Managerial Accounting: Job Order, Process, and CVP Analysis

This managerial accounting assignment provides a thorough examination of key concepts within the field. It begins with an overview of managerial accounting, contrasting it with financial accounting, and emphasizing the importance of ethical standards. The assignment then delves into job order costing and process costing, detailing their methodologies and applications. Cost management systems, including activity-based costing and just-in-time systems, are also explored. The document further explains cost-volume-profit (CVP) analysis, variable costing, and absorption costing, highlighting their roles in decision-making. The assignment concludes with discussions on relevant information for decision-making, capital budgeting techniques, and various types of budgets. The content covers a wide array of managerial accounting topics, providing a solid foundation for understanding accounting principles and their application in business management.

Running head: MANAGERIAL ACCOUNTING
Managerial Accounting
Name of the Student
Name of the University
Author’s Note

1MANAGERIAL ACCOUNTING
Table of Contents
1. Managerial Accounting..........................................................................................................2
2. Job Order Costing..................................................................................................................3
3. Process Order Costing............................................................................................................4
4. Cost Management Systems....................................................................................................5
5. Cost Volume Profit Analysis.................................................................................................6
6. Variable Costing.....................................................................................................................6
7. Decision Making....................................................................................................................7
8. Budgets and Standard Costing...............................................................................................8
References................................................................................................................................10

2MANAGERIAL ACCOUNTING
1. Managerial Accounting
Managerial Accounting refers to the process to prepare accounts and reports that
provide the management with timely and accurate financial information for making short-
term and day-to-day business decisions. Managerial accounting is responsible for generating
weekly and monthly reports for the internal users like departmental managers and others
(Kaplan & Atkinson, 2015).
Organizational managers use managerial accounting for extracting the required
financial and statistical data of the business for the purposes of keeping records, planning,
controlling and decision-making.
The primary responsibility of the management accountants is to execute certain tasks
for ensuring financial security of the firms while managing the necessary financial matters for
ensuring the firm’s financial success. These include budgeting, tax handling, aid in strategic
management and managing assets.
The main difference is that financial accounting aims at the preparation of financial
statements of a firm for providing required financial information to the key stakeholders
where managerial accounting aims at providing the necessary financial information to the
management for the purpose of short-term decision-making. Both internal and external users
can use financial management while only internal users can use managerial accounting
(Brewer, Garrison & Noreen, 2015).
The ethical standards of management accountants include maintaining competence,
confidentially, integrity and credibility. In addition, they are needed to follow the ethical
policies and procedures of the organizations for the resolution of any ethical issue.

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Product Costs
Raw Materials
Direct Labour
Manufacturing
overhead
Balance Sheet
Raw Material Inventory
(Direct Materials used in
production)
Work-in-Process Inventory
(Goods completed-cost of
manufactured goods)
Finished Goods Inventory
Period Costs
Selling and
Administrative
Overheads
Income
Statement
Cost of Goods
Sold
Selling and
Administrative
Expenses
2. Job Order Costing
Job Order Costing refers to a system to assign and accumulate manufacturing costs of
a single unit of output. The use of this costing system can be seen in the presence of
adequately different produced items from each other while each of the has a significant cost
(Hilton & Platt, 2013).
The main difference is that job order costing involves in calculating the cost of special
contracts and work order involving work performance as per the client’s instruction where
process costing involves in charging different processes and operations which are determined.
Under job order costing, manufacturing costs are assigned to work-in-progress; costs
of the completed jobs are transferred to finished goods; at the time of selling of the units, the
cost is transferred to cost of goods sold. The cost flow is shown below:
Figure 1: Flow of Cost through Job Order Costing System
(Source: As created by Author)

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Direct Materials
Direct Labour
Manufacturing
Overhead
Processing
Department Finished Goods
Costs of Goods
Sold
Manufacturing overheads are the indirect factory-associated costs and these re
incurred at the time of manufacturing products. This is applied by dividing the total overhead
by the number of direct labour hours (Novák & Popesko, 2014).
The main reason for adjusting the manufacturing overhead account at the end of the
period is to avoid the over application or under application of this.
3. Process Order Costing
Process costing refers to a costing method to collect and assign the manufacturing
costs to the units produced. This costing method is used in the presence of the mass
production of identical units (Warren, Reeve & Duchac, 2013).
In the process costing system, costs are traced to the departments responsible for
processing the goods. Work-in-process is maintained for each of the processing departments.
Materials, overhead costs and labour are done from the work-in-process of one department to
the same of another department; and this is called transferred-in costs. It is shown below:
Figure 2: Flow of Cost through Process Order Costing System
(Source: As created by Author)

