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Tools of Management Accounting - Doc

   

Added on  2021-06-15

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Management Accounting 1

ContentsIntroduction......................................................................................................................................3(a): Activity based costing...............................................................................................................4(b): Activity based costing in respect to the company’s goals and objectives................................6(c): Recommendations.....................................................................................................................8(d): Apart from ABC tool, another managerial accounting tool suggested to the company...........9Conclusion.....................................................................................................................................11References......................................................................................................................................122

IntroductionActivity-based costing a tool of management accounting best suited for manufacturingcompanies. The main objective of this report is to showcase the working of Activity basedcosting by showing its significance on the costing system of the companies (Askarany, Yazdifar,& Askary, 2010). In the next part of the report Introduction to the company’s objectives missionand strategies is provided. The collaborative work of the ABC technique with the strategies ofthe company, Syrah Resource Limited is disused. The recommendation in respect to the use ofABC technique is also given to Syrah. In the last part of the report, an alternative method ofmanagerial accosting apart from ABC model is suggested to Syrah for better working. 3

(a): Activity based costingTo make a product multiple activities are needed which could be a diverse spectrum. Frombuying raw materials, assembling, packaging, dispatching etc. Each activity has a cost driverwhich are the main factors influencing the costs like in buying the main cost could be on findingthe right price vendor in different seasons or new business locations (Berthelot, et. al., 2017).This cost driver is the highlight feature of activity based costing as trends can be calculated bestand appropriate modifications made. All the activities from making a product to selling it andthe intermediate ones like innovation related need to be found and demarcated and costrelated to each found out for improvisation which is what activity based costing is. To find anaccurate estimation of funds needed by a product or service the fixed cost and the variablecosts are calculated separately. Fixed costs are the ones which don’t change with the level ofproduction. These include fixed salary, rent and the likes while the variable ones change withrate of production. Like maintenance cost of the machinery or cost of keeping the productquality same even when production goes many times over. In a refined fashion, this modelcalculates the extent of resources consumed and overhead costs as various value-addingactivities are added. Once the cost driver is found the managers know what dictates the costpattern and once the pattern is understood it can be broken or tweaked as per changingbusiness environment (Yang & Chen, 2016).The functional areas of production, sales or distribution each have several activities andresources. Tracking the cost of resources to activities and then from activities to a specificproduct is the key mapping skill. Every cost has a behaviour which also needs to be understoodto make improvisations. Cost behaviour is a volume related parameter (Tsai, Chang & Lin,2013). Like manufacturing, cost per unit may reduce 10000 pieces and post that start increasingas per machine capacity. Once the behaviour is understood the managers can make an exact strategy to increase profits,quality, efficiency, innovation and reduce the time and any other undue conflicts. This method4

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