Costing Methods and Business Loss

This assignment delves into the complexities of cost accounting, examining how absorption and marginal costing methods influence business profitability and potentially lead to losses. It emphasizes the importance of understanding standard costs and their role in aligning financial strategies with an entity's objectives. The analysis draws upon various academic sources to provide a comprehensive understanding of these concepts.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................................3
TASK 1..........................................................................................................................................................3
P1 Explain management accounting and states various kinds of management accounting systems......3
P2 Explain the different methods used for management accounting reporting......................................3
M1 Evaluate the benefits of various management accounting systems..................................................5
D1 critically evaluate how management accounting systems and management accounting report used
in an organization....................................................................................................................................6
TASK 2..........................................................................................................................................................7
P3 Calculate costs per unit order under absorption and marginal costing..............................................7
M2 Prepare income statement under marginal costing..........................................................................7
TASK 3..........................................................................................................................................................9
P4 Explain advantages and disadvantages of different types of budgetary control................................9
A) Compute standard costs of PVC sheet and also determine difference between actual and standard
costs.......................................................................................................................................................10
B) Compute materials price and quantity variance................................................................................10
M3 Analyze the use of different planning tools for forecasting budgets...............................................11
D3 Evaluate how planning tools helps in solving problems of Dell........................................................11
TASK 4........................................................................................................................................................12
P5 Comparison of Dell with another organization.................................................................................12
M4 Analyze how management of Dell will respond to financial problems in achieving sustainable
success...................................................................................................................................................12
CONCLUSION.............................................................................................................................................13
REFERENCES..............................................................................................................................................14

INTRODUCTION
Role of management has increases with the increasing competition in the market in which
business will analyses its performance in order to gain benefit. Dell will be selected for the given
project report who intends to use the expertise of management in improving their profitability by
10%. This report is about explaining different tools of management accounting and standard
costing techniques.
TASK 1
P1 Explain management accounting and states various kinds of management accounting systems
Management accounting us that steam which enhances the role of management in
handling complex files and various business transactions in the business. Management
accountant are appointed in the business to control the performance of the firm in order to
allocate tasks and duties (Otley and Emmanuel, 2013). It is that specialized service which
enhances the skills and the capabilities of an individual. The control needs to be imposed by an
entity in improving the existing performance of the business in relation to its external market.
The major concern of the management is to reduce its costs by optimally utilizing the existing
resources in the business. There are various ways of management accounting systems helps in
enhancing the overall value of the business which is given as below:
Budgeting- It is common technique used by an entity in order to analyze their performance that
increases the functional requirement of an entity. The current resources are analyzed in order to
predict its performance in the near future. The budgets are prepared in different aspects such as
master budget, expenses and sales budget.
Forecasting- Trend line is that technique commonly used by an enterprise in analyzing the
existing resources in order to predict their future sales. These statistical measures like trend
analysis that analyses which improves the existing business performance of an enterprise.
P2 Explain the different methods used for management accounting reporting
Job costing- This technique is regarded as one of the important aspects of the
management accounting in determining the cost of the products (Renz, 2016). The current

method will be useful for an entity in tracking costs incurred by the business which will be
compared in relation to the sales and the revenue earned by an entity in a particular year. The
major motive of this technique is that standards are prepared in order to enhance the existing
profitability of the business. The transactions are arranged in different jobs to attain all goals and
the objectives in order to gain competitive advantage over its variety of competitors. The
tracking will be easy for the firm as this would help in getting attention of all the customers when
the business will categorize its expenses according to its need in order to earn higher profit by
reducing its existing expenses.
Process costing- This accounting technique is widely used in assessing the existing costing
patterns of all the products currently offered by the company given in the current situation that is
Dell. This costing technique will consider a particular process in which various expenses are
allocates into two different forms such as direct or indirect costs of the total batch of the products
offered to its variety of the customers. In this particular process costs are divided to each and
every singular item. The overall cost of products will get easily find out by determining singular
costs of every item included in the business. In the given case scenario, Dell has uses manual and
electronic process in which sub parts of making computer internally in the same organization tll
the last step of the whole process. Logistic process of passing the finished output from one end
towards the door step of the customers who directly purchases the finished product in form of
Dell computers or laptop. In the end process, the amount of inventory used will be ascertained at
the end of the process of the business enterprise. Total costs incurred by an entity will be
ascertained by determining per unit cost of the product currently in which an entity deals in.
Batch costing- It is that important costing technique which is slightly related with the job
costing in which the selling price of the products are separately calculated for the sake of the
owner (Kaplan and Atkinson, 2015). The sub parts of computers and laptop such as CPU, SMPS,
fan, chip set are all the internal accessories to be used to finish the final output of making of the
whole product like computer and laptop in order to facilitate its variety of customers. Batch
prepared by an entity are like clusters which will includes identical units of all the same products
whose cost per unit are calculated by dividing the total production cost of batch with the number
of units included in the overall batch of that particular products. This method is ideally used in

