Management Accounting Requirement

RUNNING HEAD: MANAGEMENT ACCOUNTING
Management Accounting

Management accounting 2
Requirement 1
Cost is basically a measurement of the resources used for producing goods and services.
However the classification of cost is done on several basis. They are as follows:
 On basis of variability
Under this basis, the cost is classified as fixed, variable and semi variable. Fixed cost is the
one which remains fixed at all the levels, variable ones changes with the change in quantity
produced and semi variable includes the components of both the fixed and variable cost
(Rajasekaran, 2010).
 On basis of function
In this, cost is classified as production costs, administrative cost, selling and distribution cost.
It represents the cost incurred by each department of the organizations during the process of
production.
 On the basis of nature
The direct and indirect cost comes under this category. Direct cost are the one which are
easily traceable to a product. Whereas the indirect ones cannot be allocated to a product
directly (Vanderbeck, 2012).
 On the basis of time period
Under this criteria, costs are categorized as standard cost, pre-determined cost, historical cost
and estimated cost. These cost are incurred according to the time horizons (Boyd, 2013).
Value of classification for TFC

Management accounting 3
Certain value or benefits will be enjoyed by the Tea Factory Company, if it classifies all the
cost that are incurred on production of the new tea products, on the basis of above criteria.
They are as follows:
 The classification will help the company to prepare its budgets easily and also for
each and every department. It will enable TFC to know about the exact amount of cost
incurred in different department of the company.
 TFC can easily measure the efficiency of its business. By critically observing the
amount and place where the cost has incurred, Tomohiro Hasegawa can measure the
efficiency of the firm.
 Cost control can be established with the help of cost classification. Labour cost can be
control by measuring the efficiency of the labours, material cost can be minimized by
controlling the material wastage and the overhead cost is controlled by knowing the
accurate amount of expenses incurred in every department.
 TFC can also expand its operations, if the company knows exactly where its cost is
incurred. By classifying the cost of its new production, TFC can expand its business
and production by controlling the cost (Batini & Scannapieco, 2016).
However, such classification can also help in improving the decision process of a company.
By properly categorizing the costs, Tomohiro can improve its decision making related to
some important aspects of the company. Cost classification enhances the process of decision
making in the following ways:
 The classification of cost into fixed and variable will help the CEO of TFC to take
appropriate decisions like buying or making a product, selecting a perfect product
mix, keeping the standard capacity and many more.