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ACCTING 2500 Cost And Management Accounting

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ACCTING 2500 Cost And Management Accounting

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Course Code: ACCTING 2500
University: The University Of Adelaide

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Country: Australia

Questions:

Question 1: An overview of management accounting1a. Describe and explain the differences between management accounting and financial accounting.1b. Describe and explain the major functions of management accounting and give examples.1c. Using your textbook and other relevant references, explain how concepts such as panopticism, control, and discipline may be relevant to management accounting, give examples.
Question 2: Manufacturing Statement and Income Statement.

Answers:

Introduction:
The current report would focus on the different aspects of management accounting in terms of its functions, comparison with financial accounting and the various concepts associated with management accounting. The second section of the paper would provide a detailed computation of the schedule of cost of goods manufactured and the income statement in the context of Lake Limited. The third segment would deal with job order costing by computing the overhead rate and passing necessary journal entries based on the provided information for the Port Furniture Company. The next part would lay stress on service department cost allocation in the context of Inns Battery Company. Finally, the report would shed light on activity based costing calculation based on the provided information for Come-On-In Company.
Question 1: An overview of management accounting
Requirement a:
Certain key differences are deemed to be observed between financial accounting and management accounting, which are enumerated briefly as follows:

Basis of comparison

Financial accounting

Management accounting

Aggregation

The reports of financial accounting generally contain the overall results of an organisation.

Management accounting, on the other hand, provides reports at a more detailed level in terms of profits by products and product lines, geographic areas and customers (Armitage, Webb & Glynn, 2016).

Efficiency

The focus of financial accounting is to report on the profitability and efficiency of a business organisation.

Management accounting tends to concentrate on providing reports by finding out the problems and the techniques to fix them.

Proven information

In case of financial accounting, it is necessary to keep records with adequate precision required to prove the accuracy of the financial statements (Cooper, Ezzamel & Qu, 2017).

In case of management accounting, priority is provided to estimates, instead of established and verifiable facts.

Reporting focus

The orientation of financial accounting is towards the preparation of financial statements to be circulated both within and outside the organisation.

The concern of management accounting is on the operational reports to be circulated inside the organisation only and not for external use.

Standards

It is necessary for financial accounting to adhere to a variety of accounting standards.

For management accounting, no standards are needed, since information is piled up for internal use only (Van Der Stede, 2016).

Systems

No attention is paid to the entire system of an organisation for generating profit; instead, focus is on outcome only.

Management accounting is willing to locate the bottleneck operations and the different techniques of increasing profits by resolving such issues.

Timing

According to financial accounting, it is crucial to issue financial statements at the end of the accounting period.

There is frequent issuance of management accounting reports, as these reports provide relevant information to the business managers.

Time horizon

Financial accounting emphasises on the financial outcomes, which an organisation has already accomplished; thus, it implies historic orientation.

Conversely, management accounting is involved in addressing forecasts and budgets and thus, it has future orientation (Dekker, 2016).

Valuation

Financial accounting considers the accurate valuation of assets and liabilities. Therefore, it is associated with revaluation, impairment and others.

No concern is provided to the values of such items, focus is kept only on their productivity.