the industry of engineering component industry and other kind of manufacturing industries
which will be helpful for an entity in order to achieve their desired goals and the objectives.
M1 Evaluate the benefits of various management accounting systems
Cost management- Primary concern of the top management is to determine the cost of an entity
as t is essential in order to earn higher amount of profit. Profit is the basic motive of conducting
the business operations as every owner aspire to accomplish their desired aims and targets by
earning higher profit (Renz, 2016). Cost principles will be followed by an organization which
enhances the role of the business entity in order to achieve the desired goals and the objectives.
Cost will be ascertained by the firm to enhance their current skills by recognizing their strengths
and weaknesses.
Expenses reduction- The daily routine expenses incurred in the business will be reduce by using
working capital which is the basic difference between current assets and the current liabilities.
Management imposes several controls in order to regulate the expenses in the firm to in order to
reduce all the operational expenses. Expenses are firstly sanctioned by the higher authority in
order to pass only important expenses by prioritizing all the expenses into two categories that is
important and less important expenses.
Increases cash flow- The management accountant appointed by an entity with a major motive to
enhance their existing cash flows (Chiarini and Vagnoni, 2015). Internal capabilities are boosted
in order to expand their business by reducing all of their expenses which are cash outflows. This
is regarded as corporate strategy for an entity needs to be executed in order to give perfect
direction towards the reduction of the future expenditures which in turn enhances the overall
cash flows in the existing business entity. The increase in the cash flows will totally depends on
the nature of the business as cash flows are directly affected with the size and the nature of the
business currently chosen by an entity in order to operate their business in order to earn higher
amount of profit for the business.
Making decisions- The information collected by the accountants will help in making important
business decisions as all the information are related to the top management and their overall
business entity. The analysis will be conducted in two different manners such as both qualitative

and quantitative analysis. This will be helpful for an enterprise as this is regarded as one of the
important decision making tool who will forecast the sales and the revenue earned by an entity.
Financial returns- ratio analysis is that important technique financial statement of the business
will be assessed in various segments (DRURY, 2013). This is also regarded as of the
comparative performance tool which analyses the present financial resources in order to compare
the past and present performance in order to determine the gap. This gap will be determines in
order to take corrective action in improving the business. Financial consistency will be
maintained by assessing the financial statement of an entity in different factors such as liquidity,
profitability and financial ratios in getting higher business returns. This is essential to analyses
the existing resources applied in the business which directly impacts on the prices developed by
the customers in order to please it variety of buyers.
D1 critically evaluate how management accounting systems and management accounting report
used in an organization
Management accounting is that function which helps in improving the quality of all the
business practices currently uses by an entity which increases the capabilities of the current firm.
The corporation will develop their services and products in order to satisfy the entire customer
that is enough in order to improve the performance of the business enterprise (Yigitbasioglu,
2017). The quality of the business will be improved when an entity will emphasize on various
goals and the objectives framed by the firm for the sake of the business which is given below:
Business goals- The technique of the management accounting will be effectively used by an
individual which help in developing various business goals by the owner. Goals can be divided
into three different categories such as short term, medium and log term which directs an entity in
accomplishing the desired business goals. This will help in entity in avoiding overtrading in
which owner over excited in order achieve all the objectives in limited time which will results
into higher trouble and consequences imposed on the business enterprise.
Competition-An entity will be able to eliminate its existing competition in the same market
among common rival members by determining its own strengths and weaknesses as it is
important in grabbing higher market opportunities.

