ACC512 - Management Accounting for Costs and Control Assessment 1

This document provides a comprehensive solution for ACC512 Management Accounting Assessment 1, addressing key concepts in cost accounting and control. The solution includes detailed answers to questions on managerial accounting reports, the control function of management accounting, the purposes of product costing, and the Work-in-Progress journal entry for labor costs, including overtime. The assignment also explores activity-based costing (ABC) by comparing its merits and demerits against traditional costing systems. The document provides an overview of the traditional costing system, the advantages of ABC in accurately determining product costs and identifying non-value-added activities, and the disadvantages such as complexity and high implementation costs. The document also includes an introduction, executive summary, and conclusion summarizing the key points. This resource is valuable for students seeking to understand and excel in management accounting.

Running head: ASSIGNMENT 1
ACC512 - Management Accounting for Costs & Control
Assessment 1:Questions 1,2,3 and 5
Name
Institution Affiliation

ASSIGNMENT 1
2
QUESTION 1
Managerial accounting reports are important to all businesses. Managerial accounting
reports are prepared throughout accounting periods as required as they help managers monitor
the business’s performance. A company’s management may need to do a report weekly,
monthly, quarterly and sometimes daily. The information in managerial accounting reports is
very important as they influence the decision-making process to maintain organizational goals
and values while at the same time creating value for stakeholders. They facilitate the assessment
and management of risk as well as implementing strategies (Sullivan, n.d.). Examples of
managerial accounting report include a budget report that enables businesses to analyze each
department’s performance as well as control costs. Another example is job cost reports that
describe the expenses for specific reports. Accounts receivable aging reports is also a type of
managerial account report that is critical in managing cash flow especially for businesses that
extend credit to their customers.
Reference
Sullivan, D. (n.d.). Types of Managerial Accounting Reports. Retrieved from
http://smallbusiness.chron.com/types-managerial-accounting-reports-58384.html
QUESTION 2
The control function of management accounting is about monitoring, measuring,
evaluating and correcting tangible results in order to make sure that a business’s organizational
goals and plans are accomplished. For example, Feedback is one thing that is essential to the
control function of management accounting as it is used to evaluate the steps in the
implementation of a strategy as well as correct them is necessary. Getting feedback makes it
easier for managers to decide whether or not they should let operational activities remain as they

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are or take corrective measures in order to restore the harmony between them and the company’s
goals and plans. Previously, businesses used the control function as it is described in the social
theory Panopticism, meaning strictly monitoring employees in order to indicate when
performance does not meet the requirements in order discipline and punish and punish; these
days they use the control in a much more positive and relaxed manner to encourage employees to
perform more efficiently and not use scare and intimidation tactics.
QUESTION 3
One purpose of product costing is that it helps managers when it comes to making
decisions regarding the estimation of marginal costs. For example, in manufacturing companies,
of the labor costs do not change over wide ranges of output, then the manager considers the labor
costs to be fixed in his decisions regarding various short-term outputs. The next purpose of
product costing is that it helps in the estimation of material costs by establishing a reliable bill of
materials.
Another purpose of product costing is that it facilitates the development of external
reports; for instance many students who want to apply to a university program will be presented
with a product's costs specifically developed for external reporting; however, these cost do not
estimate marginal costs so they can be modified to fit the student’s preferences. The fourth
purpose of product costing is that it facilitates the development of a unit cost for external
reporting by estimating labor and overhead costs.
QUESTION 5
A. That statement is describing the Work-in- Progress journal entry for direct and
indirect labor costs. The direct labor costs are put in the Work-in-Process account at the end of
every work week while the indirect labor costs are put into the Factory Overhead account.

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B. An employee is paid for overtime when he or she has worked extra time other than
his or her normal working hours that are set by a federal Act or an agreement with the union.
Usually, the overtime is paid at a higher rate than normal; for example, if an employee has
worked more than eight hours a day, he or she will be paid double the normal hourly rate for the
extra time. Overtime payments can be treated as either direct labor or overhead depending on the
circumstances and over time regulation in a company. Overtime payments are treated as direct
labor when the extra hours will be paid at a normal rate and is charged to production with the
same stipulations as time working during normal hours; also, when the extra time is due to
carrying out specific rush instructions or specific tasks to respect a schedule. However, it is
treated as overhead when the payment won’t be directly charged against production but is
recovered as production overhead using overhead recovery rate as well when the overtime is the
result of delay or negligence on the part of a member of a specific department.
Contents
Executive summary.............................................................................................................2
Introduction..........................................................................................................................4
Merits and demerits of the activity based costing (ABC)....................................................4
Conclusion...........................................................................................................................5

ASSIGNMENT 1
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Manalo, M., V. (2004). Activity based costing (ABC) vs. traditional cost accounting
system among Top 500 corporations in the Philippines. Retrieved from
http://www.dlsu.edu.ph/research/centers/cberd/pdf/papers/Working%20Paper%20Series
%202004-11.pdf
Quinn, M., Elafi, O., & Mulgrew, M. (2017). Reasons for not changing to activity-based
costing: a survey of Irish firms. PSU Research Review, (1) 1, pp.63-70.
Wilkinson, J. (2013). Activity-based Costing (ABC) vs Traditional Costing. Retrieved
from https://strategiccfo.com/activity-based-costing-abc-vs-traditional-costing/

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Introduction
The purpose of this report is to summarize the traditional costing system as well as
evaluate arguments for and against the activity based costing (ABC).
The traditional costing systems involved allocating manufacturing overhead cost to the
products that were manufactured. These systems assign the company’s indirect costs to the
products that were manufactured based on volume (number of units manufactured) and the
production machine hours or the direct labor units (Manalo, 2004). By using these, the traditional
costing systems are implying that if it were not for a number of units produced and the machine
or human labor used in the production, the company would not have overhead costs. In the past
this would have been enough and reasonable for an organization’s external financial statements;
however, in recent years, overhead have been caused by different factors that the traditional
systems did not feature such as consumer manufacturing preferences involving diverse and
uniform products.
Merits and demerits of the activity based costing (ABC)
The traditional costing systems have a lot of short comings when it comes to establishing
the true cost of producing products per specific customer preferences, and this is the reason why
the activity based costing (ABC) has risen to popularity. The activity based costing (ABC) solve
the inadequacies of the traditional costing system by featuring other cost drivers other than the
number of units produced and machine hours or the direct labor units to establish indirect costs
which increase accuracy and reliability (Wilkinson, 2013). Another merit is that the activity
based costing (ABC) provides the real information regarding cost behavior, helps minimize costs
as well as identify the activities that did not add any value to the product. All of these benefits

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make the decision-making process much more efficient and reduce errors such as over or
underestimations.
One of the ABC system's demerits is that is too expensive and complex to implement and
manage which makes some businesses owners stick to the traditional product costing systems
(Quinn, Elafi, & Mulgrew, 2017). Other demerits of the ABC system are difficulties selecting
cost drivers due to the complexity of the system as well as unsuitability with smaller businesses.
Conclusion
Companies to do carefully evaluate the nature of its business processes, operations, and
goals before deciding to switch to the activity based costing (ABC).
QUESTION 10

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