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ACC203 Management Accounting Assignment
This report will provide the understanding of various costs which is involved in the business. The mainly cost which will be discussed in the report are prime cost, manufacturing cost, conversion cost and product cost and period cost. The aim of the report is to provide the understanding of the cost in an effective manner. The report will also provide behaviour of the cost with use example. Moreover, the report will also give an understanding of the role of management and financial accountant. The formulation and answering of the questions which can be asked by the manager will also be stated and discussed in the report.
Question 1: Differences between management accouniting and financial accounting.
1.1Prepare a briefing document for the HR manager which explains the differences between these two roles.
This document will help you in knowing the difference between the management accountant and financial account as well as their roles, responsibilities, and duties are also covered in this document.
The management accountants prepares the reports for the internal management through which the managers can take the decision or makes the business plans for their company whereas the financial accountant prepares the financial reports for the external stakeholders of the company, it is used by the stakeholders to see the overall financial position of the company as they are the ones who helps the company to run its business(Zimmerman, et. al., 2011).
The management accountant records the financial as well as nonfinancial information of the company like number of workers, raw material quantity, number of units sold etc., because it helps the managers or the internal management of the company to take various decisions or for evaluation whereas the financial accountant keeps the records of only financial information of the company Like the Income statement, Profit and Loss Statement, Balance Sheet, etc which is used by the external parties as well as by the internal management also because the financial information plays a very important role in the success of any company.
The management accountant prepares the report for the internal management which is kept very confidential, as it consists of various figures that have to be kept between the management secretly (Garrison, et. al., 2010). Financial accountant prepares the reports that are for general public hence it is not a confidential matter.
The management accountant does not follow the prescribed format as they prepare the report according to the requirement of management because the management requires details of various information to take decisions for the success of the business whereas the financial accountant prepares each and every report as per the prescribed format as his work is to provide the exact business figures to the stakeholders associated with the business (Drury, 2013).
The management accountant prepares the report to improve the functioning of the business, helps in making a decision as well as to evaluate the business performances whereas the financial accountant provides the information about the functioning of the company’s business.
The management accountant prepares the reports as per the needs and requirement of the company's management to say for monthly, quarterly, half yearly, yearly whereas the financial accountant prepares the reports for a specified defined period to say on a yearly basis (Uyar, et. al., 2011).
The management accountant is the voluntary choice of the company as it is based on the requirement of the management there is no hard and fast rule to maintain the management accounting whereas the financial accountant is required as well as necessary for a company for the auditing purposes as it is necessary for every company to perform its business as per the law (Garrison, et. al., 2010).
The management accountant mainly works on the future aspects of the company as their reports help the management in building the planning and budgets whereas the financial accounts focus more on the past activities of the company to record that transaction in his report (Baldvinsdottir, et. al., 2010).
The management accountant is handy in giving the rough estimates of the required details; it can be lengthy as it requires the estimation on the spot, precision is not the worry for them whereas the financial accountant prepares the precise report after the happening of that event.
The management accountant works for the management to overcome the crisis or to build the future of the business by his analytical skills whereas the financial accountant works for the shareholders by showing them the exact position of the company and helps the company to get more investment (Baldvinsdottir, et. al., 2010).
1.2Formulate (and answer) the five likely questions that you anticipate the HR manager will ask you about these two positions when you meet.
The 5 most likely questions that can be asked by the HR at the times of taking interview for the position of management accountant are:-
Q1 Tell me about you?
Management Accountant – Previously I worked as a management accountant with XYZ Financers. My responsibilities were to prepare the reports like budget report, job cost reports, inventory reports, etc. I am management graduate from ABC College.
Financial Accountant -Previously I worked as a financial accountant with Tom Consultants. I was handling the responsibilities to prepare the financial reports like income statement, profit and loss statement, balance sheet, etc. I had completed my Chartered Financial Analyst program from the CFA, USA.
Q2 what are your strengths?
Management Accountant- As a management accountant, I can handle any situation and gives the appropriate suggestions to the management to overcome with any problems of the business (Zimmerman, et. al., 2011).
Financial Accountant- CFA program gave me immense of learning and prepared me to deal with any type of finance related query, I helped the earlier organisation by providing them various alternatives to generate finance for the business.
Q3 how do you handle stressful situations in the workplace?
Management Accountant-Stress is not a new challenge for me as I handled a lot of stress at my earlier organization. I don't let the stress to become heavy on my mind, so I just go on a short walk to makeover and focus on my job(Uyar, et. al., 2011).
Financial Accountant-The task of a financial accountant is to prepare the reports as well as to work on the financial matters of the company, so it has to be done as per the exact given time. Obviously its gives immense stress to a normal human but as it’s my dream job I don’t feel like stressed(Baldvinsdottir, et. al., 2010).
Q4. What do you do on the weekends?
Management Accountant-I like to watch movies and series in my free time. Generally, on weekends, I go for movies or for a long ride with my friends.
Financial Accountant-My weekends are mostly full of literature as I love to read the biographies. I am great fan of Mr. Robin Sharma, “The monk who sold his Ferrari” fame author. His books are really inspirational for me; it gives me new strength to live my life better(Uyar, et. al., 2011).
Q 5. Any other further study plans?
Management Accountant –No, for the upcoming years I just have to focus on my work. Just have to give my best services to my employees with my full dedication.
Financial Accountant-Yes, I would like to go for FRM (Financial Risk Manager) program in the upcoming years. I really like to add on something or the other in my portfolio.
