Cost and Management Accounting: A Comprehensive Analysis

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COST ACCOUNTING
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Table of Contents
Abstract...........................................................................................................3
Introduction.....................................................................................................4
Question 1: Explain the nature and purpose of cost and management
accounting.......................................................................................................5
Question 2: Describe costs by classification and behavior..............................7
Question 3: Demonstrate understanding of basic cost and management
accounting techniques.....................................................................................9
Question 4: Demonstrate understanding of basic budgeting techniques
including capital budgeting techniques.........................................................11
Question 5: Evaluate the costing techniques studied within the module and
discuss critically the assumptions made and interpret the results obtained. 13
Question 6: Apply cost accounting and product costing techniques as
appropriate....................................................................................................16
Question 7: Prepare profit statements on appropriate basis.........................18
Question 8: Demonstrate appropriate use of technology to communicate
effectively in writing using word processing and using excel spread sheets to
carry out calculations....................................................................................19
Question 9: Work effectively and appropriately to with others to reach a
cogent a judgment appropriate for use in the group report..........................21
Conclusion.....................................................................................................22
References.....................................................................................................23
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Abstract
The report deals with the summary of the cost accounting including all its
aspects functions and requirements. The brief of what exactly includes in
cost its importance and others issues are catered. The following report
contains cost accounting details of GREAT SCROLL LIMITED in various
aspects such as profit statements, costing techniques and income statement
and other financial reports.
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Introduction
The following report is prepared on the basis of analysis on cost and
management accounting in gross scroll limited. The report is formed to
provide a basic understanding of cost and management accounting
techniques applied to projects of gross scroll limited. This analysis of various
techniques provides appropriation of different types of occurring and non-
occurring events easily and in a reliable manner. It will indirectly help gross
scroll limited to make certain assumptions and interpreting results thereof
from those assumptions and based on those results formulating crucial
decisions for financial planning. The purpose of formulating report for the
user is to provide basic understanding of the alternatives available. The user
of the report should select appropriate technique for gross scroll limited from
the following reports formulated on the basis of different scenarios, for the
future economic benefits for the enterprise.
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Question 1: Explain the nature and purpose of cost and
management accounting.
Cost and management accounting is basic process of formulating plans and
controlling activities for a budget scenario of Great Scrolls Limited. Cost
accounting means a process of applying cost techniques to accounting
principles in framing a plan for a specified project. Cost and management
accounting helps great scrolls limited to anticipate the future outcomes of
expenditures of a particular project and will result in reducing the chances of
over budgeting. Cost accounting derives the calculation and assessment of
expenses while producing a particular product by applying costing
techniques to the project. Cost management in accounting process designed
to manage the prediction process of allocating expenditures for projects
(Kamil, et. al., 2014). Cost and management accounting measure internal
activities of Great Scrolls Limited and focus of cost accounting and
management accounting shifted from stock valuation for managing inventory
to formulating well-structured financial decisions.
The principal motive of Great Scrolls Limited of cost and management
accounting is to assist management in formulating knowledgeable decisions
by communicating financial information to management persons for
controlling, evaluating and planning performances. Major focus of cost and
management accounting is to guide management in formulating well
informed decisions. Application of cost and management accounting in Great
Scrolls Limited measures products productivity and performance quality of
products. Management accounting is a much wider concept then cost
accounting as management accounting includes cost accounting process.
Management accounting is future oriented as based on planning process and
cost accounting is bases on present projects (Delen, et. al., 2013). Cost and
management accounting involves various types of resources and activities
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based on a project that is used in financial management and making of
various types of vital financial decisions by the investors.
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Question 2: Describe costs by classification and behaviour.
Cost in accounting terms, is the actual amount paid to obtain a particular
product or service or amount incurred for contacting includes direct labor,
direct material and direct expenses. In monetary terms, cost involves time
factor, risk involved in choosing a course of action, opportunity costs
foregone to obtain a particular product, efforts, valuation of inventory,
material and resources. In simple terms cost is the value of something
provided to someone to obtain something in return (Delen, et. al., 2013).
Costs can be classified into three major categories namely, variable cost,
fixed costs and semi-variable costs.
Title: Types of costs
Source: By Author, 2018
1. Variable cost: Variable cost means the cost which fluctuates with
respect to level of activities within a specified time period. These fluctuations
arise within the range of activities for a cost of a product. In variable cost
there is a linear relationship of variable cost respect to production volume of
the product as when there is an increase in a total volume of production of
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COSTS
VARIABLE
COST
FIXED
COST
SEMI
VARIABLE
COST

