Managerial Accounting for Cost and Control: A Comprehensive Report

This report delves into various aspects of managerial accounting, beginning with the purpose of management accounting reports, emphasizing their role in communication, future referencing, budgeting, and inventory process efficiency. It then examines the control function of management, highlighting its significance in ensuring business alignment with expectations and facilitating effective decision-making. The report further explores product costing, detailing its importance in financial accounting, cost management, and reporting to the organization. It covers labor costing, including recording liabilities, distributing costs, and overtime premium treatment. Additionally, the report includes journal entries and an in-depth analysis of Activity Based Costing (ABC), discussing its arguments for and against implementation, ultimately recommending its use for effective inventory control and strategic decision-making. The report concludes with a comprehensive set of references.

RUNNING HEAD: Managerial accounting for cost and control
Managerial accounting for cost and
control

Managerial accounting for cost and control
Table of Contents
Question 1.............................................................................................................................................3
Purpose of management accounting reports....................................................................................3
Question 2.............................................................................................................................................3
Control function of management......................................................................................................3
Question 3.............................................................................................................................................4
Purpose of product costing................................................................................................................4
Question 4.............................................................................................................................................5
A. Two aspects of labour costing...................................................................................................5
B. Overtime premium treatment...................................................................................................5
Question 5.............................................................................................................................................6
Journal entries...................................................................................................................................6
Question 6.............................................................................................................................................6
Introduction.......................................................................................................................................6
Arguments for ABC analysis...............................................................................................................7
Arguments against ABC analysis........................................................................................................7
Conclusion.........................................................................................................................................8
Recommendations.............................................................................................................................8
References.............................................................................................................................................9

Managerial accounting for cost and control
Question 1
Purpose of management accounting reports:
Means of communication: Management reports are used for upward communication. It is
made for use by internal users. Examples are management, government agencies, creditors
and many more uses the report to know about inside condition of organization (Garrison, et
al., 2010).
Record for future: The reports provide valuable and significant information that can be used
as reference in future. Due to this data is collected with maximum care to become source of
information in future.
Prepare budget: Managers analyse department’s performance in order to control cost. The
managers prepare budget in order to estimate expenses and income over a future period of
time. A manager also uses these reports to provide incentive and increment to its employees.
From budget reports analysis for future goals and budgets is prepared.
Inventory process efficiency: Companies having physical inventory system uses managerial
accounting reports to keep their manufacturing process effective. The reports prepared shows
the labour hour wasted, overhead cost and many more which helps company to analyse
profitable department and areas needing improvement.
Question 2
Control function of management:
Controlling as function of management is of significant value in business
organization. It assures of the actual state of business condition is parallel to expectation. It
also gives the exact data needed for effective decision making process and maintaining

Managerial accounting for cost and control
healthy state of business (Granlund, 2011). Controlling function is used to offer timely
encourage and key to manage people in business. Control is not restricted to decide if the
plans are being inclined to, yet it also prompts recognizing the reasons of deviations and to
take remedial practices accordingly. It is the process by which actions are directed to produce
better results and ways are improved to promote outcomes. Controlling also eliminates the
obstacles resent and upcoming in path of business. It has great uses on areas which require
immediate action. Controlling is also targeted at effectiveness, efficiency and better
outcomes. Controlling can lead an organization to survive in difficult time, attain sustainable
development and many more.
Question 3:
Purpose of product costing:
Reporting to organization: It refers to business effectiveness in monitoring expenses through
product cost and inventory control. The accuracy in product costing helps increasing
correctness in variable costing (Fisher & Krumwiede, 2012). This also helps in administering
the matching principle, combining cost to value, and creating value of business.
Financial accounting: Product costing helps in decision making in financial statement. It
mainly involves return on investment and profit earning capacity for an organization. For
example variable costing is used to know the expenses that vary with changing level of
output and profitability of contract can be determined. Hence product costing acts as a
decision making tool for these decisions.
Cost management: It refers to development of new products. When an organization is
planning to enter into new product line or innovate some of existing products then product
costing act as a valuable resource. This allows business to add some specific cost not only in

Managerial accounting for cost and control
product but also to material, labour and many more to enable accurate calculation of product
cost.
Managerial accounting: Product costs are those which are necessary to produce a product.
Product cost composes of direct material, production overhead and direct labour cost (Wyatt
& Frick 2010). It also helps in determining actual expenses incurred during a period for
manufacturing a product. After knowing a product cost, sale prices and future profit can
easily be estimated.
Question 4:
A. Two aspects of labour costing:
1. Recording liability and distributing labour costs: In this labour cost will recorded as
business liability. It allows flexibility to manage the allocation of payroll expenses
among different departments. It also can be assigned to special project and determine
profit. It gives the idea where the department is lacking due to labour control
measures and decide which department is giving result.
2. Payment of labour: During payment of labour direct labour A/c is debited and cash
A/c is credited.
B. Overtime premium treatment:
Overtime premiums is considered as direct labor costs, if it is at the specific request of
a client because they want a job to be finished in lesser time the process usually takes
(Hart & Ma, 2010). Because where overtime is worked on some specific requirement
to meet urgent target for which customer paid extra money as well. Then complete
labor cost is charged as direct labor cost.

