Management Accounting

This assignment analyzes the functional area of production, including activities, set up cost pools, value added activities, and non-value added activities. It discusses the role of the production department in converting inputs into finished outputs and the use of activity-based costing to determine production costs. The assignment concludes by highlighting the importance of value added activities and the identification of non-value added activities.

Running Head: MANAGEMENT ACCOUNTING
MANAGEMENT ACCOUNTING
Name of the Student
Name of the University
Author Note

1MANAGEMENT ACCOUNTING
Table of Contents
Introduction................................................................................................................................2
Discussion..................................................................................................................................2
Production Department..........................................................................................................2
Activities of Production Department.....................................................................................2
Set Up Cost Pools...................................................................................................................3
Value Added Activities..........................................................................................................5
Non-Value Added Activities..................................................................................................6
Conclusion..................................................................................................................................6
Reference....................................................................................................................................7

2MANAGEMENT ACCOUNTING
Introduction
The aim of this assignment is to do the analysis of functional area of the production.
Production is defined as the process of the combination of various inputs materials for
making something for the consumption. It is referred as the act of output creation, services or
good that has the value and contributes towards the utility of the individuals. Therefore, under
this assignment discussion will be based on the analysis of the activities as well as the set up
cost pools of the production department. In addition, discussion will also be based on the
identification of the value added as well as non-value added activities.
Discussion
Production Department
Production is considered to be the functional area, which is responsible for the turning
the inputs into the finished outputs by the series of the process of production. The manager of
the production is responsible for assuring and making sure that the sufficient raw material is
provided and they are processed further for making it into the finished goods in most
effective manner. Hence, the production department is that department that is directly
involved in the manufacturing of the goods and services such as departments of machining,
finishing as well as the department of assembling (Munyao et al. 2015).
Activities of Production Department
Production is that functional area that is responsible for converting inputs into the
finished outputs that goes through the series of the process of the production. The manager of
production department makes sure that there is smoothly carrying out of the work as well as it
must take steps for supervising the procedures in order to make it more enjoyable and
efficient (Khanna, 2015). The activities of the production includes following:

3MANAGEMENT ACCOUNTING
 Production and Planning- This includes setting targets and standards for every
sections of the process of production. There is the close monitoring of the quality and
quantity that is coming out of the production line.
 Purchasing- This includes providing the materials, equipments and components that
are required for keeping the processes of the production running smoothly. This
aspect of the production ensures that the stocks are arrived at time and in the right
quality (Hitomi, 2017).
 Storing- This includes keeping the stock of the all the necessary raw materials, tools,
spares as well as the equipments, which are required for the service to the process of
manufacturing. In case, if the source is unreliable, the department keeps buffer stocks
as well as uses the computerized stock control system, that helps in keeping the
minimal stocks (Soesanti & Syahputra, 2016).
 The design and Technical support- This includes researching of the modifications
or the new product for the existing one by estimating the cost for the production in
various quantities as well as with the help of using different methods.
 Operations- This aspects of the production is concerned with manufacturing of the
products. This includes the maintenance of the line of the production as well as other
necessary repairs. In addition, it also includes the inspection and quality control
(Sajid, Khan & Zhang, 2016).
Set Up Cost Pools
This includes the cost that is used for performing the task of setting up of the
production unit. There is the use of activity cost in the manufacturing. The manager is asked
for evaluating the costs of the production of each of the products that are used in the
production department (Adulyasak, Cordeau & Jans, 2015). Production costs includes variety
of the expenses such as raw material, labor, general overhead, consumable manufacturing

4MANAGEMENT ACCOUNTING
supplies and other costs of production includes taxes levied by the government or the
royalties that is owed by the extraction companies of the natural resources. The expense that
is directly connected with generating revenue for company is considered to be production
cost. Production cost that is related to labor and raw material is carried by manufacturers and
in case of the service industries; production cost is related to the required labor for delivering
of their services (Dale & Plunkett, 2017). Production involves both the direct as well as
indirect costs such as for the manufacturing of the automobile, the direct cost involves
materials such as metal and plastic as well as salaries or wages to the workers. The indirect
costs will include overhead expenses such as administrative salaries, rent and the utility
expenses (Childress et al. 2015).
For determining the production cost discussed above, costing method is required.
Therefore, the most common method for the determination of those production cost is
Activity based costing. Under this method, variety of activities are included in the production
and for every activity cost is assigned such as set-up of the machine may be the one activity
that is associated with the production of certain product. Therefore, the cost for the set-up
will be considered as one cost that is included in the activity cost pool (Dong, Liu & Lin,
2014). The other cost that would be assigned to the pool will may be purchasing material.
Hence, assignment of the cost in the most accurate manner is very important for determining
the profitability of the products and subsequently it helps in making rational decisions of the
production. Set-up costs is the example of the batch level costs because this cost generally
occurs one for each of the batch that is regardless of the batch sizes (Gupta & Dallas, 2014).
Therefore the process of the activity based costing is as follows:
 The first cost is identification of the cost that needs to be included.
 The second step is creating the pool of the costs that provides services to the other
areas of the company that directly supports the products and services of the company.

