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Cost Accounting And Managerial Accounting

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Question:

Discuss about the Cost Accounting and Managerial Accounting.
 
 

Answer:

Introduction

In this report, the discussion is focused on the subject area of cost accounting. During the report, mainly the answers of four different questions are given. The first question discusses about the use of managerial accounting information in strategic decision-making. The second and third questions focus on the different types of cost allocation and preparation of budget. In the fourth question, different approaches of performance evaluation and control are discussed.

Critical evaluation of the use of managerial accounting information for the strategic decision-making

Managerial accounting information is very much useful in the strategic decision-making in different types of organization. The managerial accounting information provides the knowledge regarding the cost structure of the organization (Collier 2015). This information helps the higher authority to understand whether the organization is operating cost effectively or it has exceeded the budget. On the other side, in case of private or public limited companies, the management of the organization can take the decision regarding the business diversification or merger and acquisition (Butler and Ghosh 2015). At the same time, in case of partnership or private and public limited companies, the managerial accounting information helps in taking the pricing decision and future marketing strategies.

Selection and application of different types of cost allocation

There are different types of cost allocation systems and those are – absorption costing allocation system, variable costing allocation system and activity-based cost allocation system. Absorption costing allocation is such a technique of cost allocation in which the costs are allocated internally by using the financial accounting techniques (Fanelli et al. 2015). In this type of cost allocation technique, the costs allocation is not disclosed publically. Variable cost allocation system is more or less similar to the absorption cost allocation system. However, main difference between these two allocation systems is that in case of variable cost allocation system, the fixed manufacturing costs are not allocated (Kaplan and Atkinson 2015). On the other side, the activity based cost allocation system, allocates the costs based on each activity takes place during the business operations.

Role of absorption cost allocation system

Role of variable cost allocation system

Role of activity based cost allocation system

The absorption cost allocation system helps the management in taking the internal overall costing strategies.

The variable cost allocation system helps the management in identifying the variable costs in the organization and taking the strategies for controlling such costs.

Activity based cost allocation system helps in identifying the costs of each activity separately. With the help of this, the management can identify in which area the company is incurring more costs and can taken necessary strategy for controlling the costs.

Design and preparation of budgets and feedback analysis

Budget can be of different types like, cash budget, sales budget, production budget and many more. However, the design and preparation style of different budget are different (Strumickas and Valanciene 2015). Here, the design and preparation of cash budget are shown below:

There is a company namely ABC Ltd, which needs to prepare cash budget for first three months of 2017. The cash budget is shown below:

Particulars

January 2017

(in $)

February 2017

(in $)

March 2017

(in $)

Opening cash balance

1000

3000

5900

Cash received:

 

 

 

Cash received from sales

7000

8000

10000

Total cash received

8000

11000

15900

Cash payments:

 

 

 

Payment of wages and salaries

(2000)

(2000)

(2000)

Tax payment

 

 

(700)

Payment of miscellaneous expenses

(3000)

(3100)

(3700)

Total cash payments

(5000)

(5100)

(6400)

Closing cash balance

3000

5900

9500

In the above table it can be seen that in the third month, the cash payment of the company increased due to the payment of tax and increase in the miscellaneous expenses. However, the closing balances are expected to be increased. From the above table, the management can take the decision of controlling the cash payment in the third month. This will help the company to increase the closing cash balance more at the end of third month.

 

Discussion on various approaches of performance evaluation and control

There are various approaches of performance evaluation and control those are applied in different types of business organizations. In case of private and public limited companies, presently, the approach of balance scorecard is used (Jerraya and Bacivarov 2016). In this approach, the management of the companies evaluates and controls the performance on the basis of four perspectives and those are – customers, financial, internal business and learning and growth perspectives.

In case of the partnership and sole proprietary businesses, the performance evaluation and control are generally done by checklists method (Brosig et al. 2015). This is one of the simplest methods of performance evaluation and control. Under this method, few questions are asked to the employees and if most of the answers become negative, then the organization arranges for training sessions.

There are few indicators of performance and those are as under:

Quantitative indicators – turnaround times, annual sales, yearly expenditure, number of journal entries and many more

Directional indicators - This is a technique, in which the performance is indicated by comparing the current year’s sales with the last year’s sales

Conclusion

During this report, it has been identified that managerial accounting information is very much useful in decision-making purposes. It has also identified that there are different techniques of cost allocations and approaches of performance evaluation and control those are applied by the different types of business organizations.

Evaluation of the regression models

In the evaluation of the two regression models that are net-up costs and number of set-ups and set-up costs and Number of set-ups hours, it can be identified that the in case of second regression model, the slope is higher than the first one. In case of first one, the coefficient of X variable is 0.001103 and on the other side, in case of the second variable, the coefficient of X variable is 0.015168. This indicates that the number of set-ups hours has more influence on the set-ups costs than the number of set-ups. Therefore, the organization that is Dilbert Toys must use the second regression model in case of decision making.

 

Reference List

Brosig, F., Meier, P., Becker, S., Koziolek, A., Koziolek, H. and Kounev, S., 2015. Quantitative evaluation of model-driven performance analysis and simulation of component-based architectures. Software Engineering, IEEE Transactions on, 41(2), pp.157-175.

Butler, S.A. and Ghosh, D., 2015. Individual differences in managerial accounting judgments and decision making. The British Accounting Review,47(1), pp.33-45.

Collier, P.M., 2015. Accounting for managers: Interpreting accounting information for decision making. John Wiley & Sons.

Fanelli, A., Leniowski, D., Monaco, G. and Sankowski, P., 2015. The ring design game with fair cost allocation. Theoretical Computer Science, 562, pp.90-100.

Jerraya, A. and Bacivarov, I., 2016. Performance Evaluation Methods for Multiprocessor System-on-Chip Designs. Electronic Design Automation for IC System Design, Verification, and Testing, p.85.

Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.

Strumickas, M. and Valanciene, L., 2015. Research of management accounting changes in Lithuanian business organizations. Engineering Economics, 63(4).

OR

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