Daffy Ltd: A Report on Management Accounting and Cost Classification

This report provides an analysis of management accounting principles, focusing on cost classification and costing techniques, using Daffy Ltd as a case study. It highlights the value of cost classification in identifying overall costs, supporting functional classification, and aiding decision-making for profitability and growth. Various costing techniques, including uniform costing, marginal costing, standard costing, historical costing, direct costing, and absorption costing, are explored. The report suggests that Daffy Ltd can benefit from using the absorption costing technique, as it effectively charges overall costs against the level of product produced, balancing cost calculation and projection. The document concludes that Daffy Ltd can use absorption costing as a part of identifying the cost of production. Desklib offers a platform for students to access similar solved assignments and past papers for academic support.

introduction to management
accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY ..................................................................................................................................3
Value of cost classification ........................................................................................................3
Useful costing technique ............................................................................................................4
Benefits of chosen method for product cost ...............................................................................6
CONCLUSION ...............................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Management accounting is a technique used to portrait the financial position of company.
This report is based on the case study of Daffy Ltd in respect to its management accounting
operations. Henceforth, report will emphasis over the value of cost classification on respect to
the organisation. All the potential useful technique for costing purposes which the Daffy Ltd can
use in its business practices. Furthermore, report will demonstrate the informati9on about how
the product cost choose by the organisation prove as a useful method or technique to represent
financial position of organisation.
MAIN BODY
Value of cost classification
Cost classification is an important and crucial fundamentals which company usage to
achieve the overall objectives behind the business operations channelises by the organisation.
Cost are classified into different segments like fixed cost, variable cost, semi variable cost and
also on the name of product cost, opportunity cost and many such name and titles that denote the
specific utilisation of the cost. Further the overall cost is divided into material, labour and
expenses on the basis of the place where such cost is spent. Classification of cost support and
help in identifying the overall cost of delivering the services on behalf of the Daffy Ltd. IN case
of business operations identifying the overall cost of production and service delivery play the
dominating role in the overall business operations and function of organisation (Mouseli and
et.al., 2017). ON the basis o0f overall cost identified by management total selling price is
finalised by organisation. Cost classification also support and guide in functional classification
activity entertained by the business entity. Overall cost are segregated into different elements
associated with the managerial activities of the entity. On the basis of the cost it is further
segregated into various divisions or functional activities underpin by the business entity. Cost
classification technique also help the management to identify manufacturing or production cost
and also to commercial cost business entity needed to incurred in against to deliver the business
operations. Individual allocation of cost into production cost and commercial cost are also
allocated based on the nature of cost it has incurred. Based on the nature of cost it can identify

weather the cost is production cost or the commercial cost. Classification of cost further
segregated the cost into administrative cost and selling or distribution cost entertain by the
business organisation.
Cost classification is conducted at the organisation level on the basis of functions like
production, administration, selling, distribution and research or development. All these functions
are among the key managerial functions and also involve in converting the product in ready to
make it into the sale position. Cost of allow the entity to identified weather the cost is associated
to the fixed nature or variable nature of fixed cost or variable cost. IT bis further allow the
management and organisation to identify marginal cost, differential cost, opportunity cost,
replacement cost, relevant cost, imputed cost, sunk cost, normal cost, abnormal cost, avoidable
cost and unavoidable cost (Knauer and Möslang, 2018). To represent the company books of
accounts all this allocation and segregation of cost play the key role in identifying the overall
cost of delivery the services. Cost classification put a huge value in making decisions in regard to
improve the overall possibility to entertain business growth in respective market. Daffy Ltd get
to take all the decision that can favour to both profit maximisation objective and also to growth
maximisation objectives of the operations. The biggest value cost classification create is in form
of identifying how much profitability organisation could address in order to deliver the business
operations.
Useful costing technique
Costing technique is defined as the method used to record the overall cost of delivering
the services for the Daffy Ltd. Cost accounting methods are segregate into uniform costing
technique, marginal costing, standard costing, historical costing, direct costing and absorption
costing like techniques that can provide a true representation of costing in against to deliver
business objectives. All such techniques that possibly can be used by the Daffy Ltd will
demonstrate in this report.
Uniform costing technique
Uniform costing technique is a principle that denote that all organisation belong to the
industry in which Daffy Ltd is currently conducting its operation will use a uniform technique or
practice to record overall cost of producing services. All companies belong to the industry will
use the same technique to record the similar cost.
Marginal costing

