Management Accounting - Cost Classification

Managerial accounting provides essential data about the functions within the business. The reports that are provided by the managerial accountants focus on the performance of the business and the business environment. Managerial accounting is manager oriented and managerial accounting focus on the accounting duties of a manager. Managerial accounting is used on a day to day operation providing an analysis of cost and the cost benefits. Managerial accounting function as a source for the business developments and the capital budgeting. The primary concern with managerial accounting is to provide positive outcomes in the business production and the profit.

Incremental cost is the cost associated with increasing production by one unit, in this case sending Tashtego on a round trip. It represents the added costs that would not exist if the round trip was not made.

Management accounting is for commercial finance, analyzing past performance and projecting future results aiding in the commercial decision-making. This department defines and measures key targets needed to achieve for McDonald’s business strategy to be successful (McDonald’s Corporation, 2008).

 Managerial accounting is defined as the activities carried out in a firm to provide its managers and other employees with financial and related information to help them make strategic, organizational, and operational decisions.

Preparing different income statements captures information in diverse ways to facilitate decision making on internal matters. The management needs to understand cost behavior in order to control the costs. Besides the production costs, changing sales patterns affects profitability and there is a need to achieve better sales accuracy after understanding cost behavior. Variable costing also captures information about the impact of changing operation on profitability and the management is better placed to make pricing decisions to maximize

Even though financial management "is a broader concept than accounting", the idea of financial management is more than just accounting for where money is spent, it is based on the analyzation of organization's economic

A variable cost is a corporate expense that varies with production output. Variable costs are those costs that vary depending on a company's production volume; they rise as production increases and fall as production decreases (Variable Cost, n.d.); in the case study for all cost per event such

Feedback: Management accounting is the preparation and use of accounting information systems to achieve the organization's objectives by supporting decision makers inside the enterprise. LO 4

3. Managerial Accounting deals with procuring of data for the organisation's management i.e. to serve the internal users with necessary accounting information to carry out the management tasks of planning, organising, actualising and controlling. " Management Accounting is the presentation of accounting Information in such a way as to assist management in creation of policy and in the day to day operations of an undertaking". 4. Financial Management deals with the process adopted by an organisation for taking financial decisions through analysing and interpretation of financial data for meeting the organisations objectives.

Company α wants to construct a cost volume relation between its factory overhead cost and number of units produced. Use the high-low method to analyze its factory overhead (FOH) costs and build a cost volume formula. The volume and the corresponding total cost information of the factory for past eight months are given below:

In general, cost means the amount of expenditure (actual or notional) incurred on, or attributable to a given thing.

According to Will S, Ray H, & Eric E.N. (2009), management accounting is a branch of accounting that is concerned with providing information to managers who direct and control the firm’s operations. Management directing function seeks to effectively use both the human and raw material wealth of a firm to achieve organizational set objectives on routine basis. Controlling function is the art of tele-guarding the activities of the organization to consistently fall in line with set objectives. Management accounting achieves this function through effective budgeting.

According to the Chartered Institute of Management Accountants (CIMA), Management Accounting is "the process of identification, measurement, accumulation, analysis, preparation, interpretation and communication of information used by management to plan, evaluate and control within an entity and to assure appropriate use of and accountability for its resources. Management accounting also comprises the preparation of financial reports for non management groups such as shareholders, cr->ors, regulatory agencies and tax authorities" (CIMA Official Terminology)

But it is impossible to sustain competitiveness without an more accurate cost calculation mechanism. (Ozbayrak, Akgun and Turker, 2004) As an alternative method to take the place of traditional cost accounting methods, ABC assigns costs to several activities with multiple cost drivers. (Copper and Kaplan, 1988) The costs of each product are based on each product’s use of these activities. Using multiple activities as cost drivers instead of single one, it can effectively reduce the risk of distortion and provides more accurate cost information. (Kim, Park and Kaiser, 1997)

During the 1980s the limitations of traditional product costing systems began to be widely publicised. These systems were designed decades ago when most companies manufactured a narrow range of products, and direct labour and materials were the dominant factory costs. Overhead costs were relatively small, and the distortions arising from inappropriate overhead allocations were not significant. Information processing costs were high, and it was therefore difficult to justify more sophisticated overhead allocation methods.