What is managerial accounting?

Running head: MANAGERIAL ACCOUNTING
Managerial Accounting
Name of the Student:
Name of the University:
Author’s Note:

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Executive Summary
The analysis considers two different journal articles which would be analysed
and would be shown for two different companies following different cost accounting
practices. The assessment also shows the importance of standard as well as target
costing needs to be effectively used for enhancing the productivity and reduce the
risks which is associated with a business. The analysis shows features and
relevance of the two different methods and which method is more effective is also
shown in the analysis. In addition to this, the analysis also includes a comparative
study for selection of the most appropriate method of costing depending on the
business situations. The analysis of the two journal articles would be the main
analysis for the assessment.
Table of Contents

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Introduction...................................................................................................................3
Discussion....................................................................................................................3
Features of Standard Costing System......................................................................3
Relevance of Standard Costing................................................................................4
Features of Target Costing.......................................................................................5
Relevance of Target Costing....................................................................................6
Comparison between Standard and Target Costing................................................6
Conclusion and Recommendation...............................................................................7
Reference.....................................................................................................................8

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Introduction
The analysis which is presented in the assessment would be showing
relevance of an appropriate costing system in a business so that the users are able
to understand the cost structure for the business and also understand how the
management of the company has allocated the costs. The specific practices which
would be considered in the report involve standard costing and Target costing which
are both quite useful for the purpose of making analysis. The assessment would also
be focusing on the relevance which is associated with the techniques and how the
same can bring about improvements in the overall cost structure of a business.
Further, for better explanation and analysis two separate journal articles are
considered which would be showing application of the two costing techniques in
businesses. The analysis would also be showing comparison between two different
methods of costing and how applicable are the same in a business environment
(Badem, Ergin and Drury 2013). The discussion would be showing detailed analysis
for the techniques and provide effectiveness in the reporting framework of the
business.
Discussion
Features of Standard Costing System
The first thing to be noted is that standard costing is one of the effective tools
which is used by the management of a company for the purpose of effectively
controlling costs and maintaining supervision over the operations of the business.
Standard costs appropriately show the variances which takes place in the figures of
actual performance and budgeted estimates. The different costs for a business
comprise of fixed and variable costs and the same involves costs which are of
different nature.
The application of standard costing technique is considered to be appropriate
in case of a management of a company. It is also to be noted that standard costing
helps in taking appropriate decisions for the business. The variances which arise
between the budgeted figures and actual figure appropriate. In case the variances
which arises are unfavourable and does not meet the anticipation of the business,
then the same needs to be investigated so that the main reason for which the
variance arise can be identified (Vogl 2013). Some of the features which can be
identified in relation to standard costing technique are listed below in details:
 Standard costing techniques require the management of the company to
consider a standard costs or budgeted outcome which is most desirable from
the perspective of the management and on the basis of the same actual
performance of the business is identified.
 Standard costing techniques appropriately shows the efficiency level of the
management in terms of meeting the targets which are set by the senior
management.
 One of the key features of standard costing technique is variances. Variances
are basically differences which arise when the actual performance is not
consistent with the budgeted performance. The variances are lagging factors
which need to be investigated by the senior management so that appropriate
steps can be taken for making improving in the costs structure of the
business.
 Due to the computation of key variances for the business, the technique is
very useful for taking constructive decisions for making improvement in the

