Management Accounting Report: Costing Methods for Crest Dairy

This report provides a comprehensive overview of management accounting systems, focusing on their application within the context of Crest Dairy. It begins with an introduction to management accounting, highlighting its role in measuring and evaluating internal processes to enhance efficiency, productivity, and profitability. The report then delves into various types of management accounting systems, including cost accounting, job costing, inventory management, and price optimization, detailing their functionalities and benefits. It explores different reporting methods such as budget reports, accounts receivable reports, and inventory reports. The evaluation section assesses the pros and cons of each system, followed by a critical analysis of their application and integration. Furthermore, the report examines absorption costing and marginal costing methods, providing calculations and interpretations to recommend the most suitable approach for Crest Dairy. The conclusion summarizes the key findings and recommendations, supported by relevant references.

Management Accounting

Table of Content
• Introduction
• Management Accounting Systems
• Evaluation of benefits of MA system
• Critical evaluation of application and integration of MA system
• Absorption costing
• Marginal Costing
• Conclusion
• References

INTRODUCTION

Management Accounting Systems
• Management accounting (MA) is internal systems which is used by the firm in order to
measure and evaluate the process for management.
• Thus, the tools and reports are assist to raise efficiency, productivity and profitability.
• In the same way, by using same tools and techniques, Crest Dairy can ensure effective
management of operations.

Types of management accounting system
Managemen
t Accounting
system
Cost Accounting
Price
Optimization
Inventory
Management
Job Costing

Continue…
Cost Accounting
• This system is used by the firm for inventory evaluation, profitability analysis
because it is link with cost of product/services.
• Along with this, cost accounting assist the management of Crest Dairy in order
to measure the financial performance by comparing the actual output with
standards.

Continued…
Job Costing
• Another MA system which allocate the manufacturing cost
to individual items of a product i.e. raw materiel, labor
and other overhead.
• By using this method, Crest Dairy easily determine or
monitor the cost of job.
• Moreover, this information also applied while assigning
the inventories cost to particular products.

Continue..
Inventory Management
• This method is all about to controlling
and overseeing the products selling and
storage.
• Thus, ordering and holding are the two
cost which is link with stock.
Price optimization
• This tool assist firm to examine the
manner through which customer will
respond at different price level.
• Thus, it is quite important in this era
because after recession, customers are
more focused upon price, that is why
company are using this method.

Reporting methods
• It is also known as managerial
accounting method which provide day to
day activities of business.
• These reports are used by management
team of Crest Dairy for planning,
regulating and decision making process.
Budget
Report
Account
Receiva
ble or
aging
report:
Invento
ry
report:
Cost
Manage
rial
report

Types of reporting method
Budget Report:
• This managerial report assist to measure company performance and creates an overall
budget in order to understand the financial performance.
• Moreover, this report further assist to examine the reason of not met any target for a
particular time.

Continued…
Account Receivable or aging report:
• This report assist to examine the time period o debtor that influence the level of working
capital. That is why, this report is completed by company's manager in order to examine
the period within which they are making payment.

Continued…
Inventory report:
• This report is concern with stock and provide a clear information with regards to cost
level of unit.
• Hence, through this report, manager of Crest Dairy may easily determine which product
is highly used and sold, or product which need to be replaced.

Evaluation of benefits of MA system
MA system Pros Cons
Cost Accounting  This system helps in elimination of waste.
 It also used to provide advice on make or buy
decision and price fixation
 The system contain past information but
managers of a firm actually concern with
future only.
 It is costly method and that is why, most of
the companies do not install.
Job Costing  This method assist to track the performance
of company in term of cost and productivity
 Provide detail analysis of cost and assist in
making best decision
 This method is comes under clerical work
and quite expensive.
 This method is time consuming method and
as a result, employees faces lots of
difficulties.

Continued…
MA system Pros Cons
Inventory Management  The method assist in accurate planning
related to stock and reduce the level of
wastage.
 This method also assist to track inventories
and cut down cost
 This method is time consuming method.
 In order to implement the process, company
needs expert personnel.
Price Optimization  This method assist to adjust their price
automatically as per the change in demand
with an motive to increase customer base.
 Company needs expertise o talented
personnel which in quite difficult because
the method is quite time consuming.

Critical evaluation of application and
integration of MA system
• Management accounting system provides the key insights information that assist the firm
to make decision and that is why, managerial report assist to collect information for
system and then implement the same which further assist company to make actions.
• Also, these accounting systems provide insight views and improvement options that take
a business towards further direction.

Absorption Costing
• It consider all the manufacturing cost which are assigned by unit of goods produced such
that direct material, labor and variable manufacturing overhead.
• Thus, this method assumed that all the costing method are provides a high level of aid in
the term of appropriate cost and margin.

Marginal Costing
• This method assist to identify the increase or decrease the total cost of production while
producing additional unit during a particular time.
• In this method, profitability is consider by using PV ratio and this consider per unit
contribution and also present the extent which is related to that product.

Calculation of Absorption Margin

Calculation of Marginal Costing

Variance
Material Price Variance
(SQ*SP)-(AQ*AP) (6000*9)-(5400*8)
10800
Material Cost Variance
Standard Cost – Actual Cost (291600-144000)
147600
Material Usage Variance
(SQ-AQ)*SP (6000-5400)*9
5400
Labour rate variance
(AH*AR)-(AH*SR) (24750*9)-(24750*8)
24750
Labour Efficiency Variance
(AH-SH)*SOHR (24750-45000)*30
-607500

Interpretation
• By doing assessment, it has identified that company will attain the profit margin of
£23600 according to absorption costing method.
• However, in marginal costing method profitability assessed is lower because it does not
include fixed production cost while assessing GP.
• Hence, it is recommended to the firm that it should focus on employing absorption
costing method over marginal. Moreover, it provides clear and appropriate view of both
cost and profitability aspect.

Conclusion

References
• Abdel-Rahim, H., 2016. The effect of risk management systems on honesty in managerial reporting: An experimental
examination.
• Amara, T. and Benelifa, S., 2017. The impact of external and internal factors on the management accounting
practices. International Journal of Finance and Accounting.6(2). pp.46-58.
• CHAN, A.M.Y., 2020. An Analysis of Management Accounting System Development from the Structuration Theory
Viewpoint. Journal of Accounting, Business and Management (JABM).27(1). pp.1-18.
• Davidson, B.I., 2019. The Effects of Reciprocity and Self-Awareness on Honesty in Managerial Reporting: Social Value
Orientation Matters. Journal of Management Accounting Research.31(1). pp.85-103.