MANAGEMENT ACCOUNTING

Management Accounting

Table of Contents

Part 1: Caustic Soda Solutions3

Introduction3

Cost Implications4

Relevant Costs and Non Relevant Costs4

Part 2: Application of Management Accounting Techniques6

Caterpillar6

Overview6

Business Model7

Product Portfolio7

Management Accounting Techniques7

Activity Based Costing7

Budgeting8

Cash Flow9

Conclusion9

Management Accounting

Part 1: Caustic Soda Solutions

Introduction

The study is related to the Caustic Soda Solutions which sells various products for which the company need cautious container packaging. The manufacturing process of the containers uses the material that is the putron. In addition to this, the Caustic Soda Solutions operates a department which makes the containers and also repair damaged containers. For this purpose, the management of the company feels that it will be cheaper to obtain supplies of containers from outside the company. Therefore, for this purpose, a company named Storm Containers has quoted. For this purpose, the Caustic Soda Solutions is considering the below mentioned scenarios;

Scenario 1

1

2

3

4

£

£

£

£

Materials

100000

100000

100000

100000

Labor

175000

175000

175000

175000

Departmental Overheads

Manager's Salary

40000

40000

40000

40000

Rent Contribution

7500

7500

7500

7500

Depreciation of Machinery

10000

10000

10000

10000

Maintenance of machinery

87500

87500

87500

87500

Other Expenses

31500

31500

31500

31500

Total Departmental Overheads

176500

176500

176500

176500

451500

451500

451500

451500

Apportioned general administrative overhead

33750

33750

33750

33750

Total Cost of Department for Year

485250

485250

485250

485250

Scenario 2

1

2

3

4

£

£

£

£

Materials

100000

100000

100000

100000

Labor

35000

35000

35000

35000

Departmental Overheads

Manager's Salary

30000

30000

30000

30000

Rent Contribution

7500

7500

7500

7500

Depreciation of Machinery

10000

10000

10000

10000

Maintenance of machinery

6050

6050

6050

6050

Other Expenses

13000

13000

13000

13000

Total Departmental Overheads

66550

66550

66550

66550

201550

201550

201550

201550

Apportioned general administrative overhead

33750

33750

33750

33750

Total Cost of Department for Year

235300

235300

235300

235300

Cost Implications

The cost implications for the Caustic Soda Solutions in the above given scenarios include the need of repair or the maintenance in the machinery. The maintenance of machinery can be required by the company at any stage as any problem with the machine may take place in the future. Therefore, there are possible chances of the change or increase in the cost of Caustic Soda Solutions which will serve as the cause of cost implication.

In addition to this, another possible cause for the cost implication is that how long the present stock of putron will last. This will make its impact on the demand that is the demand will increase which will increase the cost of putron. Thus, the cost implications for the Caustic Soda Solutions will increase.

Relevant Costs and Non Relevant Costs

In the spread analysis, the principle of relevant costs is that only those costs into the decision-making are included, from the decisions will be influenced. All decisions issued by a given production system go out, that short-term nature are, let the fixed costs unaffected. Thus, fixed costs for short-term decisions are not relevant. In the short term, the only variable costs are altered. For the scenarios given, the “Apportioned general administrative overhead” is the non relevant cost.

In addition to this, in the given scenarios of Caustic Soda Solutions, salary of the manager, rent contribution, depreciation of the machinery, the maintenance of machinery and the other expenses are the relevant cost of the caustic soda solutions. It is different from decisions based on long run to be made that is the more expectant planning period decreases the proportion of fixed to total costs. In the long term, there are no fixed costs, on the long run all costs determined disposition, disposition determination of the cost that include the program optimization, process selection, in-house production or the external procurement.

For the Caustic Soda Solutions, the total costs of a planning period are numerous cost determinants ...