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operations of the business (Ruiz‐de‐Arbulo‐Lopez, Fortuny‐Santos and
Cuatrecasas‐Arbós 2013). The costs managers are also bale to properly
supervise the costs in terms of different predetermined costs units for the
business. Therefore, it can be said that standard costing is one of the most
effective tools for exercising control over the costs of the business.
Relevance of Standard Costing
The relevance of standard costing system is eminent as the same has an
important role in decision making process and improvement in the costs structure of
the business. Furthermore, policies are devised by senior managers on the basis of
the results which is obtained from standard costing for areas where costs can be
reduced so that the business achieves costs leadership status in the business.
Standard costing as a process is used by different companies for the purpose of
controlling the costs of the business and also for adhering to the cost structure
improvements which is required for the business.
In order to effectively portray the importance of standard costing example of a
real life company is taken into consideration so that empirical data is available
regarding the overall success of the standard costing techniques. The standard
costing technique allows the business to take important decisions for the
management of the company. The journal article which is considered for the purpose
of standard costing shows the case of Chillout Corporation, a company that sells
frozen food orders. The costing technique which was followed by the business is
shown to be normal costing technique (Abdullahj et a;. 2015). The company used
normal costing technique to appropriate allocates the costs and also compute the
profits which is related to the business. Due to some problems in the allocation of
costs, the management of Chillout Corporation is looking to change its costing
system to standard costing so that the costing structure of the business can be
improved. The view point of the senior officials of the business was that standard
costing system would allow senior officials to identify any variances from budgets
and thereby make necessary adjustments in the costing structure. In addition to this,
the senior officials of Chillout Corporation are trying to align the goals of the
employees with the goals which are set for the company so that both can be
achieved.
The case study also shows that Chillout Corporation also faces normal losses
and abnormal losses which can be presented better with the help of standard
costing. The costs of abnormal spoilage considering the process of standard costing
system are written off as a loss of the accounting period. Therefore, it can be said
that the system of standard costing also has a relevance in managing abnormal and
normal losses which is related to the wholesale products of the business. In order to
appropriately implement standard costing techniques for the purpose of reporting
implemented a high-end software package two years earlier. In addition to this, the
business also appointed full time junior cost accountant so that the process can be
successfully implemented in the business (Tabitha and Oluyinka 2016). The purpose
for implementing standard costing system was to make improvements in the
operational process of the business. The case shows that the objective of the
business was to implement standard costing system for reducing the costs of
operations for the business and therefore appropriate steps was taken in this regard
so that the program can become a success. One of the policies which were
implemented by the management was incentive plan for saving costs and improving

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performance. This encouraged the employees to engage in activities which would
save costs for the business and therefore would also help the senior management to
be consistent with their budgetary targets (Ahmad and Leftesi 2014). The policy
became quite successful as the incentives were linked with the positive results which
the employees achieved and therefore this strategy helped in improving the cost
structure of Chillout Corporation. Therefore, it can be said properly that the
introduction of standard costing techniques in the business of Chillout Corporation
was a success and the same is evident from the case study which is considered.
The journal effectively portrays that standard costing can bring about changes
in the lookout for a business but proper plans needs to be implemented so that
necessary changes can be brought about in the operations It all depends on the
implementation of the process in a business and proper strategies should also be
implemented so that the operations of the business are well supported. The role of
the senior officials is very important in the overall success of the technique (Cinquini
etal. 2018). Further, the technique is also known to bring about success in terms of
maintaining the costs of operations and also for maintaining a certain level of
profitability in the business.
Features of Target Costing
The technique of target costing is used by senior officials for the purpose of
estimating the total costs and thereby also set the process which is to be charged for
the products. Target costing is one of the tools which is available to the senior
management to consider the aspects of profit more seriously and appropriate plan
for the same so that costs can be reduced and effectively be calculated. As per
different studies which have been conducted, results shows that target costing has
been supported and implemented by companies when the market conditions were
really tough and appropriate costing practices was required for making the overall
cost structure more effective. The features which are identified for target costing
technique are listed below in details:
 The technique of target costing is a firstly a management accounting
technique and the same is used for reduction of costs and better management
of overall cost structure for the business.
 The technique of target costing takes into consideration, the market trends,
consumer satisfaction criteria and overall profits which the business can
generated considering the current level of outputs.
 In case of target costing, the selling prices of the product are often fixed
considering the forecasting criteria which are used by the senior
management, and appropriately set a relationship between selling price and
the volume of the goods which is being offered.
 The target costing technique is divided into various parts for which each parts
is studied in a proper manner so that the prices can be set and appropriate
policies can be formulated. In order to keep an extensive cost records, a
separate team is set for managing the costs and also for updating the records
which is maintained by the business.
Therefore, it can be said that the technique of target costing is also appropriate
and is very for setting the prices and desired level of profitability which is to be
maintained by the business.