Managerial accounting for cost and control
Overtime premium as overhead cost: Overtime is calculated at overtime rate for
employees working extra hours. For example if a worker is working 49 hours a week
@7 per hour and for some particular week he works for 56 hours then company pays
@ 14 per hour for extra hour worked. The allocation of cost will be:
Direct labor: (56x7) 396
Manufacturing O/H: (7x7) 49
Total cost: 445
Question 5:
Journal entries
Material Account
Date Particulars Debit Credit Balance Dr./Cr.
30-Jun Balance 20000 20000
15-Jun purchases 90000 110000
20-Jun Issued to production 50000 60000
22-Jun indirect material cons. 30000 30000
01-Jun Balance Dr.30000
Question 6
Introduction
The “Activity Based Costing Analysis” is an analytical method of inventory control
which target at centralising efforts on items which require attention. The purpose of using
ABC analysis is to generate policy framework for selective control (Hadi-Vencheh, 2010).
The following framework is established to distribute items under different categories:
A- Stricter control over items which require attention by store and purchase
management. Items under category A are of huge consumption value, requires
control, frequently ordered and for which weekly statements are prepared.

Managerial accounting for cost and control
B- The B classs is for medium use items. It shows 35% of total stock, which account
for yearly 15-20% of overall material consumption. It requires moderate control,
lesser safety stock, control on obsolete items and surplus items.
C- Items uses easier system designed to cause lesser problem to purchase and stores
department (Teunter, Babai & Syntetos, 2010). It requires lowest consumption
value and accounts for approximately 50% of inventory.
Arguments for ABC analysis:
 It guarantees authority over the expensive things in which a lot of capital is
contributed.
 It helps in creating logical technique for controlling inventories. Administrative
expenses are extensively diminished and stock is kept up at ideal level.
 Asset allocation with ABC examination is a consistent procedure requiring
intermittent following of class A things. Since these things are of most extreme
esteem, the stock level should dependably line up with the client request.
 The organization should select items which are of huge value to customers and have
highest interest. In preview of that knowledge Company can reconstruct the cost of
those important items by considerable amount. Result of this will increase the profit
of company by considerable amount.
Arguments against ABC analysis:
 It is not powerful if the material is not arranged into the groups appropriately.
 It is not possible for an organization where the expenses of materials don't
differentiate with considerable amount.
 The analysis depends on money related estimation of the things being used. Other
critical elements one disregarded.

Managerial accounting for cost and control
 As B and C items are not of much value, in ABC analysis makes companies to pay
very less attention to lower value inventory and risk of loss arises.
 As no attention is paid on C group items and if stock ended then production process
may halt due to undersupply of lower value items.
Conclusion:
Under this framework, the materials supplied might be ordered into various classes as
indicated by their significance. It is built on the concept that a tiny number of things in stores
critically take the huge money value of the total materials used in production process. While
generally substantial huge number of things may show a less amount of the cash estimation
of inventory stores utilized. It is vital system of inventory control. It helps organization to
takes inventory issues seriously and invest time to manage inventory with effective measures.
Recommendations:
ABC analysis requires more resources than traditional inventory management and it does not
meet the requirement as per GAAP. So companies with large capital and stock are unable to
use. Thus it’s available for use by small companies.

Managerial accounting for cost and control
References:
Fisher, J. G., & Krumwiede, K. (2012). Product costing systems: Finding the right
approach. Journal of Corporate Accounting & Finance, 23(3), 43-51.
Garrison, R. H., Noreen, E. W., Brewer, P. C., & McGowan, A. (2010). Managerial
accounting. Issues in Accounting Education, 25(4), 792-793.
Granlund, M. (2011). Extending AIS research to management accounting and control issues:
A research note. International Journal of Accounting Information Systems, 12(1), 3-
19.
Hadi-Vencheh, A. (2010). An improvement to multiple criteria ABC inventory
classification. European Journal of Operational Research, 201(3), 962-965.
Hart, R. A., & Ma, Y. (2010). Wage–hours contracts, overtime working and premium
pay. Labour Economics, 17(1), 170-179.
Teunter, R. H., Babai, M. Z., & Syntetos, A. A. (2010). ABC classification: service levels
and inventory costs. Production and Operations Management, 19(3), 343-352.
Wyatt, A., & Frick, H. (2010). Accounting for issnvestments in human capital: A
review. Australian Accounting Review, 20(3), 199-220.
Yu, M. C. (2011). Multi-criteria ABC analysis using artificial-intelligence-based
classification techniques. Expert Systems with Applications, 38(4), 3416-3421.