Question 2: Product cost classification: manufacturer
1). Prime Cost- The term prime cost refers to the cost which is direct costs incur in manufacturing a product (Zengin, et. al., 2010). The prime cost consists of the direct material and direct labour. This cost is calculated to know the profit margin of the business whether they are turning profit or not.
Prime Cost= Raw Material+ Direct Labour
=1,050,000 + 242,500+ 47,500
2). Total manufacturing overhead costs = Total manufacturing overhead costs are those costs which are associated with the manufacturing activity of a product explicit of direct materials and direct labours (Novák, et. al., 2014). It is also called as a factory burden. This cost cannot be charged directly to a product. Manufacturing overhead cost helps the manufacturing process to run the process smoothly.
Total manufacturing overhead costs= 15,000+27,500+57,500+70,000
3). Total conversion costs = Conversion costs are those costs which are required to covert the raw material into finished products (Zengin, et. al., 2010).. It includes all direct and indirect costs related to production. It is made up two main components i.e. direct labour cost and total manufacturing overhead cost. It can also be calculated by direct material cost from the total manufacturing cost.
Total conversion costs = Direct Labour Cost + Manufacturing Overhead Costs
4). Total product costs = Product cost or the production cost are those cost which is important in manufacturing the goods. Product cost includes the cost of direct material, direct labour and manufacturing overheads (Zengin, et. al., 2010). It helps the manufacturing business to ascertain the price of its products and helps in deciding the budgets.
Total product costs = Direct Labour Cost + Direct Material Cost + Total Manufacturing Overheads Costs
= 1,050,000 + 290,000 + 460,000
5). Total period costs = Total period cost are those costs which are not related to the production process, they can’t be capitalized. The period costs are related to the passage of time. This cost is not included in the cost of goods sold while preparing the cost sheet of the manufacturing business (Curtis, et. al, 2012).
Total period costs = 75,000 + 2,500 + 5,000 + 49,500
Question 3: Cost behaviour; engineered cost; committed and discretionary costs: manufacturer
1. Indicate whether it is fixed or variable.
Cost of daily radio advertising on the local community radio station.
Cost of the fabric used to make the T-shirts.
Cost of the ink used in the designs.
Salary of the managing director.
Wages of the production employees who sew and print the T-shirts.
Cost of movie tickets provided for the Employee of the Month award each month.
Depreciation of the sewing machines, calculated on units of production basis.
Cost of electricity used in the factory building.
Rent of the building.
Wages of the staff who package the T-shirts.
Cost of sewing machine maintenance.
Cost of the new advertising sign at the front of the factory.
Cost of the company car used by the managing director.
2.if the cost is variable, indicate whether it is an engineered cost. Explain why.
Engineered costis those cost which is directly linked to the output of the business. These cost is directly associated with the change in the output(Young, et. al., 2010). Engineering cost can also be considered as all the manufacturing cost to be incurred in making the t-shirts. It also determines the cause and effect relationship between the input and output of the business. Examples- Inputs can be direct labor cost and raw material. Output can be production of footwear’s, cell phones and textiles.
If we look at the above table, the cost of fabric used in making t-shirts is directly linked to the output. If Happy Daze T-shirts increases its output of producing more t-shirts then Company will require incurring cost on more fabric. In the same case, ink used in printing designs on t-shirts is also engineering cost as it is will change with change in the output. More the production of fabric more ink will be required by the Happy Daze.
The last variable cost is cost of Company car used by the managing director. This cost cannot be engineering cost as it will not be
3. If the cost is fixed, indicate whether it is committed or discretionary. Explain why.
Discretionary costis those cost which can be ignored for the short term. The cost to be incurred is at the discretion of the management (Curtis, et. al., 2012). These costs are the result of the management decision. It is not linked to the output of the business.These cost can be advertising, employees training cost and maintain relations with the media. These do not get affected by the change in the output level. Research and development are the discretionary cost.
Committed cost isthe cost which is the obligations and duty which has been already made by the business. This cost is the long term cost and investment made by the business on the equipment and other assets. Business can also have commitment to increasing salary of the administrative staff by 5% as per the agreement.
As per the table discussed here is provided the bifurcation of the cost:-
1. Fixed cost is daily advertisement on community radio station. This will fall under the discretionary cost.HappyDaze is not bound to advertise daily and it is at discretion of the management(Novák, et. al, 2014).
2. Salary of managing director and .wages of production employees is the committed cost as the HappyDaze is committed to paying salary to manager each year and wages to employees who sew shirts.
3. Award of movie ticket at each month is the voluntary decision of the HappyDaze. Company can change its reward system.
4. Depreciation is the mandatory calculation as per the standards provided in the law, so it is a committed cost for HappyDaze(Zengin, et. al., 2010).
5. Cost of electricity used in the factory and rent of the building is the daily requirement for the manufacturing activity of the HappyDaze. It is a committed cost for the business.
6. Wages of the staff is committed to cost and Company will have to pay the wages of the staff(Novák, et. al., 2014).
7. Cost of sewing machine maintenance is the discretionary cost for HappyDaze and Company can also delay if the sufficient fund is not available for some period.
8. Cost of new advertisement sign at front of the factory is the discretionary cost of the HappyDaze as the business is not required to spend if the financial position is poor.
There are different cost took placed in the manufacturing business. On the basis of behaviour, the cost can be divided into fixed and variable. Furthermore the cost can also be bifurcated on the basis of engineering cost, discretionary and committed cost. The report has provided the role of management accountant and financial accountant in the business. Further, the report has also provided the difference between two of them. The question asked by the human resource manager and their answer is also provided in the report.