Requirement b:
With the help of management accounting, it is possible to undertake significant decisions so that the business activities of an organisation could be controlled effectively. Management accounting has three basic functions, which constitute of the following:
Compliance:
Complies signifies the requirement to meet the external regulations and reporting needs. Hence, the accountants need to recognise revenues and expenses effectively along with valuing assets and liabilities. The management accountants are engaged in developing and functioning cost accounting systems for valuing inventories by assigning costs to products (Langfield-Smith et al., 2017).
Control:
Control denotes the entire procedure of planning and control. The management accountants assist in planning function by formulating budgets so that the operation plans could be summarised along with reviewing the system design and operations.
Competitive support:
Competitive support implies delivering financial services to the management of an organisation so that it could increase its competiveness in the market (Lavia López & Hiebl, 2014). These financial services increase the firm value by helping the line and process managers to undertake decisions for engaging the management accountants in the decision making process directly. For instance, decision could be taken during mergers and acquisitions, make or buy decisions and shut down decisions.
Requirement c:
Panopticism, control and discipline theory is highly relevant to management accounting. The French philosopher, Michael Foucaut, has propounded this theory. Since, in the current era, majority of human beings are working in organisations, they are a significant element in fulfilling the organisational goals (McLean, McGovern & Davie, 2015). Hence, the organisation is required to control the behaviours and management of these employees. According to this theory, it is possible to handle, control and increase the productivity of the staffs working in the organisation. The following three steps would mainly assist in accomplishing this objective:
Development of a circular workforce:
In order to implement this theory appropriately, a circular workforce needs to be formed for ensuring effective discipline and controlling within the timeframe.
Separate workers:
It is necessary to separate work in all business organisation. In the absence of work separation it is not possible to fulfil the organisational goals (Messner, 2016).
Making visible actions:
It is necessary to undertake actions in accomplishing the organisational goals. Hence, this mandates the need for proper visible actions in order to ensure suitable controlling and discipline within the business organisations.
Question 2: Manufacturing statement and income statement
The two reasons behind the preference of the manager regarding the selection of cost allocation rates could be cited as follows:

The departmental inefficiencies offering the services have no impact on the costs assigned to the user department, as the budgeted rates would be used for the costs of the user department (Otley, 2016).
The users have knowledge about cost information in advance and accordingly, it could be used for undertaking operating decisions.

Based on the above table, it could be stated that the deluxe door is not profitable, which was estimated in the previous cost system by using the original data. This is because the deluxe door requires a disproportioned share related to the overhead activities (Van Der Stede, 2015). Therefore, majority of the overhead costs are allocated to the deluxe door under activity based system.
Conclusion:
From the above discussion, it is evident that management accounting tends to concentrate on providing reports by finding out the problems and the techniques to fix them. The different aspects of management accounting techniques have been discussed in this paper, which include job costing, cost allocation in service department, manufacturing statement and income statement along with activity based costing. It has been found that the overhead rates play a significant role in the ascertainment of costs for various kinds of products.
References:
Armitage, H. M., Webb, A., & Glynn, J. (2016). The use of management accounting techniques by small and medium?sized enterprises: a field study of Canadian and Australian practice. Accounting Perspectives, 15(1), 31-69.
Cooper, D. J., Ezzamel, M., & Qu, S. Q. (2017). Popularizing a management accounting idea: The case of the balanced scorecard. Contemporary Accounting Research, 34(2), 991-1025.
Dekker, H. C. (2016). On the boundaries between intrafirm and interfirm management accounting research. Management Accounting Research, 31, 86-99.
Langfield-Smith, K., Smith, D., Andon, P., Hilton, R., & Thorne, H. (2017). Management accounting: Information for creating and managing value. McGraw-Hill Education Australia.
Lavia López, O., & Hiebl, M. R. (2014). Management accounting in small and medium-sized enterprises: current knowledge and avenues for further research. Journal of Management Accounting Research, 27(1), 81-119.
McLean, T., McGovern, T., & Davie, S. (2015). Management accounting, engineering and the management of company growth: Clarke Chapman, 1864–1914. The British Accounting Review, 47(2), 177-190.
Messner, M. (2016). Does industry matter? How industry context shapes management accounting practice. Management Accounting Research, 31, 103-111.
Otley, D. (2016). The contingency theory of management accounting and control: 1980–2014. Management accounting research, 31, 45-62.
Van Der Stede, W. A. (2015). Management accounting: Where from, where now, where to?. Journal of Management Accounting Research, 27(1), 171-176.
Van Der Stede, W. A. (2016). Management accounting in context: Industry, regulation and informatics. Management Accounting Research, 31, 100-102.

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