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Equivalent units of production refers to an item’s number of completed units that a
firm could have produced theoretically, given the amount of incurred direct labour, direct
materials and manufacturing overhead costs during the period. It is calculated with the help
of the following formula:
Equivalent Units of Production = Number of Partially Completed Units × Percentage of
Completion
Production report is considered as a very useful tool for the organizational managers
because it assists them in making informed business decisions about the products. Production
reports provide the managers with the required financial and costing information that is
needed for the purpose of decision-making (Needles, Powers & Crosson, 2013).
4. Cost Management Systems
In case of the production of one unit, it is easy to assign costs. However, it is not easy
to assign overhead cost like utilities and labour to one unit and thus, the prices are allocated.
It is not possible to know overhead costs and these calculations are needed to be projected.
Based on these estimation and projection, allocation is estimated. Accurate projection
depends on accurate allocation.
Activity based costing assists in the allocation of costs to each produced products and
the activity based management utilizes this allocation for making manufacturing as well as
cost decisions (Cooper, 2017). Activity based management assists in analysing the
fluctuations in materials, labour costs and overhead costs for adjusting pricing. This provides
the scope in adjusting in costs for the purpose of effective decision-making.
Just in Time system helps in manufacturing products for meeting demand in order to
keep the inventory and overhead costs in minimum level and to ensure there is not any
storage of materials and the overheads are required only for manufacturing the products

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(Aradhye & Kallurkar, 2014). However, the quality management system helps in dividing
costs into certain categories; they are appraisal and internal as well as external failure
prevention. Unlike activity based costing, this needs major investment for the reduction of
costly errors in future.
5. Cost Volume Profit Analysis
There are three kinds of costs; they are fixed cost and variable cost. Fixed costs are
those costs that do not change with the change in activity level. Variable costs change in
direct proportion with the production level; it implies total variable costs increases and
decrease due to the increase and decrease in produced units respectively (Drury, 2013).
Contribution margin can be defined as an amount or ration of revenue and this can be
obtained by subtracting the variable expenses from the revenue. Contribution margin plays a
crucial role in computing operating income because operating income is obtained by
subtracting the total fixed costs from the contribution margin since both of their presence can
be seen in the contribution income statement.
The Cost Volume Profit Analysis refers to a planning mechanism used by the
management for predicting the future volume of activity, incurred costs, sales made and
received profit. Organizational managers use the cost volume profit analysis for making
informed decision regarding products or services sold by them. It assists the managers in
breaking down the costs into fixed and variables and this provides an effective insight into
their product’s or service’s profitability (Abdullahi et al., 2017). This helps the managers in
large manner.
6. Variable Costing
Both variable costing and absorption costing are costing methods used by large
number of companies. The inclusion of all costs including production related fixed costs can

7MANAGERIAL ACCOUNTING
be seen in absorption costing while the inclusion of only variable costs can be seen in
variable costing. For this reason, the companies using variable costing maintains separate
fixed-cost operating expenses from the production costs. Absorption costing involves the
allocation of fixed overhead costs leads to the combination of all fixed overhead costs as a
single line charged against the net income. However, variable costing considers only those
expenses which are directly related to the production (Drury, 2013).
Manufacturing companies involve in manufacturing and selling products; thus they
have inventory. For this reason, variable costing allocates the variable costs to the inventory;
and thus, all overhead costs are charged to the incurred expenses while the variable overhead
and direct material costs are charged to the inventory. However, in case of a service
company, there is not any selling or producing any product. For this reason, no costs are
allocated to the inventory. Thus, a service company can report as well as analyse the
contribution margin as the difference between revenue and variable costs. This is the main
difference of the use of variable costing in a manufacturing company and a service company
(Joshi et al., 2013).
7. Decision Making
Managers use the relevant information for decision-making and relevant information
is considered as expected future data and it differs among the alternatives. In addition, the
relevant non-financial information also has crucial role in short-term decision making.
Relevant information provides the managers insight about the performance of the products
which is helpful in decision-making. Pricing is considered as another crucial aspect having
impact on the short-term decision-making process. Target pricing helps the managers in
determining the target full product cost by subtracting the desired profit from target pricing.
This helps in managers in deciding between the strategies of price taker and price setter.