5MANAGEMENT ACCOUNTING
 The third step includes creating the pool of the cost that is closely aligned with
production of goods and services. These costs include advertising, research and
development, procurement as well as distribution. Likewise, cost pools may be
created for each of the distribution channels. In case if the length of the production
batches vary greatly then cost pools can be created at the batch level so that cost are
assigned on the size of batch (Cooper, 2017).
 Next step is collection of the data by the data collection system, which are used for
the allocation of the costs in the secondary cost pools to the primary costs pools and
allocating cost pools in the primary cost pools to the cost objects.
 This step includes using the activity drivers for apportion of the costs in the costs
pools of secondary to the primary cost pool (Subramaniam & Watson, 2016).
 This step includes using the activity drivers for allocating the contents of the each cost
pool of primary to the objects of cost that means there is separation of the activity
drivers for each of the cost pools.
 In this step the results of this method is presented for the management consumption in
the form of reports.
 The last step is acting on the information presented. The management may react on
the report by reducing the quantity of the cost drivers used by each of the cost object,
this will help in reducing the amount of the cost of overhead that is being used
(Newcomer, Hatry & Wholey, 2015).
Value Added Activities
Value added activities changes form, fit as well as function of the products and
services. They may include assembling or designing the products, raw materials order,
making informative decisions, innovations and so on. These are something for which the
customers want to pay for. These activities also include the verification of the activities that

6MANAGEMENT ACCOUNTING
whether the products or services produced meets the specifications or not. The needs for this
inspection are the indication of inability of the organization for the production of the good
product (Kabu & Tira, 2015).
Non-Value Added Activities
Non-Value Added Activities includes inspections, reviewing, counterparts, checking
or testing, revising or reworking, filling the information, obtaining the multiple approvals and
so on. These are the activities that do not help in creating the conformance to the
specifications of the customers; these are something for which the customers are unwilling
for paying at premium. Therefore the activities of non-value added activities are identified
from the improvement of the process or the initiative of the business efficiency using the lean
management technique for analyzing value from the perspective of end user, identifying
waste as well as hidden factories and identification of direct and indirect cost that impact the
overall prices of the product (Karasu et al. 2014).
Conclusion
Hence, it can be concluded that functional area of the production is responsible for
efficiently and effectively converting the inputs into the output by the series of the production
processes and activities which starts right from the planning of the manufacturing to the
observing the result by the inspections. This process includes creating the pools of the cost
for the activities of the production by department .or batch wise. In addition, production
activities will identify is there is any cost driver associated with the production which is
assigning the overhead costs to the total number of the produced units.

7MANAGEMENT ACCOUNTING
Reference
Adulyasak, Y., Cordeau, J. F., & Jans, R. (2015). Benders decomposition for production
routing under demand uncertainty. Operati Adulyasak, Y., Cordeau, J. F., & Jans, R.
(2015). The production routing problem: A review of formulations and solution
algorithms. Computers & Operations Research, 55, 141-152.ons Research, 63(4),
851-867.
Childress, S., Nichols, B., Charlton, B., & Coe, S. (2015). Using an activity-based model to
explore the potential impacts of automated vehicles. Transportation Research
Record, 2493(1), 99-106.
Cooper, R. (2017). Target costing and value engineering. Routledge.
Dale, B. G., & Plunkett, J. J. (2017). Quality costing. Routledge.
Dong, J., Liu, C., & Lin, Z. (2014). Charging infrastructure planning for promoting battery
electric vehicles: An activity-based approach using multiday travel
data. Transportation Research Part C: Emerging Technologies, 38, 44-55.
Gupta, P., & Dallas, T. (2014). Feature selection and activity recognition system using a
single triaxial accelerometer. IEEE Transactions on Biomedical Engineering, 61(6),
1780-1786.
Hitomi, K. (2017). Manufacturing systems engineering: A unified approach to manufacturing
technology, production management and industrial economics. Routledge.
Kabu, E., & Tira, D. S. (2015). Value Chain Analysis Towards Sustainability: A Case Study
of Fishery Business in Kota Kupang, Indonesia. International Journal of Economics
and Financial Issues, 5(1S), 150-156.

8MANAGEMENT ACCOUNTING
Karasu, M. K., Cakmakci, M., Cakiroglu, M. B., Ayva, E., & Demirel-Ortabas, N. (2014).
Improvement of changeover times via Taguchi empowered SMED/case study on
injection molding production. Measurement, 47, 741-748.
Khanna, R. B. (2015). Production and operations management. PHI Learning Pvt. Ltd..
Munyao, R. M., Omulo, V. O., Mwithiga, M. W., & Chepkulei, B. (2015). Role of inventory
management practices on performance of production department: A case of
manufacturing firms. International Journal of Economics, Commerce and
Management, 3(5), 1625-1656.
Newcomer, K. E., Hatry, H. P., & Wholey, J. S. (2015). Cost-effectiveness and cost-benefit
analysis. Handbook of practical program evaluation, 636.
Sajid, Z., Khan, F., & Zhang, Y. (2016). Process simulation and life cycle analysis of
biodiesel production. Renewable Energy, 85, 945-952.
Soesanti, I., & Syahputra, R. (2016). Batik Production Process Optimization Using Particle
Swarm Optimization Method. Journal of Theoretical and Applied Information
Technology, 86(2), 272.
Subramaniam, C., & Watson, M. W. (2016). Additional evidence on the sticky behavior of
costs. In Advances in Management Accounting (pp. 275-305). Emerald Group
Publishing Limited.