goods then the overall variable cost of production will also increase variable
cost never remains stable, it always differs. Variable costs also termed as
engineered costs because variable cost has a cost and effect relationship
among the input and output of the product, but all variable cost are not
engineered costs some of them differs by the level of their variable elements
because of the management policies. Variable costs are constant per unit.
2. Fixed cost: Fixed cost means the cost which remains stable or constant
with respect to changes in the level of activities within a particular time
period. Fixed cost has an inverse relationship with volume of production of
particular product. Fixed cost of a product remains same at all level of
activities, even though when the level of activity comes down to nil then also
fixed cost will be occurring.
3. Semi variable costs: Semi variable cost is the cost which includes both
fixed and variable cost. They are also known as semi variable cost and semi
fixed costs. When volume of the product changes they are neither totally
variable nor absolutely fixed in nature. They vary in the same level of
changes with the level of change in volume but not with the same
proportion. The difference can be made between a fixed cost and variable
cost in semi variable costs is depicted with the help of effects of changes in
short run in volume for profit and costs.
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Question 3: Demonstrate understanding of basic cost and
management accounting techniques.
Cost and management accounting techniques are applied on a particular
project to forecast future projects and applications. Cost and management
accounting techniques in Great Scrolls Limited is a forward looking process
and not based on types of schemes through which projects are prepared in
the past scenarios. Cost and management accounting is basically called as a
model base with a part of quality to support the process of decision making
based on the degree of reliance placed on certain assumptions (Delen, et.
al., 2013). Cost and management accounting techniques are formulated with
intent on providing help to managers in Great Scroll Limited and not to the
equity members of the enterprise. Cost and management accounting
techniques fulfils the various objectives of Great Scroll Limited like
formulating financial policies, set defined procedures to achieve targets, to
gather the required sources of funds, and maintain an optimum level of
investment in various types of assets. There are number of techniques
applied and purposes fulfilled in cost and management accounting and some
of them are as follows:
 Financial planning
 Decision making
 Marginal costing
 Standard costing
 Product costing
 Statistical and graphical techniques
 Communicating
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 Revaluation accounting
 Funds flow statement
 Cash flow statements
 Budgetary policies
 Operating costing etc.
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Question 4: Demonstrate understanding of basic budgeting
techniques including capital budgeting techniques.
In Great Scroll Limited, capital budgeting techniques are used to help
formulate financial decisions and selection of appropriate investments which
yields higher return then the expected ones. decisions formulated on the
basis of capital budgeting techniques generates huge benefits over a very
long span of time and yields economic benefits over the life of a particular
project. Capital budgeting techniques are future oriented and related to long
term business transactions and decisions. Capital budgeting techniques
basically judges the feasibility of a particular project. Earlier techniques of
capital budgeting do not include the value of time and money but recent
techniques of capital budgeting include time value of money. Capital
budgeting techniques are divided into five basic categories which are as
follows:
Title: Capital budgeting techniques
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PAYBACK
PERIOD
NET
PRESENT
VALUE
INTERNAL
RATE OF
RETURN
PROBABILITY
INDEX
AVERAG
E RATE
OF
RETURN CAPITAL
BUDGETING
TECHNIQUES

Source: By Author, 2018
 Payback period: In capital budgeting payback period is the time needed to
regain or recover the amount of funds needed for an investment. Payback
period is a vital concept as it determines the feasibility of a project as in
whether to invest or undertake a particular project or with respect to time
length of its payback period.
 Net present value: Net present value method in capital budgeting is the
difference between the present value of a sum of money and the present
value of annual cash outflow. NPV method is used in Gross Scroll Limited to
analyse about the profitability of an invested project (Amirya, et. al., 2014).
 Internal rate of return: in capital budgeting, internal rate of return is
measure to depict the rate of return on particular investments. Internal rate
of return or IRR is also known as discounted rate of return.
 Probability index: Probability index in Gross Scroll Limited is treated as a
profit investment ratio which for a preferred investment. Probability index is
used as a measure to ranking projects in respect of units of investments as it
provides the value of quantity investments.
 Average rate of return: ARR in Gross Scroll Limited measures the amount
of profit and expected return on a specified investment. ARR technique of
capital budgeting does not consider the time value of money.
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