Report On Nature & Role Of Management Accounting

Added on -2020-02-14

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Management Accounting
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1TASK 1............................................................................................................................................11.1 Classification of cost..............................................................................................................11.2 Calculation of unit cost and total job cost for job 444...........................................................21.3 Computation of cost of exquisite by making use of absorption costing technique...............31.4 Analysis of cost data of exquisite using appropriate techniques...........................................5TASK 2............................................................................................................................................62.1 Analysis of cost report by completing the table and commenting on variance.....................62.2 Various performance indicators used to identify areas for potential improvements.............72.3 Different ways to reduce costs, enhance value and quality...................................................7TASK 3............................................................................................................................................83.1 Purpose and nature of budgeting process to the budget holders............................................83.2 Selection of appropriate budgeting methods in accordance with the needs of organization.93.3 Preparation of production and material purchase budget......................................................93.4 Preparation of cash budget...................................................................................................11Task 4.............................................................................................................................................124.1 Computation of variances along with the identification of possible causes andrecommendation for corrective actions.....................................................................................124.2 Operating statements includes both budgeted and actual results.........................................154.3 Management report in accordance with the identified responsibility centres.....................15Conclusion.....................................................................................................................................16References......................................................................................................................................17
INTRODUCTIONManagement accounting is the process of preparing management reports and accountsthat provides timely and accurate information (financial and statistical) which is required by themanager to make short term or day to day decisions. Management accounting generatesperiodical reports for company's internal audiences such as top level managers and middle levelmanagers. Management reports show the amount of sale revenue generated, available cash, trendcharts, variance analysis and other statistics (Kont, 2013).Organizations operate in a very dynamic and in a competitive environment. So effectivedecision making is important for the organizational success and survival. Therefore reportsprovided by the management accountant to the managers will help them in making timely andappropriate decisions. The present report emphasizes on nature and role of managementaccountant, users of the management reports, difference between financial accounting andmanagement accounting and purpose of the costing techniques.TASK 11.1 Classification of costCost classification is the process of grouping costs according to their nature and commoncharacteristics. These classification makes the information related to costs meaningful. Costclassification is the first step towards decision making process relating to costs (Vanderbeck,2012). Following are the important ways to classify costs:1.Classification of the costs on the basis of its element – On the basis of the element, costscan be classified into material, labour and overhead.Direct Material – Direct material includes raw materials which are used tomanufacture finished product and it becomes integral part of the product which canbe allocated directly to a specific unit.Direct Labour – Direct labor means cost incurred in relation to those employees whoare engaged in the manufacturing process (Zawawiand Hoque, 2010). These costs canbe easily traced to a specific unit.Overhead – Overhead includes cost of indirect material, indirect labour and otherexpenses which cannot be allocated to a specific unit. 1
2.Classification of the costs on the basis of its function – On the basis of function, costs canbe classified into production costs, administration costs, selling costs and distributioncosts.Production costs – These costs are incurred in the course of manufacturing finishedgoods. It includes cost of raw material, labour and other indirect factory costs. Forexample – power, rent, depreciation etc (Lucey, 2002). Administration costs – These costs includes general administration costs incurred bythe organization for its smooth functioning such as audit fee, printing and stationary,Rent of office building etc.Selling costs – It includes all those costs which are incurred in relation to selling ofgoods and services such as salesmen salary, packing charges, advertisement,warehousing charges etc.Distribution costs – It includes costs incurred at the time of dispatching finishedgoods to consumer such as agent's commission, carriage outward etc. 3.Classification of the costs on the basis of its nature - On the basis of nature, costs can beclassified into direct costs and indirect costs.Direct costs – All those costs which are directly attributable to a specific unit arecalled direct costs.Indirect costs – All those costs which cannot be identified with a specific unit orindividual cost center are called as indirect costs (Fullerton, Kennedy and Widener,2013). 4.Classification of the costs on the basis of its behavior - On the basis of behavior, costscan be classified into fixed costs, variable costs and semi variable costs.Fixed costs – These costs remain fixed irrespective of change in volume of finishedproduct. For example – rent, depreciation, salary etc (Kaplan and Atkinson, 2015).Variable costs – These costs change in the direct proportion to the volume of outputsuch as raw material, labour.Semi variable costs – These costs remain fixed up to a certain level of output and varyif output crosses that certain limit. For example – telephone bills (Hansen, MowenandGuan, 2007). 2

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