Modern Cost Management Accounting
5 Pages1179 Words29 Views
Added on 2021-06-16
Modern Cost Management Accounting
Added on 2021-06-16
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Solution-1Part-BRoman Coliseum is an oval amphitheater situated in the center of the city of Rome, Italy. It was built inAD 80. However, due to subsequent fires and other damages, the structure needs a recreation. Themodern cost management accounting is far advanced than the traditional costing system. For recreationof Roman Coliseum, the modern cost management accounting can be applied, to estimate the cost to beused for recreation and application of those costs to the Coliseum. The management cost accountinghelps in correct allocation of costs to the products and hence, the correct cost of the structure can becomputed. With the help of correct cost, the subsequent prices for events going to be happened in therecreated Roman Coliseum can be set. The correct pricing helps in building the good image of coliseumamongst the romans and other people. Thus it will help in providing best services to the visitors incontrolled costs. Further, it will also help the people managing the coliseum in making various costbenefit analysis, and various aspects related to cost and price. It will give the clear picture of revenuesearned and cost incurred for the Roman Coliseum.
Solution-4Part-BReportTo Senior Management,Regarding - Evaluating the Variances AnalysisVariance analysis is the quantitative investigation of the differences between the actual overheadsincurred and budgeted overheads. It is the most popular and important tool of management accounting,to control and manage the budgeted and costs of the business. It helps in identifying the majordeviations between budgets and actuals and the reason for such deviations. It also establishes theresponsibility of the departments managing the costs. Such as for material variance, the buyingdepartment is responsible and so on. The variance analysis is computed overhead wise, for example,material overhead variance, labor overhead variance, manufacturing overhead variance and so on. Thevariance analysis is the comparison of budget versus actual. For example, let’s say the budgeted saleswas 1000 units at $5 per unit, but in actual the company sold 800 units at $4. This represents a varianceof $1800 unfavorable i.e. (1000*5-800*4) and the reasons for such unfavorable variance is fall inquantity sold and fall in selling price per unit. So, the variance analysis gives a bird’s eye view of thecosts and the difference between budgeted and actual costs with their potential reasons ("The Role ofVariance Analysis in Businesses", 2018).The variance analysis is useful in almost every area of an organization, be it buying, or selling. Becauseevery department has its cost which needs to be compared with actuals. These comparisons areprepared for the management so that the management can easily evaluate the differences arisingbetween the budgets they approved and actuals that they have incurred. So, this is the most importantmanagement tool for analyzing the costs and is useful for almost every department of the organization.The common cost derived by variances are (Bragg, 2018):(a)Purchase price variance – Variance for the actual price paid for procuring the materials and thebudgeted price.(b)Purchase quantity variance – variance for the actual quantity used and budgeted quantity.(c)Labor rate variance – For the amount paid to labors as compared with the budgets.(d)Variable overhead spending variance – actual variable overhead cost incurred as compared tothe budgeted overhead cost(e)Selling price variance – the actual price for goods sold as compared to budgeted selling price perunit(f)Labor efficiency variance – the actual hours taken by labor to manufacture the products ascompared to the budgeted hours.(g)Variable overhead efficiency variance – the actual units or hours consumed for manufacturing ascompared to the budgeted units or hours.Thus, from the above variances we can see that the variance calculation is involved in almost every stepand department of the organizations and in practical as well it is the most important tool as without thevariance analysis, the management would not be able to understand the difference in cost and
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