TASK 2
P3 Calculate costs per unit order under absorption and marginal costing
Computation of unit production cost
Particulars Absorption costing Marginal costing
Direct materials 20 20
Direct labor 8 8
Variable manufacturing
overhead
4 4
Fixed manufacturing overhead 10 (500000 / 50000) -
Per unit cost 42 32
Absorption costing- This is one of the significant costing as well as pricing technique that is
also recognizes as complete costing. This technique will emphasizes on considering two of the
major costs that is fixed and variable cost incurred in the business. An individual will develops
pricing based on this technique will be highly reliable in order to cater the higher expectations of
all the customers.
Marginal costing- Variable costing is another name of this technique which will considers only
variable costing taken into consideration while developing its price of the products. Fixed costs
are ignored while developing the prices of the products.
It can be assessed from the above calculated cost per unit is that, cost of each product
item is worth of 42 GBP in accordance to absorption costing method. When looking at the
marginal costing tool then it is worth of 32 GBP which is lower as compared to previous method.
The reason behind this is that, both the ways considered different kind of costs due to which
level of expenses also differ. Under the absorption all the costs incurred in workplace are taken
into consideration. On the another side, marginal costing consists with only variable kind of
expenditure associated with the Dell business enterprise. Due to this particular condition only, in
the absorption method net loss incurred and under the marginal Dell able to generate net profit at
the end of financial year.

M2 Prepare income statement under marginal costing
Income statements using absorption costing method:
Sales 2700000
Less variable cost
Opening inventory 0
Production 1600000
Closing inventory 320000
Variable selling 240000
Contribution 540000
Less Fixed cost
Fixed manufacturing 500000
Fixed Admin and selling 600000
Loss -560000
Particulars Marginal costing
Direct materials 20
Direct labor 8
Variable manufacturing overhead 4
Fixed manufacturing overhead -
Per unit cost 32
Income statements using marginal costing method:
Sales 2700000
Less variable cost
Opening inventory 0
Production 1600000
Closing inventory 320000
Variable selling 240000

Contribution or net profit 540000
Working notes
Opening inventory 0
Production 1600000
Closing inventory 320000
Interpretations
Dell company has generated loss when the income statement has prepared by the
business according to the technique of marginal costing which is also recognizes as the variable
costing (SHAO, LIU and KONG, 2008). An entity has suffered with a loss of 56000 which is
due to the inclusion of only variable kind of expenses which will be affected with the amount of
sales achieved by the business concern. The variable cost is that costs which are simultaneously
run as per the single movement takes places in the sales units. The variable cost is determined on
cost per unit which will affect with the changes takes places in the sales units of the business. In
the current case, scenario, the amount of closing inventory and the production will be affected on
the basis of cost per unit. The production cost in the marginal costing is 32 and absorption
costing is 42 as this difference arises due to the exclusion of fixed manufacturing overhead from
the total production cost of the marginal costing technique.
TASK 3
P4 Explain advantages and disadvantages of different types of budgetary control
Important technique of management accounting is budgetary controls in which budgets
are prepared by an entity in order to place controls in improving the performance of the business.
The transactions in the business will be improved by analyzing its overall efficiency in order to
gain higher market exposures of the firm. Budgets of different categories are prepared which will
be helpful for an enterprise (Choi, Kulick and Mayer, 2009). The positive aspects of the
budgetary control are given as below that enhances the overall performance of the business
enterprise:

 It helps in creating coordination among all the departments of the business in order to
enhance their performance.
 Strategic plans are prepared by an entity which will be executed into action in order to
improve the quality of overall business.
 Revenues of the firm will get increases which enhances the role of the management in
developing all over business practices used by an individual.
 Communication among employees will be improved when all the employees are
conveyed important information related to the major aim of the business.
Disadvantages
 Using wrong standards in order to prepare budgets will deflate an entity’s major goals
and the objectives.
 Wrong perceptions framed by the business will reflected unfairness among the business
this would created higher complexities in the business.
 Budgets supplied by the top management will reduce the initiative among all the
employees of Dell which suppresses the innovation among existing set of personnel
working for the benefit of the business enterprise.
A) Compute standard costs of PVC sheet and also determine difference between actual and
standard costs
Standard cost of PVC sheet= 11000/2.5*3.60= 15840
Difference= Standard cost-Actual cost
= 37400-15840
=21560
B) Compute materials price and quantity variance
Material price= (Standard price-Actual price)*Actual quantity
= (3.60-3.40)*11000