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Relevance of Target Costing
The implementation of target costing techniques in a business is significantly
simple but the same is quite useful for a business to make improvements in the
operations of the business. It can be said that target costing would require efforts
from the senior manager and operational management so that the costs of the
business is appropriately monitored and therefore improvement is brought about in
the overall costs structure of the business (Cheng, Green and Ko 2015). A journal
article is also selected for the business so that proper analysis can be collected in
terms of information and the same can justified the points of the research.
The company which is considered for the purpose of analysis of target costing
system is NHS Working Group which provides appropriate solutions so that
necessary improvements can be brought about in the operations of the business.
The senior officials of NHS group want to radically improve the operational delivery
of patient care. This is intended to improve the overall costing structure of the
business and thereby enhance the level of profits which is generated by the
business. The paper shows that the concept of target costing was first introduced on
a Japanese company in the 1970s as a response to the challenges posed by
consumer, demand for more diversity and shorter product life cycles. This technique
allow the business to appropriate maintain the costs and thereby also revive the level
of sales for the company (Childers and Maggard-Gibbons 2018). The journal article
further specifies that the basic steps which needs to be followed by a business for
implementing target costing practices involves significant emphasis on market price,
volume and profit so that a target price can be set for the products which is being
offered. In the case of NHS Group, the senior officials would like to target certain
group of persons and would also look for maintaining the unproductive costs of the
entity. Therefore, it can be said that Target costing is an appropriate tool for maintain
the cost position of the business and also reduce the underlying costs associated
with the business. Further, it is to be noted that target costing system also provides
proper records for costs and therefore the same can be covered in the management
report formulated for the purpose of taking decisions from the same.
Therefore, it can be said that target costing is also has significant importance
in a business and especially NHS group which the above analysis properly
demonstrates. One of the key advantages of the system is that it gives assistance to
the management to plan the costs and also set the prices which is to be charged for
the products which is being offered. The decision to choose the method of costing
depends on the nature of operations of the business which is also a matter of
concern.
Comparison between Standard and Target Costing
Costing is a technique for appropriately showing the costs associated with a
business and also helps in formulating a price level which is to be charged. The main
purpose of target costing is to properly check the cost of the product which is being
produced by the business and to take proactive decisions of cost planning, reduction
of costs and maintenance of costs. The case of NHS group which is shown above
reveals the same line of information for the companies and it is also revealed that the
technique is more of a management accounting tool which can be used for internal
decision making process (Balea and Dinica 2013). One other key features of target
costing technique is that the prices which is set for the product depends on the
external conditions such as trend of demand, substitutes and other forces.. This

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makes the process entirely dependent on the results of external market and
therefore the same makes the technique ineffective in certain circumstances. In
addition to this, one other aspect which is related to Target costing is that a
specialized team needs to be set up so that the costs structure of the business can
be managed properly. This makes the managing process for target costing much
more difficult.
On the other hand, standard costing is much more effective and depends on the
actual performance which is achieved by the business and adherence is provided to
the budgets which was initially set. The standard costing technique is applied on
different types of costs such as materials, labour and overhead costs and can
appropriately measure all such types. The standard costing techniques shows a
realistic approach in presentation of costs whereas target costing shows the costs
estimates which the business can achieve in future which may or may not be the
case considering the market forces. The case of Chillout Corporation which is
considered in the case shows that standard costing also has a role which indirectly
also bring about efficiency and effectiveness in the operations of the business.
Further, the journal shows that the management of Chillout Corporation has
appropriately used standard costing to save costs as well motivate the employees of
the business so that the overall productivity of the business can be improved. Target
cost is the new method of costing to control cost developed by Japanese while the
standard costing is not so old. Therefore, both the costing method has their own
advantages and is applied to the various time of product cycle. Therefore, it can be
said that the election of appropriate costing system depends on the nature of
operations and the same also depends which method would best suit the needs of
the clients.
Conclusion and Recommendation
The above analysis for the two costing methods is appropriately portrayed
along with its respective features The features are appropriately shown in point form
covering essential points before implementing the system in a business. Further,
there was a requirement that two journal articles needs to be selected which had two
real life companies on which the analysis would be based on. The articles
considered includes the business of Chillout Corporations and NHS which was
respectively implemented standard costing technique and target costing respectively.
On the basis of the analysis for the two companies, it can be said that standard
costing technique is more important and useful from a business perspective as the
same also implement subsidiary benefits for the period. As shown in the case of
Chillout Corporations, the senior management can use the standard costing
technique to implement incentives scheme which would be encouraging the
employees to perform while at the same manage the costs of the business. This
shows that standard costing is one of the most effective tool involved in the process
of costing. Further, the analysis which is presented above also reveals a
comparative study between target costing and standard costing for better
understanding which technique is better and how the same can bring about a
change in the operations of a business.
Reference
Abdullahj, S.R., Oni, I., Ahmeb, M.D. and Shakur, F.I., 2015. Effects Of Standard
Costing On The Profitability Of Telecommunication Companies (Study Of MTN

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Nigeria). Arabian Journal of Business and Management Review (Oman
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Balea, E. C., and Dinica, M. C. 2013. Target costing and risk
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