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Capital budgeting is considered as a planning mechanism that is utilized for
determining the worth of an organization’s long-term investment and this has a great
significant on selection of capital projects. The capital budgeting techniques are discussed
below.
Payback Method – Payback period is considered as the needed time to earn back the
investment amount in an asset from its net cash flows. This refers to a simple method for
evaluating the risk connected to a proposed project (Lane & Rosewall, 2015).
Accounting Rate of Return (ARR) Method – ARR refers to an investment’s rate of return
in percentage as compared to the cost of initial investment. It divides the average revenue of
an asset by the initial investment for getting the rate of return.
Discounted Cash Flow (DCF) Method – DCF is considered as a valuation method that is
utilized in order to estimate the value of an investment on the basis of future cash flows
(Mellichamp, 2013).
8. Budgets and Standard Costing
The types of budgets are discussed below:
Master Budget – A master budget refers to the total of a firm’s budgets including fund
allocation to different activities of the business.
Operating Budget – Operating budget involves the costs associated in the operational
activities which are production cost, manufacturing cost, overhead cost, administrative cost,
labour cost and others; and the sales are considered as the income flow.
Financial Budget – This is the kind of budget that makes it sure the availability of correct
types of funds for the business.

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Cash Flow Budget – This budget helps in determining whether the company is dealing with
the accounts payable and receivable in timely manner.
Static Budget – This budget remains the same even after alteration in the factors affecting
the preparation of budget (Miller, 2018).
In a manufacturing company, an operating budget is prepared by preparing the
budgets for sales, operating costs, income and cash flows. Both the short and long-term
projects are considered for the preparation of this budget. In the same company, the
preparation of financial budgets needs to consider the projection of all the future financial
income and expenses of the same company. This help in preparing these budgets.
A budget is considered as a financial plan concerning the revenues and costs of a firm
which provides the required co-ordination and direction for controlling the business activities
so that business objective can be achieved. Standard cost is considered as a predetermined
measure of what a cost should be. This helps in controlling the costs while ensuring the
achievement of business goals.
The determination of variance is done through differentiating between the standard
cost and actual cost. The use of this variance can be seen in monitoring the incurred cost by a
business.

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References
Abdullahi, S. R., Bello, S., Mukhtar, I. S., & Musa, M. H. (2017). Cost-Volume-Profit
Analysis as a Management Tool for Decision Making In Small Business Enterprise
within Bayero University, Kano. IOSR Journal of Business and Management (IOSR-
JBM), 19(2), 40-45.
Aradhye, A. S., & Kallurkar, S. P. (2014). A case study of just-in-time system in service
industry. Procedia Engineering, 97, 2232-2237.
Brewer, P. C., Garrison, R. H., & Noreen, E. W. (2015). Introduction to managerial
accounting. McGraw-Hill Education.
Cooper, R. (2017). Target costing and value engineering. Routledge.
Drury, C. (2013). Costing: an introduction. Springer.
DRURY, C. M. (2013). Management and cost accounting. Springer.
Hilton, R. W., & Platt, D. E. (2013). Managerial accounting: creating value in a dynamic
business environment. McGraw-Hill Education.
Joshi, D., Nepal, B., Rathore, A. P. S., & Sharma, D. (2013). On supply chain
competitiveness of Indian automotive component manufacturing
industry. International Journal of Production Economics, 143(1), 151-161.
Kaplan, R. S., & Atkinson, A. A. (2015). Advanced management accounting. PHI Learning.
Lane, K., & Rosewall, T. (2015). Firms’ investment decisions and interest rates. Firms’
Investment Decisions and Interest Rates 1 Why Is Wage Growth So Low? 9
Developments in Thermal Coal Markets 19 Potential Growth and Rebalancing in
China 29 Banking Fees in Australia 39, 1.

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Mellichamp, D. A. (2013). New discounted cash flow method: Estimating plant profitability
at the conceptual design level while compensating for business
risk/uncertainty. Computers & Chemical Engineering, 48, 251-263.
Miller, G. (2018). Performance based budgeting. Routledge.
Needles, B. E., Powers, M., & Crosson, S. V. (2013). Principles of accounting. Cengage
Learning.
Novák, P., & Popesko, B. (2014). Cost variability and cost behaviour in manufacturing
enterprises. Economics and Sociology.
Warren, C., Reeve, J. M., & Duchac, J. (2013). Financial & managerial accounting. Cengage
learning.