labour in Idle Time 5 * 22 $110.00
Overtime as per customer request 2 * 33 $66.00
Indirect labour in overtime
50% at first 3 hours 3 * 33 $99.00
Hours remaining at 100% 3 * 44 $132.00
Gross pay per week $1,177.00
Part B
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Indirect labour in Idle Time 5 * 22 $110.00
Indirect labour in overtime
50% at first 3 hours 3 * 11 $33.00
Hours remaining at 100% 3 * 22 $66.00
Employee's pay presented as indirect labour $209.00
9. Activity Based Costings
Traditional costing system is less accurate as compared to ABC system. This is evident
from the fact that ABC allocates indirect costs to activities and afterwards expenditures to
product on the usage of activities. Under ABC system, organisation is able to calculate each of
the cost of activities and as such, expenditures are ascertained with much ease. Thus, ABC is
quite effective costing system in comparison to traditional system. Whereas, traditional costing
system allocates overheads to product on arbitrary rate which gives less accurate results. Thus, it
can be concluded that ABC system provides more accuracy than traditional one. Hence, ABC
system should be implemented in the organisation.
10. Service department allocation of costs
Particulars Service
department 1
Service
department 2
Project
department 1
Project
department 2
Total
Service
department 1
0 20 60 20 100
Service 15 0 35 50 100
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department 2
Cost of
overhead to
both
production and
service center
Service
department 1
Service
department 2
Project
department 1
Project
department 2
Total
20000 25000 60000 45000 150000
A)
Solution by using
Direct Method
Particulars Service
department 1
Service
department 2
Project
department 1
Project
department 2
Overhead 20000 25000 60000 45000
Service
department 1
-20000 0 15000 5000
Service
department 2
0 -25000 10,294 14706
Total 0 0 85294 64706
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B)
Solution by using
Step Method
Particulars Service
department 1
Service
department 2
Project
department 1
Project
department 2
Overhead 20000 25000 60000 45000
Service
department 1
-16000 4000 6000 6000
Service
department 2
0 37000 10,571 26429
Total 4000 66000 76571 77429
C)
Solution by using
Reciprocal
services Method
Particulars Service
department 1
Service
department 2
Project
department 1
Project
department 2
Overhead 20000 25000 60000 45000
Service
department 1
-24043 6011 9016 9016
Service 12064 -40213 8,043 20107
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