MANAGEMENT ACCOUNTING

Management Costing



Management Costing

Overview of the Management Accounting

In this competitive environment financial and managerial analysis is a strategically significant area in terms of effective decision making for any company. The company has been employing various managerial techniques and methods in order to achieve quality in the production of goods. Management accounting has gained high significance over the years in the light of the present global competitive and business environment. The costing and budgeting methods have also changed over the years from conventional forms to more pragmatic and activity-based. The focus of this paper would be on comprehension of the merits of the modern approaches to management accounting and how this makes the decision making process within an organization more effective.

Overview of the Company

London Trophies is a manufacturing company that has various ranges of products for their customers. The manufacturing operations of London Trophies have become more automated over the passage of time. Presently, the company is employing traditional costing methods and they are considering adopting the modern approaches to management accounting that have developed recently.

Appraisal of the Company's Current Approach to Costing and Budgeting

London Trophies is currently employing the traditional methods of management accounting. The traditional or conventional methods include absorption and managerial costing systems.

The Traditional Costing System

Traditional costing systems involves attribution of the indirect costs to particular products, keeping the base of an overhead absorption rate that is attributed to certain cost drivers such as machine hours or, in case of labour-intensive company, direct labour hours. This method is known as having volume-based measures. Traditional system deals with the single volume based cost drivers. As company is using this method usually have higher cost associated with the products. This should be noted that costing method for many companies has been failed since they are unable to meet management expectation with respect to information and reducing const for a product. According to researchers, managers are provided incorrect information for determining the unit cost of the product, or no relevant information abounds, fails to report on the costs that really matter to management. Systems costs, not the obsolete overnight, gradually outlive their usefulness when adapting to change (Garg, Ghosh, Hudick, Nowacki, 2003, p. 2).

It is important to remember that the product diversity is susceptible to inaccuracy. The increasing diversity that is, high volume mixed with low volume, or when the intensity of labour is mixed with permission - is more likely to be biased costs. In these cases, to achieve the same level of accuracy, companies will have to spend more on measurements when the products were more homogeneous (Vechalekar, n.d, p. n.d). If they do not, their cost systems will become obsolete.

Cost of Trophies

Plant wide costing system has been applied to prepare monthly budgets for London Trophies .

Sales Budget

Analysis of the budgeted information shows that the company has a potential capacity to sell total units of 72, 000 including 48, 000 units of DS and 24, 000 units of TS. However, the sales distribution will vary across the ...