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Management Accounting Techniques

   

Added on  2020-06-04

6 Pages769 Words98 Views
MANAGEMENT ACCOUNTING

Table of ContentsP3 Apply a range of management accounting techniques...........................................................1REFERENCES................................................................................................................................4Index of TablesTable 1 Calculation of unit cost.......................................................................................................1Table 2 Cost measurement using absorption method......................................................................1Table 3 Cost measurement using marginal costing method............................................................2Table 4 Reconciliation statement.....................................................................................................3

P3 Apply a range of management accounting techniquesCost calculation is an important facet of the business, which aims at correct costmeasurement. Companies incur different kind of costs in their daily operations like materialpurchase, payment of wages to laborers and overheads. It is important for the organization tomake cost-cutting strategies to drive efficiency and maximize profitability. Cost is an importantelement of pricing decisions, therefore, by putting tight control over it, firms will be able to setup economical charges for the people and generate increased revenue (Aleem, Khan and Hamad,2016). There are two most popular techniques of cost measurement, absorption and marginalcosting detailed below: Absorption costing: This technique of cost measurement uses both fixed and variable costof production to determine cost per unit. Thus, it assigns all the manufacturing expenses to theproduct, therefore also called full costing and thereafter, set prices to recover total product cost(Narasimhan, 2017). However, other expenses which are not related to production, non-manufacturing expense are subtracted from gross return to determine net profit performance. Marginal costing: It is a variable costing method, which only assigns variable cost ofproduction to each unit and exclude all the fixed cost. It is because, establishment need to payfixed charges even if they do not produce a single unit of the product. However, variableexpenses have a direct relation with the production volume (Medudula, Sagar and Gandhi, 2016).The method determines contribution as an excess/surplus of sales revenue over sum of variableexpenditures. Table 1 Calculation of unit costList of items Marginal/variableAbsorption/fullCost of material used 88Wages to labor 66Variable production expense 33Fixed production expense 3Cost/unit 1720Table 2 Cost measurement using absorption methodDetails CalculationNet result(£)1 | Page

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