Under the marginal costing technique with fixed cost and variable cost are segregated by
the organisation. Only the variable cost of producing the products are charged against the unit
produced by the Daffy Ltd. Fixed cost will be charged against the profitability of the business
entity under this technique or method of costing.
Standard costing
Under this technique or method a standard is used to record the cost and revenues. This
method provide variances in the overall accounting records and also in cost. This is the pre
determined measures that help and support in recording the overall cost of delivering the services
(Isaacson and et.al., 2017). This also provide a comparative assessment in respect to the level of
operations performed and also against the actual cost incurred by the business entity.
Historical costing
Historical cost is a technique or method of costing in which assets are recorded in balance
sheet at its original value of assets. The cost on which organisation has acquired its original
assets to hold the asset in the organisation.
Direct costing
Under this technique variable manufacturing cost is assigned to inventory and cost of
good sold (Laviana And et.al., 2018). Fixed cost are charged against the expenses of the period
in which the respective cost is incurred by the organisation.
Absorption costing
This method or technique of costing consider all cost as the basis of delivering the final
product to customers. Under this technique both direct and indirect cost will charge against
delivering the product or services.
The above mentioned methods are different techniques available to deal with the cost in
organisation. Daffy Ltd can use the absorption costing technique as the basis behind recording
the cost of producing the products and services.
Benefits of chosen method for product cost
Absorption cost is the best suitable technique or method for the product cost in context to
the Daffy Ltd. This method effectively allow the organisation to charge the overall cost against
the level of product produced by the organisation. IN case of product cost it is important that
company keep a suitable structure to determine the fixed and variable cost and also the cost
related to the production so that overall selling price can determine by the organisation (Bock

and Pütz, 2017). This method keep the proper balance in between the projection and the
calculation of overall cost of producing the product in front of the potential customers. This
technique is favourable in regards to the business of Daffy Ltd.
CONCLUSION
Costing technique are segregated into marginal costing, absorption costing, standard
costing, historical costing and other such techniques that can be used by the organisation. All the
costing techniques provide different ways to charge the overall cost. Some involve variable cost
into identifying cost of production and some include both variable and fixed cost to charge the
cost of production. ON the basis of the nature of business Daffy Ltd can use absorption costing
technique as a part of identifying the cost of production.

REFERENCES
Books and Journals
Bock, S. and Pütz, M., 2017. Implementing Value Engineering based on a multidimensional
quality-oriented control calculus within a Target Costing and Target Pricing
approach. International Journal of Production Economics. 183. pp.146-158.
Isaacson, D. and et.al., 2017. Defining the costs of reusable flexible ureteroscope reprocessing
using time-driven activity-based costing. Journal of Endourology. 31(10). pp.1026-
1031.
Knauer, T. and Möslang, K., 2018. The adoption and benefits of life cycle costing. Journal of
Accounting & Organizational Change.
Laviana, A. A. And et.al., 2018. Retroperitoneal versus transperitoneal robotic-assisted
laparoscopic partial nephrectomy: a matched-pair, bicenter analysis with cost
comparison using time-driven activity-based costing. Current opinion in urology. 28(2).
pp.108-114.
Mouseli, A. and et.al., 2017. Cost-price estimation of clinical laboratory services based on
activity-based costing: A case study from a developing country. Electronic physician.
9(4). p.4077.