ACC/ACF2200: Management Accounting Report on RealFood Analysis

This report, focusing on RealFood, addresses the company's challenges in accurate pricing and cost management as it expands. The report explores cost classification, the importance of production costs, and fixation of selling prices. It examines demand-based pricing, cost-plus pricing, and activity-based costing (ABC) as effective costing techniques. The relevancy of ABC is highlighted, emphasizing its role in identifying profitable products, improving cost control, and enhancing decision-making, which can lead to increased revenue and profitability. The report concludes that the chosen costing methods, especially the introduction of ABC, are crucial for RealFood's financial health and future growth. This report provides a detailed analysis of RealFood's financial strategies and provides insights into how the company can optimize its financial performance.

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ACC/ACF2200 Introduction to Management Accounting

RealFood
Executive Summary
In this report, the major emphasis is on RealFood that started on a small scale however
expanded to a huge scale with the due passage of time. The major point of discussion lies in
the fact that the company is unable to know the accurate prices and hence, is facing troubles.
The report sheds light on the new costing techniques that can deliver a strong business and
helps the business to flourish.
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RealFood
Contents
Introduction...........................................................................................................................................3
1. Cost classification..........................................................................................................................3
2. Costing techniques........................................................................................................................4
3. Relevancy of chosen method.........................................................................................................5
Conclusion.............................................................................................................................................6
References.............................................................................................................................................7
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RealFood
Introduction
With the due passage of time, RealFood has assumed a strong status in the market. Despite all
competition, it crafted a niche for itself in the market. As it is getting huge orders and the
products are being sold in health food outlets around the country like About lIfe, Coles, etc it
is the need of the hour that the company should flourish itself in the system of cost
management. As there are various product range like granola bars, museli bars,
chocolate/yogurt it is important that the company should have a proper system of the cost that
will enable the classification of costs.
1. Cost classification
The importance of cost classification is of vital importance to the company at large and
considering the case of RealFood, it is more important owing to the products that are being
dealt.
Production cost
One of the major steps in the classification of the cost is the classification of the production
costs. It is used to ascertain the gross revenue, raw materials needed by the company,
wholesale product and direct labour that is directly linked to the cost of production. Capturing
such values helps in the classification of the cost and will help the CEO in understanding how
much is the costing that the company requires to manufacture a product (Kim, 2008). As seen
in the case of RealFood it is difficult to ascertain the exact cost and the pricing is done as per
the experience that might not be completely accurate hence, a special emphasis on the cost of
the product will lead to better result.
Proper cost classification, when managed by the accounting system of the company, helps the
manager to know the need of data that makes up the cost of production is contrary to the
material cost for the repair of the production line. Hence, classification of cost helps will help
RealFood in understanding the ascertaining the classification of data (Lanen, Anderson &
Maher, 2008). When such value is captured it helps in knowing the cost needed to
manufacture a product.
Fixation of the selling price
It needs to be noted by RealFood that the profit can be enhanced by following either of the
two methods that is the reduction and control over the costs or by enhancing the value of
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RealFood
sales through the increment in the sales volume or price. Therefore, fixation of selling price is
vital for the management of RealFood. The divide of costs into fixed, as well as variable
elements, helps the management to undertake the best selling price policy, however, the
selling price should not be below the variable cost (Petty et. al, 2012).
2. Costing techniques
Going by the nature of operations of RealFood, it can be stated that demand-based pricing
and competition based pricing can be used. When it comes to demand-based pricing it can be
said to be a pricing mechanism where the product prices are finalized as per the demand. If
the demand for the product is high then the organization prefers to set higher prices so that
the gain can be more (Horngren, 2011). However, if the demand is less, lower prices can be
