Management accounting involves producing accounting information in order to help management to plan, monitor, control and take decisions concerning the company. It is important for the management accounting information given to the management team to be relevant and provided in a timely manner.
By the end of this UK-university module, you will have a complete understanding of management accounting. Specifically, this module explores the behaviour of the four main types of costs, namely: Variable Cost, Fixed Cost, Stepped-Fixed Cost and Semi-Variable Cost. You will learn that a variable cost moves in direct proportion with the number of units produced. Whereas, fixed costs are not influenced by the number of units produced and are incurred even if production amounts to zero units. Stepped-fixed costs behave in a similar manner to the fixed cost except that at certain levels of output, the cost increases and becomes stable again. The semi-variable cost is an expenditure that includes a variable and a fixed element.
You will also gain an understanding of Absorption Costing, its benefits and limitations. In essence, this is a costing system where the full cost per unit is determined. This full cost includes direct costs and indirect costs. Direct costs are costs that can be attributed to a particular product, such as direct materials and direct labour. Whereas, indirect costs are costs that cannot be attributed to a particular product. Thereafter, the module explores the concept of Activity Based Costing (ABC), its associated benefits and weaknesses.
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You will gain an understanding of Target Costing, its benefits and limitations; margin costing and breakeven analysis. Target Costing is a costing system where the target cost is derived by looking at the product selling price charged in the market and the desired profit. In marginal costing, fixed production costs are considered as period costs and are not included in the cost per unit rate used to value inventories of finished goods. The break-even point is the point where the revenue generated by the company is equal to the costs incurred. In marginal costing this is the point where the contribution is equal to the fixed costs.
Capital projects require substantial investments and have a long-term influence on a company. Therefore, it is imperative for the management team to select the right projects for the company. Consequently, this module explores a range of capital budgeting techniques that managers can use. The module examines the benefits and limitations of Accounting Rate of Return (ARR), Payback Period (PP), Discounted Payback, Net Present Value (NPV), Profitability Index (PI) and Internal Rate of Return (IRR).
Lastly, the module covers the use of budgets, its benefits as well as its limitations. In essence, budgets serve two purposes which are to help management plan and control their finances. In addition to this, a range of budgeting systems are explored, including: Top Down Budgeting, Bottom Up Budgeting, Incremental Budgeting, Zero-Based Budgeting (ZBB), Rolling Budgets and Activity-Based Budgeting.
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