Cost In The Management Of Accounting Samples †MyAssignmenthelp.com

Question: Discuss about the Cost In The Management Of Accounting. Answer: Introduction: The report is prepared to discuss several cost associated with the management accounting. Behavior and nature of each managementaccounting cost is incorporated in the report. Moreover, the relevance of each cost in the decision making process of business is evaluated.Cost in the management of accounting can be classified into different categories for different purposes. Several bases are used for classifying cost that involves classification by time, by elements, by changes in activity, according to ease of traceability, according to timing of charge against revenue and according to relevance of decision-making (Osadchy Akhmetshin, 2015). Classification of costs helps in making decisions relating to costing and pricing of products. Several cost of management accounting: In accordance to changes in volume and activity: Fixed cost- Fixed cost is a cost that is remains constant irrespective of level of activities. Any fluctuations in level of activities do not influence the cost that is incurred for a period within turnover limits and certain level of output. Fixed cost does not arise with the production rather they arise with passage of time. Variable cost- Variable cost is cost that is incurred corresponding to level of output. Such cost varies proportionately and directly with the level of output produced. Direct labor and direct material are the cost that varies directly with level of output produced. In according ease of traceability: Direct and indirect cost- Direct costs are cost that can be easily traceable to costing unit, product, some particular activity and cost center. Due to the reason that such cost can be easily traceable, direct cost is also known as traceable cost. The cost of wood that is involved in making furniture is direct cost. On other hand, indirect costs are costs that cannot be easily traceable to a single product. Indirect costs are also known as common costs such as factory manager salary. With respect to particular department or division, cost can be treated as direct and indirect. Allocation of direct cost is done to a cost center or costing unit and that of indirect cost to different product (Chenhall Moers, 2015). According to association with product: Product cost- Product costs are the cost that are involved in inventory value and are traceable to product. Such costs in a manufacturing concern comprise of direct labor, direct materials and manufacturing overheads. Valuation of inventories is done using production costs that are regarded as full factory cost (Dekker, 2016). Period cost- The basis of incurring periodic costs is done on time such as salaries and rent. Such costs incorporate administrative and selling costs that are essential for running the business. According to relevance of decision-making: Opportunity cost- Opportunity cost is the cost of losing some opportunities and cost of selecting any particular course of action. Such amount can be received when utilization of assets is done as next best alternative. Differential cost- Differential cost that is computed as the difference between total costs alternatives. Any increase and decrease in differential cost is attributable to change in production and distribution cost, selection of additional channel of sales, addition and rejection of product and distribution and production cost (Collier, 2015). Sunk cost- Sunk cost is unavoidable cost that has already been incurred by business. Due to this, it is also known as unavoidable cost. Such cost is computed as the difference between salvage value and assets purchase price. Relevance of various costs in decision-making process of organization: All the costs involved in the management accounting help internal management of organization in their decision-making. Allocation of overhead costs helps in providing information for making decision. The cost of products that is direct and indirect cost along with several overhead costs forms the setting price. Incurring of fixed costs such as setting up of machineries leads to resource consumption and charging of products will provide incentives to managers for utilizing resources efficiently. Cost allocation of different departments enables management to increase knowledge about activities of production that will help in reducing cost and improving production process (Hopper Bui, 2016). A better view of cost associated with each activity helps in improving efficiency of the production. Moreover, analysis of variable costs helps in determination of specific product line profitability. Such costs help in analyzing the potentiality of profit and forecasting future for understanding t he business growth potential. Information of unit cost of products helps in determination of production planning, selling price and formulation of methods of cost control (Fullerton et al., 2014). Company for ensuring that certain costs associated with products are directly tied to product costs implements indirect cost ratio target. Product cost helps in measurement of valuation of inventory. Information that are provided by differential cost analysis enables firms to make decision about which product to abandon and which products to produce (Lopez et al., 2015). Firms or organization will to make profit estimation by analyzing the costs related to several production activities. It also helps in taking decision by considering ways for helping companys growth and evaluating its performance. Integration of opportunity cost by managers in economic analysis management problems and enable them to make identification of cost that can be avoided and thereby helps in reducing overall costs (Dick, 2015). In addition to this, cost analysis also helps in shaping the salary policy and product planification. Conclusion: Management accounting is all about cost computation and objective of all organization is to maximize their profits and minimize various costs incurred in the process of production. The impact of overall outcome is determined by fluctuations in activity levels by studying variations relating to all expenses. Costs in the management accounting are classified using several categories attributable to product. From the analysis of various costs in the management accounting, it can be inferred that classification of costs on different basis provides management with useful information regarding the decision making process. The type of costs that is incurred impacts managerial decision-making and determination of such costs helps in optimizing production level as it influences profit and pricing level along with product costs. References: Chenhall, R. H., Moers, F. (2015). The role of innovation in the evolution of management accounting and its integration into management control.Accounting, Organizations and Society,47, 1-13. Collier, P. M. (2015).Accounting for managers: Interpreting accounting information for decision making. John Wiley Sons. Dekker, H. C. (2016). On the boundaries between intrafirm and interfirm management accounting research.Management Accounting Research,31, 86-99. Dick, J. (2015). P1 Management Accounting-Relevant Costs.Financial Management, 28. Fullerton, R. R., Kennedy, F. A., Widener, S. K. (2014). Lean manufacturing and firm performance: The incremental contribution of lean management accounting practices.Journal of Operations Management,32(7-8), 414-428. Hopper, T., Bui, B. (2016). Has management accounting research been critical?.Management Accounting Research,31, 10-30. Lopez-Valeiras, E., Gomez-Conde, J., Naranjo-Gil, D. (2015). Sustainable innovation, management accounting and control systems, and international performance.Sustainability,7(3), 3479-3492. Osadchy, E. A., Akhmetshin, E. M. (2015). Accounting and control of indirect costs of organization as a condition of optimizing its financial and economic activities.International Business Management,9(7), 1705-1709.