set to drive the customers. In the case of RealFood, there are many products that are related to
health and the presence of demand-based pricing will help in setting the prices as per the
demand.
The second method that can be used is the cost plus pricing. It is already noted that the
manager by experience ascertains the cost of the product. This is done by assessing the
ingredients that are being used. Hence, in order to determine the cost, the method of cost-plus
pricing can be used in an effective manner. When the price is ascertained, a fixed percentage
that is the markup percentage is even added to the total cost. This helps in deriving at the
price that will help in yielding profits too (Lanen, Anderson & Maher, 2008). For example, if
RealFood is selling a product at $5 then another $1 can be added to know the final price of
the product that sums the total amount at $6. This is effective for RealFood in the sense that
the company is a food retailing company that sells health-related snacks and food. In this
scenario, it needs to be noted that order pertains to different needs. Hence, in the advent of
the changing requirement, this method will suffice the best result. Further, the utilization of
this method can be effective in case of big order where the
Cost-plus pricing is also known as average cost pricing. This is the most commonly used
method in manufacturing organizations (Broad & Crowther, 2001).
Activity-based costing is an important tool when it comes to the ascertainment of costs. It
enables the organization to gain sharp insight into the products and knows that are profitable
and those not. The life cycle of a product can be known with ease and trace the areas where
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RealFood
improvement is needed. Hence, this is highly effective for RealFood as the price can be
known with ease (Marsh, 2009).
3. Relevancy of chosen method
Activity-based costing can be defined as cost price computation and hence the allocation of
drivers are done to the cost that is incurred. In this scenario, it is assumed that there is a
strong link between the products and the costs that accompany. ABC spots the link between
the business activities and the resources required to manage by assignment of the cost to
every resource hence projecting the overall expense of the activity. When it comes to real
food there are many situations that need to be revealed and with the help of the ABC method,
such offerings can be done with ease (Broad & Crowther, 2001). when a value is added to
the product, this method is framed in a manner that leads to the more informed decision and
projects the pricing mix, investments and change in the overall organization. ABC can,
therefore, be commented as a tool that helps in identification and grasp of the cost control
followed by an enhancement in the productivity, as well as profits (Needles & Powers, 2013).
The introduction of ABC will help RealFood to lessen the total 3% to 5%. When the focus
shifts to higher margin and growth products, it is more likely to bring a 5% to 10% increment
in the overall revenue.
Hence, an overall analysis of the ABC method gives a vivid description that the method of
ABC is highly effective for RealFood as it is directed towards the benefit of the organization
as a whole. ABC can, therefore, be said to be an important tool that helps in knowing the
various situation that a product undergoes before the completion and the cost that is involved
in it (Parrino, Kidwell & Bates, 2012). Hence, the management of RealFood can take the
recourse of this method ass it will help in knowing the cost with ease and better pricing
decision can be taken in this regard. The overall production cost or the cost of a unit can be
known through it and hence, it is highly effective (Larry & Christopher, 2012).
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RealFood
Conclusion
The overall analysis and report sheds light on the fact that strategies of the company reflect
their potency. The introduction of ABC is an important tool in the hands of the management
that will help the business to flourish. It is helpful when it comes to classification of cost. In
all probability, the chosen method will deliver the best result to RealFood.
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RealFood
References
Broad, M., & Crowther, D. (2001). Activity based costing in universities - an inappropriate
technique? Journal of Applied Accounting Research, 6(2), 55-89. Available from:
https://search.proquest.com/docview/1031187247?accountid=30552
Horngren, C. (2011). Cost accounting. Frenchs Forest, N.S.W.: Pearson Australia.
Kim, L.S. (2008). Activity based costing in universities - An inappropriate technique?.
Accounting, Auditing & Accountability Journal. 21(2), 204-
228.DOI:10.1108/09513570810854400
Lanen, W. N., Anderson, S & Maher, M. W. (2008). Fundamentals of cost accounting. NY:
Hang Loose press.
Larry M. W & Christopher J. S. (2012). Managerial and Cost Accounting. Pearson Press
Marsh, C. (2009). Mastering financial management. Harlow: Financial Times Prentice Hall.
Needles, B.E. & Powers, M. (2013). Principles of Financial Accounting. Financial
Accounting Series: Cengage Learning.
Parrino, R, Kidwell, D. and Bates, T. (2012). Fundamentals of corporate finance. Hoboken,
NJ: Wiley
Petty, J. W, Titman, S., Keown, A. J., Martin, J. D., Burrow, M. and Nguyen, H. (2012).
Financial Management: Principles and Applications, 6th ed. Australia: Pearson
Education Australia.
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