= 0.2*11000= 2200 F
Material quantity variance
= (Standard Quantity- Actual Quantity) *Standard price
= (10000-11000)*3.60
= -1000*3.60
=-3600 Adverse
M3 Analyze the use of different planning tools for forecasting budgets
Another important feature of management accounting is forecasting of existing resources
which helps in improving existing performance of the business. In this technique existing
resources are used by an entity in order to generate higher amount of sales. These are different
ways in which forecasting of resources will be conducted which is given as below:
Sales volume analysis- It is that analysis in which variances will be determined by an individual
by calculating the changes (Lal, 2009). It is calculated by specifying the amount by taking
change in sales volume and changes in the amount of profit to be earned by an individual. The
efficiency of the skills and the capabilities of an entity will be determines by comparing actual
and the budgeted volume to be earned by the business enterprise as this would facilitate an entity
in achieving its desired goals and the objectives.
Material price variance- It is also regarded as one of the techniques of standard costing in
which standards are compared with the actual outcomes. In this approach, efficiency of the
business will be determines in which prices developed by the firm are compared with the
expectations of the business. The negative changes will be rectified by amending the existing
pricing structure in order to generate higher revenues by accomplishing objectives of the
business.
Sales contribution- This is the outcome generated after reducing the variable cost from the total
sales and the revenue earned by an entity in a particular year. The good amount of contribution is
important in order to make specific targets to handle the heavy pressure imposes on the firm in
form of fixed costs.

D3 Evaluate how planning tools helps in solving problems of Dell
Existing objective of Dell is to increase its profitability by 10% as this would help an
entity in order to get competitive advantage over its variety of customers (Marler, 2013). Tools
and technique of management accounting will be helpful for an entity in order to enhance their
overall business. Quality of business practices will be developing in order to enhance the skills
and the capabilities of the firm by satisfying the higher expectations of the business. There are
various ways of financial planning tools in achieving the desired aims and targets of the business
which is given as below:
The profitability of Dell will be achieved by using sales volume variance in which the
efficiency of sales volume will be improved by using this particular technique. This integrative
approach focuses on two streams in which sales are increases in order to earn higher amount of
profit. The expenses incurred in the business will be reduces to gain higher advantage over its
competitors as reducing cost an organization will be able to earn higher profits.
TASK 4
P5 Comparison of Dell with another organization
The comparison of dell will be done with HP which falls under the same industry who
also provides the same products (Joshi, Suwaidan and Kumar, 2011). The comparison will be
done on the financial terms that raw material cost incurred in Dell is higher as compared to the
raw materials purchased by HP. The variable administration cost incurred by Dell is less as
compared to its biggest competitor HP who spends lots of amount on the same in order to grab
the interest of wide number of customers. The nature of business has created larger impact on the
performance of the business.
M4 Analyze how management of Dell will respond to financial problems in achieving
sustainable success
Activity based costing- It is that kind of costing in which activities involved in the business
will be determine in order to assign specific costs to each and every activity. The overheads
are allocated which are compared to the conventional costing.

Balance scorecard- It is regarded as one of the performance metric system used by the
management in order to maintain its effectiveness of all the resources. The firm will
emphasize on different categories such as financial perspective, customers perspective, and
internal process perspective.
CONCLUSION
It can be concluded from the above assignment that Dell will increase their overall
profitability by using different management accounting techniques like sales Volume variance.
This report will emphasizes on determining the cost of the product using absorption and marginal
costing which results into loss generated by the business enterprise. Standard costs has used by
an entity in accomplishing their desired goals and the objectives.

REFERENCES
Books and Journals
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Springer.
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production system from a strategic management, management accounting, operations
management and performance measurement dimension. International Journal of Production
Research. 53(2). pp.590-606.
DRURY, C. M., 2013. Management and cost accounting. Springer.
Yigitbasioglu, O., 2017. Drivers of management accounting adaptability: The agility
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Executive Officer’s Payment and Corporate Performance [J]. Journal of Finance and
Economics. 1. p.010.
Choi, N. G., Kulick, D.B. and Mayer, J., 2009. Financial exploitation of elders: Analysis of risk
factors based on county adult protective services data. Journal of Elder Abuse & Neglect.
10(3-4). pp.39-62.
Lal, J., 2009. Cost Accounting 4E. Tata McGraw-Hill Education.

Marler, J. H., 2013. Off balance sheet lease financing in the restaurant industry. The Journal of
Hospitality Financial Management. 3(1).pp.15-28.
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Online
Sales Volume Variance, 2013. Available through: <
http://accountingexplained.com/managerial/standard-costing/sales-volume-variance> [Accessed
on 3 March 2017].