Management Accounting Report: Cost Analysis and Decision Making

This report delves into the core concepts of management accounting, emphasizing its critical role in business operations. It explores various types of accounting costs, including manufacturing, non-manufacturing, direct, indirect, product, period, variable, fixed, and semi-variable costs, providing a comprehensive overview of cost classification. The report then evaluates the relevance of these costs in decision-making, focusing on future cash flows, opportunity costs, incremental costs, and avoidable costs. It examines the impact of different costs on business operations, such as variable, fixed, direct, and indirect costs, and manufacturing costs implications. The analysis concludes by highlighting the importance of management accounting in enhancing profitability and facilitating effective financial transaction management. The report references several academic sources to support its findings.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
(I): Various management accounting costs............................................................................3
(II): Evaluate relevance of the various costs..........................................................................4
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................7

INTRODUCTION
Management accounting is an utmost important part of every business enterprise. The
major motive of using this system is to record their everyday financial transaction that are done
during production process. This project report is providing crucial information about various
accounting costs. Moreover, it is carrying out evaluation of those costs in order to make effective
decision making (Burritt and et.al., 2011). The overall project is delivery more relevant image of
company regarding their use of management accounting systems.
TASK 1
(I): Various management accounting costs
The accounting is considered to be one of the most essential aspects which are helpful in
keeping overall record of receipts and payments of the company. Cost accounting assists an
organisation to ascertain the cost of manufacturing product and services which is being offered
by an organisation. It provides valuable data for making crucial decision and to make cost
control planning. Management accounting helps the owner as well as the managers to conduct
business in an efficient manner. Cost can be defined as the total expenditure which is being
incurred by the company in order to get something. It is mostly associated with collection and
evaluation of related cost information for interpretation aimed at various issues of management.
There are various types of accounting costs such as:
As per the management function:
a): Manufacturing costs: Such kinds of costs are mostly related with factory to convert
raw material into finished products. It consists of direct material, labour and factory overhead.
b): Non-Manufacturing cost: These are not incurred in production process in order to
transform material to finished goods. This consists of selling expenses and administration costs.
According to ease of traceability:
 Direct cost: These are said to be those costs which are directly applied to production of
products and services. Some crucial examples are material and direct labour. There are
some operating expense can also be divided into direct costs such as advertising costs for
a specific products.
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 Indirect costs: Such kind of costs cannot be directly associated with the product or
object costing. They are known as common costs or joint cost. Mostly, factory overhead
and operating expenses provide more benefits to one products and branch.
On the basis of timing of charge between revenue
 Product costs: These are said to be invariable costs. They are said to be an effective
form of stock and are applicable against total revenue in case there is sells. All
manufacturing costs are taken into consideration (Chen and et.al., 2011).
 Period cost: These are not invariable and are charged between total revenue. Such kind
of costs consists of non-production costs.
According to the behaviours in respect with activity:
 Variable cost: These are those costs which vary with the changes in production units. It
includes direct costs, labour and sales commission related with total sales.
 Fixed costs: Such kinds of costs remain constant at every level of activity. Some crucial
examples of this type of cost are rent, insurance and depreciation.
 Semi-variable cost: This is known as combination of both variable and fixed. They vary
in total amount but not in proportion with the changes in production activity. For
example, electricity expenses.
(II): Evaluate relevance of the various costs
Reverence of costing to determine total purpose of attaining business decision making.
An objective is to measure an organisation performance to determine overall cash outflows that
would results from various implications. Relevance costing mainly focuses on exact costs and
ignores other costs which do not affect the future cash flows. There are some underlying
concepts of relevant costing which are fairly determined as a sample and most probably related
to company’s personal experiences for making better financial decision.
Types of relevant costs:
 Future cash flows: Such kind of cash expenses will be incurred in coming future as an
outcome of making better decision-making (Expected future cash flows, 2012). Such
costs are mainly applicable for removing all those extra expenses those are increasing
costs for the company.
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 Opportunity costs: In this case, those costs which will be sacrificed for getting better
results of a specific management decision are taken into consideration. It is key concept
which has been described as expressing.
 Incremental costs: In those situations where various alternatives are being taken into
consideration as relevant costs is said to be incremental. An incremental costs is more
related with increasing the total cost resulting from an enhancing in production or any
other activities.
 Avoidable costs: There are various expenses that can be helpful in reducing total cost of
production, if proper decision is to be made to make crucial changes (Otley and
Emmanuel, 2013).
Evaluate impacts of various costs:
In every business operation, the role of managers is to make proper analysis of overall
impacts those are associated with various costs that are incurred during the manufacturing
process. Those are needed to be evaluated in more effective ways:
Variable and fixed costs:
These types of costs mostly affect the marginal costs of production only in case there are
total variable costs present. It is calculated through dividing various changes in total costs of unit
changes with the variation in output level.
Direct or indirect cost: These are mainly related with economic stability. In this process,
costs are calculated through multiplying utilisation of resources by unit costs.
Manufacturing costs implications: The total number of successful production runs as
per an accounting year. The cost of facility use to determine overall effect on production costs
than changes in total raw material or labour cost (Zang, 2011).
Product and period costs: Such kinds of statements are recorded within the stock
position. This is mainly classified as per the accounting objectives.
CONCLUSION
From the above project report, it has been concluded that management accounting is an
essential aspect for every business concern. They need to make use of all financial transaction in
more effective manner so that better results can be attained during the time. This project provides
valuable information about various management accounting costs. Further, these costs are
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analysed by using relevance nature of those costs. The overall analysis is done to increase
profitability of the company.
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REFERENCES
Books and Journals:
Burritt, R.L. and et.al., 2011. Environmental MA and supply chain management (Vol. 27).
Springer Science & Business Media.
Chen, H. and et.al., 2011. Effects of audit quality on earnings management and cost of equity
capital: Evidence from China. Contemporary Accounting Research. 28(3). pp.892-925.
Otley, D. and Emmanuel, K. M. C., 2013. Readings in accounting for management control.
Springer.
Zang, A.Y., 2011. Evidence on the trade-off between real activities manipulation and accrual-
based earnings management. The Accounting Review. 87(2). pp.675-703.
Online
Expected future cash flows. 2012.[Online]Available through: <https://financial-
dictionary.thefreedictionary.com/Expected+future+cash+flows>.
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